We are positive on the new management
　 The Chairman and a few members of senior management hosted an analystbriefing this morning. The new management seemed confident in turningaround the business in 2017. Management targets an earnings CAGR of atleast 15% in the next three years. Retain Buy.
　　Stock incentives to kick in starting this year
China Travel issued c. 170m share options at HKD2.3/sh in 2016. Managementsaid that three key indicators must be met for middle-senior management tobe eligible to exercise the options:
　　Bottom-line growth of more than 15% yoy
ROE above 6.5%
　　The share price should outperform a few indexes （e.g. Hang Seng Index orHang Seng China Index）。
　　We understand from the Chairman that a total of 230 senior employeescovering all China Travel HK subsidiaries （Ocean Spring Resort, World of theWindow, Splendid China, etc） are in the option pool for incentives.
　　Loss-making assetsSet for either disposal or turnaround
Management has confirmed that it will turn around certain loss-making assetsin 2017, such as Zhuhai Ocean Spring Resort. Assets that management believeare unlikely to be turned around, such as the Xianyang Ocean Spring Resort,will be disposed of. We note that the two OSR recorded a combined loss ofHKD66m in 2016. Should they have reached breakeven, this would haveboosted core tourism profit of HKD413m by 16%.
　　DB’s view: we are positive; trading at 0.8x P/B, 6.4x EV/EBITDA （2017E）
We believe the stock has bottomed-out. With all the negatives factored intothe share price, its current valuation stands at 0.8x P/B （one standard deviationbelow its historical P/B） and 6.4x EV/EBITDA, much lower than peers such asChina Lodging （10.2x EV/EBITDA） and Jinjiang Hotel （7.8x EV/EBITDA）。 Our TPis based on SOTP with a 10% group discount, on 1） travel agency business at10x PER, 2） tourist attractions at 20x PER, 3） hotels at 15x PER, 4）transportation at 10x PER, and 5） real-estate projects based on NAV （40%discount）。 Risks: 1） acquisition risk; 2） failure or delay of disposal of non-coreassets; and 3） uncertainty over the performance of new projects.