What happened

On March 1, Oriental Times announced that it had signed agreements with Huarong Emerging Industries Investment &Management Co., Ltd. to enter into strategic cooperation and jointly establish a cultural tourism industry fund.

Comments

Cooperation with Huarong Emerging in multiple sectors. With Rmb1bn registered capital, HuarongEmerging was jointly set up by China Huarong （51% stake） and Beijing State-owned Assets Management, BeijingShunyi Technology Innovation, Sunbase Changjiang and Maiquer. Focused on capital management, investmentfunds and capital markets, Huarong Emerging will help coordinate financial institutions and related departmentsand provide financial support for Oriental Times. The cooperation will concentrate on film & TV media, culturaltourism and health care.

Cultural tourism industry fund to drive the company's culture & tourism business. In addition to thestrategic cooperation agreement, the two parties also signed an agreement to set up a cultural tourism industryfund of Rmb10bn （Phase One/Two/Three: Rmb1bn/Rmb3bn/Rmb6bn）。 The fund will provide financial solutions forcultural tourism projects and help build cultural tourism industry clusters and an industrial ecosystem by leveragingOriental Times' advantages in IP resources and cultural tourism innovation and cooperating with local governmentswith excellent natural and cultural tourism resources.

The cooperation with Huarong Emerging will strengthen Oriental Times' integrated business growth, especially itscultural tourism theme park segment. The funding support should help monetize the company's IP resources andboost its earnings upside. We maintain our 2016——18e pro forma EPS of Rmb0.32/Rmb0.56/Rmb0.64, implying51.6x/29.1x/25.8x P/E. Reiterate BUY given its large earnings upside in 1Q17 and potential to benefit from thestrong increase in imported films as well as the promising cultural tourism sector.

Risks

M&A progress, cultural tourism projects and earnings disappoint.