中国联通(00762) 　　What's new 　　China Unicom has recently launched some initiatives ofcooperating with internet firms like BAT. So far CU hasannounced agreements with Baidu & Alibaba in mobile internet,conventional telecom business, and cloud. CU has also released aTencent-customized product to attract loyal Tencent users,allowing customers to use Tencent mobile applications withouttallying data traffic, for a monthly tariff of Rmb19. 　　Comments 　　Differentiated competitive strategies. As telco competitionhas intensified, CU has noticeable price war advantages. Weexpect collaboration with internet firms to yield more favorablecustomized products and leverage current cooperator userbases, facilitating a move from retail data traffic to wholesale andenhancing user engagement with distinct services. 　　Marketing costs to decline under new strategies. Previousmarketing directly faced terminal users, and was marked by hugeexpenditure and poor feedback. New marketing patterns aim atinternet firms who spur the traffic, and will significantly help CUdecrease related costs. We expect to see healthier and moresustainable data traffic growth for CU with lower operating costs. 　　Market has priced in short-run financial risks. We trimmedour earnings forecast and reminded investors of short-runfinancial risks in our last report. The current stock price has fullyreflected our concerns. It’s time to look at the financial reboundin 2017e. In addition, we switch our valuation method to P/B andgive it a 1x 2016e (2x 2016e P/B for A-share due to differentmarket style). Foreign telcos have a valuation of about 2x P/B. 　　Valuation and recommendation 　　CU as distributor will see further content integration. The samething happened in the US, like AT&T wanting to acquire Warner,and Verizon Yahoo. We reaffirm a BUY rating but lift TP by 11%from HK$10 to HK$11.20 based on 1x 2016e P/B, and upgradethe A-share to BUY, lifting TP by 118% to Rmb7.2. Risks: Fiercermarket competition; failures on internet initiatives.