Net profit attributale to shareholders may grow21.31% YoY, missing guidance

Oriental Times Media Corporation preannounced its2016e earnings: revenue +48.07% YoY to Rmb599mn; netprofit attributable to shareholders +21.31% YoY toRmb64.7392mn.

Trends to watch

Growth in culture & media businesses good. In 2016,Oriental Times total operating revenue may grow 48.07% YoY toRmb598.6566mn. Its operating profit may grow 38.14% YoY toRmb863.8435mn and net profit attributable to shareholders mayrise 21.31% YoY to Rmb64.7392mn. Consolidation of ShuimuAnimation’s financial statements began in July 2015, and itsfinancial statements were consolidated over January~June 2016.

The culture & media businesses maintained good growth, drivingup earnings growth at Oriental Times.

Net profit may be lower than previous guidance on adelay in film shooting. In 3Q16, the company estimated thatits 2016 net profit attributable to shareholders would grow106.12%~181.08% YoY to Rmb110mn~150mn. Thepreannounced 2016e earnings were below guidance, mainlybecause shooting a film project was delayed. Thus, paymentscould not be collected as planned. As a precaution, the companydid not recognize the revenue and profit from the project in2016; the ~Rmb40mn gains may be recognized in 2017.

Valuation and recommendation

Cut 2016 earnings forecast 48.7% to Rmb65mn; raise2017e by 15.1% to Rmb231mn; introduce 2018e atRmb315mn. After accounting for the Jiabo Culture, HuahuaMedia and Yuanchun Media acquisitions, the company’s2016/17/18e pro forma net profit may reachRmb325mn/563mn/647mn; EPS may reach Rmb0.32/0.56/0.64.

Given comparable company’ valuations, we assign 35x 2017epro forma EPS and cut our TP by 17.94% to Rmb19.45,implying 24% upside potential; maintain BUY.

Risks

Progress in M&A disappoints; failure to deliver earningspromises.