Investment Strategy: 1H17A-share earnings review; earnings growth slows, ROE improvesfurther    Overall A-share earnings growth weakened from 19.7% in 1Q17to 16.3% in 1H17, while A-shareex-financial earnings growth decelerated from 48.7% to 33.4%. That said, overall ROE continued torise, picking up from 7.7% in 1Q17and 7.3% in 2016to 8.2% in 1H17. In the DuPont analysis of Ashareex-financial ROE in 1H17, all three components improved with asset turnover the maincontributor. Most of the top 20sectors with the highest earnings growth in 1H17are mid andupstream cyclical sectors sensitive to product price growth, as well as some agriculture andelectronics subsectors.    Natural Gas: Benchmark price cut to lower cost for downstream and benefit environmentalrenovation companies    The latest Rmb0.1/m3cut in the benchmark gate station natural gas price for non-residential usersis likely to reduce downstream companies’ gas cost by Rmb16bn. Central government departmentsissued an action plan in Aug regarding air pollution control in Jingjinji during the winter of 2017and2018. Replacing the use of coal with natural gas is a key means to this end, and cheaper gas priceshave made coal-to-gas substitution more economically practical. We expect clean heat supplyfacilities renovation to speed up in the Jingjinji region.

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