Investment recommendations We upgraded the rating of China Travel in Hong Kong from neutral to recommended, and raised the target price from HK$2.64 to HK$3.88. The reasons are as follows: New CEO, new strategy: Since the new CEO took office in 2016, the company has proposed a number of new business goals, including ROE targets, core profit growth, and management incentive plans. We think these incentives will help executives better drive the company's future development. The potential value of the real estate assets held by the company in Hong Kong is expected to be reflected. We estimate the potential value of the real estate assets held by the company to be close to HK$15 billion. The company may dispose of a commercial building located in Mongkok. We expect the company to pay a special cash dividend after the sale of real estate assets. We expect the company's core profit to increase, mainly due to the recovery of the Hong Kong and Macau hotel business from a low base, the accelerated growth rate of domestic tourism projects, the development of new real estate projects in the tourist areas of Zhuhai and Anji, and the implementation of cost control measures. What is our biggest difference from the market? We believe that incentives for management will contribute to an increase in the rate of profit growth. Potential catalyst: The company announced the sale of assets. The profit forecast and valuation increased core profit expectations for 2017 and 2018 by 46.6% and 57.6%, respectively, to HK$764 million and HK$907 million, taking into account the company's new strategy and development. Based on the segmented aggregate valuation method, the target price was raised by 47% to HK$3.88. The reform process for risky state-owned enterprises has been slower than expected.