Top Stories    Industrial Enterprise Profit Growth Accelerated in June to 19% YoY (NBS, July27)    Total profits of above-scale industrial enterprises reached Rmb3.6trn in 1H17,up 22% yoy, slightly lower than 22.7% yoy in 5M17; Monthly profit in Junegrew by 19.1% yoy, up from +16.7% in May. In particular, SOE industrialenterprises’ 1H17profit came at Rmb805.4bn, up 45.8% yoy (53.3% yoy in5M17). Meanwhile, collective enterprises/joint-stock enterprises/foreign andMacau, HK, Taiwan enterprises’ earnings came atRmb21.3bn/Rmb2.57trn/Rmb854bn respectively, up 4.9%/23.6%/18.9% yoy.Private-owned industrial enterprises’ earnings was at Rmb1.2trn, up 14.8% yoy(14.0% yoy in 5M17). Sector-wise, mining/manufacturing/utilities enterprises’earnings reached Rmb243.6bn (+1340% yoy) /Rmb3.2trn (+18.5% yoy) /185bn(-28.2% yoy). Among 41major sectors of industrial enterprise, 38saw earningsgrowth yoy while another 3delivered a yoy earnings decline. June monthlydata shows financing cost for industrial enterprises went up 9.7% yoy, versus5.1% yoy in May, showing signs of financing cost pressure.[DB view] This is evidence of improving corporate profitability, especially forSOEs, and we think the profitability improvement may continue on stricterthan-expected de-capacity policies and better supply-demand situation. Thestrict implementation of supply-side reforms is driving up the profitability ofindustrial SOEs, which were perceived as the most troubled areas. We turnedmore positive on big Chinese banks, as we saw evidence of incrementalimprovements in asset quality and margin. Please refer to our report: Time toaccumulate big banks.

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