CHINA：ENTERTAINMENT：TVSTATIONSRELYONDRAMASFORADREVENUE;BUYHUACEHUALUBAINA1112.ppt

,KEY RISKS,November 9,2012China:EntertainmentEquity ResearchTV stations rely on dramas for ad revenue;Buy Huace,Hualu BainaTV dramas remain satellite stations primetime breadwinners,Major satellite channels have completed taking advertising bids for 2013.,COVERAGE SUMMARY,Anhui Satellite TV took in ad bids of Rmb700mn for primetime TV dramas,delivering 74%yoy growth and a 159%premium over its minimum bid.,Ticker Company Name Rating300291.SZ Hualu Baina Buy*,CurrentPrice54.4,12-m TP65.9,Potentialupside21.1%,Zhejiang Satellite TV took in bids of Rmb387mn for primetime TV dramas.,300133.SZ Huace,Buy,17.18,19.6,14.1%,These two stations broadcast 730 TV episodes annually on average duringprimetime hours,with revenue per episode of Rmb700-900k.We believe TVdramas will continue to be TV stations key avenue to attract advertisementsduring primetime hours.We believe TV stations ad revenue per episode willremain strong in 2013,thus enabling them to pay higher prices for TVdramas,especially the high-quality ones.We expect TV stations to increasetheir purchasing of TV dramas,leaving potential room for drama prices tofurther increase,which may enhance the profitability of drama producers.Shows of Hualu Baina,Huace set for primetime broadcasts in 2013We believe major satellite channels will continue to rely on top TV dramas towin viewership,with SARFT policies effectively limiting the number ofentertainment programs aired during primetime hours,which could raise TVstations demand for dramas.We believe Jiangsu and Hunan TVs willprimarily broadcast exclusive shows in 2013,while the remaining fourleading stations plan to alternate exclusive content with syndicated shows.Inour view,intense competition between satellite stations will raise prices fortop shows,thus driving market share consolidation.We see Hualu Baina andHuace,both strong leading drama producers(in terms of productioncapability,market reputation),as best positioned to ride on this trend as theyenjoy a high lockup rate with top satellite stations for TV dramas in 2013.We reiterate Hualu Baina at CL-Buy,Huace at BuyWe see strong demand for top-quality TV dramas in 2013,and believerecovering industry sentiment and stable downstream procurement demandwill drive robust earnings for leading drama producers,with a gradualincrease in episode production and steadily rising selling prices.We reiterateCL-Buy on Hualu Baina as we expect its episode production to rise 19%annually from 2012-2015,with prices for newly launched TV drama episodesincreasing 9%over the same period.We believe growth may have bottomedin 3Q12 and expect it to recover in the coming quarters.We also maintainBuy on Huace as it has a strong TV drama pipeline and expect 35%EPSgrowth in 2013E.Our earnings estimates and target prices are unchanged.,Source:Wind,Gao Hua Securities Research estimates.Note:*denotes this stock is on our regional Conviction List.Reporting currency is Rmb.Prices as of November 8,2012.RELATED RESEARCHChina:Entertainment:Online copyright prices bounce back;Buy Huace,Hualu Baina,September 12,2012.China:Entertainment:Transforming China:Robust demand,rising prices for TV drama;3 Buy calls,May 8,2012.Zhejiang Huace Film&TV:Field trip takeaways:highproduction target and rich pipeline in 12,August 1,2012.Lower-than-expected level of TV series ASP.,Xufa Liao,CFA+86(21)2401-8902 Beijing Gao Hua Securities Company LimitedZhijing Liu+86(21)2401-8943 Beijing Gao Hua Securities Company LimitedZhujing Fang+86(21)2401-8949 Beijing Gao Hua Securities Company LimitedThe Goldman Sachs Group,Inc.,Goldman Sachs does and seeks to do business withcompanies covered in its research reports.As a result,investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of this report.Investorsshould consider this report as only a single factor in makingtheir investment decision.For Reg AC certification and otherimportant disclosures,see the Disclosure Appendix,or go Analysts employed by non-US affiliates are not registered/qualified as research analystswith FINRA in the U.S.Global Investment Research,2,November 9,2012,China:Entertainment,TV drama is key to attract ads for satellite stations in 2013The major satellite channels have completed taking advertising bids for 2013.AnhuiSatellite TV,which mostly broadcasts TV dramas,took in bids of Rmb766mn(Rmb700mnfor its primetime slot of two TV drama episodes).The figure represents 74%yoy growthand a premium of 159%over its minimum bid.Zhejiang Satellite TV,which focuses onentertainment shows,took in advertising bids of Rmb1.67bn(Rmb387mn for its primetimeslot of two TV drama episodes).Zhejiangs premium over its minimum bid was 163%.Thetwo stations each broadcast an average of 730 TV episodes annually during prime times,orrevenue per episode of Rmb700-900k.As Anhui and Zhejiang generally procure TV drama content jointly with other TV stations(amaximum of 4 stations allowed according to SARFTs policy),we estimate that a singleepisode may generate Rmb3-4mn of ad revenue in 2013.Currently,this Rmb3-4mn perepisode represents the highest selling price for premier domestic shows.Hunan and Jiangsu Satellite TVs have yet to release the bidding results on their advertisingslots.In 2012,Hunan Satellite TV won advertising bids of Rmb1.4bn for its primetime TVdrama slots,ad revenue of Rmb1.6mn per episode.Also in 2012,Jiangsu Satellite TV wonadvertising bids of Rmb400mn for its primetime slots of syndicated TV drama content,revenue of Rmb550k per episode.As Hunan and Jiangsu Satellite TVs have both indicatedthat they may focus on broadcasting exclusive content in 2013,we estimate they willgenerate Rmb1.5-2.0bn ad biddings for their primetime TV drama slots next year.In our view,TV dramas will continue to be premier satellite stations key resource toattract advertisers during primetime hours.We expect top satellite stations adrevenue per episode to remain strong in 2013,and we believe they can afford to payhigher procurement costs for TV dramas,especially top-quality ones to winviewership.We expect first-tier satellite TV stations to spend more on procurement,which will give TV producers ample room to raise prices and thus improveprofitability of leading TV drama producers,in our view.,Exhibit 1:Advertising bids for Anhui and ZhejiangSatellite TV stations primetime TV drama in 2013,Exhibit 2:Big Four satellite stations primetime TV showsadvertising bids in 2011,2012Rmb mn,Base bidding price(Rmb mn),Settled bidding(Rmb mn),Premium,Channel,2011,2012,YoY,Anhui TV primetime TV dramaTitle sponsorshipSpot adsTotal ads for primetime TV,91.2181.6272.8,310.6395.3705.9,241%118%159%,Hunan TVZhejiang TVAnhui TV,950260250,1400548405,47%111%62%,Zhejiang TV primetime TV dramaTitle sponsorshipSpot adsTotal ads for primetime TV,76.071.2147.2,115.0272.3387.3,51%282%163%,Jiangsu TV,190,397,109%,Source:Media360,Gao Hua Securities Research.Goldman Sachs Global Investment Research,Source:Media360,Gao Hua Securities Research.,3,November 9,2012,China:Entertainment,HLBN&Huace:Well-positioned to secure channels primetime slotsWe believe major satellite channels will continue to rely on top TV dramas to winviewership,with SARFT policies(implemented in January this year)effectively limiting thenumber of entertainment programs aired during primetime hours.This could in turn raisethe demand for TV dramas,in our view.Based on their indications,we believe Jiangsu andHunan Satellite TVs will primarily broadcast exclusive shows in 2013,while the remainingfour leading stations plan to alternate exclusive content with syndicated shows.Fiercecompetition between satellite stations will raise the price for top shows,thus drivingmarket share consolidation,in our view.We cover four firms with both TV show production and distribution businesses.We seeHualu Baina(HLBN)and Huace,both strong leading drama producers,best positioned toride on this trend(i.e.leading TV stations to pay more to procure top quality TV dramas for2013 primetime slots to win viewship and attract advertisers)as they have a high lockuprate with top satellite stations for TV dramas in 2013.Hualu Baina(300291.SZ):The firm will have 8-10 shows in distribution next year.Thosewith preliminary broadcast schedules include”Then I Faced Reality”(Dragon TV andHunan Satellite TV,February 2013),“Thunder of War”(Zhejiang,Beijing,Anhui andShenzhen Satellite TVs,June 2013),and“Troubled Times in Sanyi”(Anhui,Tianjin andHenan Satellite TVs,April 2013).Two additional shows,namely“Lets Get Married”and“Beauty Contract,”have also been included in satellite stations preliminary primetimeplans.Huace(300133.SZ):The firm will have 8-10 shows in distribution next year.Those withpreliminary broadcast schedules include“Miss Kim Makes 1 Million II”(Hunan Satellite TV,March 2013).“A Carat of Dream,”“Happy Noodles,”and“Three Brothers”are alsotentatively scheduled for broadcast on satellite TV.Huayi Brothers(300027.SZ):The firm has 10-15 shows that will enter distribution nextyear.These shows include“Tangshan Earthquake,”for which Huayi is in negotiations withmultiple major satellite stations(and already has agreements for a 2013 primetimebroadcast with some stations).Enlight Media(300251.SZ):Enlight is primarily reaping returns through its investment inH&R Century Pictures,a leading TV show production house.At the firms investmentconference in October 2012,senior management forecasts that about 10 TV dramas willenter distribution in 2013.At present,relative certainties include“Beauties of theEmperor,”which will broadcast on Zhejiang Satellite TV during primetime hours nextsummer,and“Girls Winning,”which will broadcast in July 2013 on Hunan Satellite TV.There are three additional shows that major satellite stations will broadcast during primetimes.Goldman Sachs Global Investment Research,30,30,30,46,60,24,40,40,40,35,60,50,40,45,76,76,46,40,34,30,40,26,30,38,35,50,62,35,60,30,35,30,30,50,40,40,40,60,30,24,35,50,35,TV,30,4,November 9,2012Exhibit 3:Tentative broadcast plans for listed firms TV shows,2013,China:Entertainment,Investor/Producer,Main Broadcasting Platform,Expected Broadcast date,Episodes,Thunder of WarLets Get Married,Hualu BainaHualu Baina,Zhejiang,Beijing,Anhui and Shenzhen TVBeijing,Hunan TV,6/15/2013 to 6/30/2013To be determined,Beauty ContractThen I Faced RealityCrazy StewTroubled Times in SanyiA Carat of DreamHappy NoodlesNew Demi-Gods and Semi-DevilsMiss Kim Makes 1 Million 2Three BrothersTangshan EarthquakeBeauties of the EmperorThe Patriot Yue FeiCity of SnowGirls WinningSummer,Hualu BainaHualu BainaHualu BainaHualu BainaHuaceHuaceHuaceHuaceHuace,Huayi BrothersHuayi BrothersH&R Century(Enlight Media)H&R Century(Enlight Media)H&R Century(Enlight Media)H&R Century(Enlight Media)H&R Century(Enlight Media),Beijing TVDragon,Hunan TVBeijing TVAnhui TV,Tianjin TV and Henan TVZhejiang TVZhejiang TVHunan TVHunan TVZhejiang,Tianjin,Heilongjiang,Guangxiand Shandong TVTo be determinedShenzhen,Shaanxi and Zhejiang TVAnhui,Zhejiang,Shandong and Tianjin TVAnhui,Jiangsu,Shenzhen,Zhejiang andTianjin TVHunan TVJiangsu TV,To be determinedTo be determinedTo be determined4/20/2013 to 5/12/2013To be determinedTo be determinedTo be determined3/28/2013 to 4/24/2013To be determinedTo be determinedSummerTo be determinedTo be determined7/28/2013 to 8/13 2013To be determined,To be determinedTo be determinedTo be determined,Source:Acfun.tv,Company data,Gao Hua Securities Research.,Exhibit 4:Zhejiang TVs primetime drama pipeline(2013E),Exhibit 5:Beijing TVs primetime drama pipeline(2013E),Main broadcasting platform,Episodes,Expected broadcastdate,Related listedfirm,Main broadcasting platform,Episodes,Expected broadcastdate,Related listedfirm,Zhejiang Satellite TV,Beijing TV(BTV),Legend of Chu and Han,Anhui,Zhejiang,Jiangxi,Tianjin and Beijing Satellite TV,12/28/2012 to 2/3/2013,Legend of Han and Chu,Anhui,Zhejiang,Jiangxi,Tianjinand Beijing TV(BTV),12/28/2012 to 2/3/2013,The Phoenix and the Peony Zhejiang TV,Hunan Satellite TV,Early 2013,InlawsPuberty hit Menopause 2,Beijing TV(BTV)Beijing,Dragon TV,2/14/2013 to 3/6/20133/7/2013 to 3/26/2013,Agent XAn Army of Father and SonThunder of War,Zhejiang,Anhui and YunanSatellite TVZhejiang,Beijing and TianjinSatellite TVZhejiang,Beijing TV(BTV),3/26/2013 to 4/14/20135/31/2013 to 6/14/20136/15/2013 to 6/30/2013,Hualu Baina,Moms Getting Married Beijing,Dragon TVNew Stories from the EditorialBeijing,Dragon TVBoardThe Grand Mansion Gate 1912 Beijing,Anhui Satellite TV,3/27/2013 to 4/20/20134/21/2013 to 5/10/20135/11/2013 to 5/30/2013,Warrior Lane KingRomance of the Sui andTang DynastyBeauties of the EmperorThe Patriot Yue Fei,Zhejiang,Dragon TVHebei,Shandong,Anhui andZhejiang Satellite TVShenzhen,Shaanxi andZhejiang Satellite TVAnhui,Zhejiang Satellite TV,Shandong and Tianjin Satellite,Summer 2013Summer 2013Summer 2013To be determined,Enlight MediaEnlight Media,Army of Father and SonThunder of WarCare for Our EldersThe Beating StickParents Love,Zhejiang,Beijing TV(BTV)andTianjin Satellite TVZhejiang,Beijing,Anhui andShenzhen TVBeijing TV(BTV)Beijing,Anhui Satellite TVBeijing TV(BTV),5/31/2013 to 6/14/20136/15/2013 to 6/30/2013To be determinedTo be determinedTo be determined,Hualu Baina,Spare No Enemies,TVZhejiang Satellite TV,To be determined,Gunslinger 2:Life and Death,Beijing TV(BTV),To be determined,Trouble Times ThreeBrothers,Zhejiang Satellite TV,Tianjin,Heilongjiang,Guangxi andShandong Satellite TV,To be determined,Huayi Brothers,Huace,The Righteous are InvincibleThe Story TellerFamily Meal,Beijing TV(BTV)Beijing TV(BTV)Beijing TV(BTV),32 To be determined35 To be determinedTo be determined To be determined,The Diamonds DreamHappy Noodle,Zhejiang Satellite TVZhejiang Satellite TV,To be determinedTo be determined,HuaceHuace,Lets Get MarriedLike Fireworks and Butterflies,Beijing,Hunan Satellite TVBeijing,Dragon TV,To be determinedTo be determined,Hualu Baina,Anhui,Jiangsu,Shenzhen,Snow in the City,Zhejiang and Tianjin Satellite,To be determined,Enlight Media,A Scholar in Troubled Times,Beijing TV(BTV),To be determined,Beauty Contract,Beijing TV(BTV),To be determined To be determined,Hualu Baina,Chamber of Gold and Jade Zhejiang Satellite TV,To be determined To be determined,Crazy Stew,Beijing TV(BTV),To be determined To be determined,Hualu Baina,Lone Wolf,Beijing TV(BTV),To be determined,Source:Acfun.tv,Company data,Gao Hua Securities Research.Goldman Sachs Global Investment Research,Source:Acfun.tv,Company data,Gao Hua Securities Research.,30,40,50,40,40,50,46,35,30,60,36,86,50,36,40,60,35,50,48,40,40,36,40,45,41,40,35,50,45,36,37,30,30,20,52,50,30,40,35,40,24,5,November 9,2012Exhibit 6:Dragon TVs primetime drama pipeline(2013E),China:EntertainmentExhibit 7:Anhui TVs primetime drama pipeline(2013E),Dragon TVThe Romance of the Sui andTang Dynasties,Main broadcasting platformDragon TV,Hebei,Shandong,Anhui and Zhejiang Satellite TV,Episodes62,Expected broadcastdate1/14/2013 to 2/5/2013,Related listedfirm,Anhui TVL