F&B: 2018sector outlook – sector seeking growth amid pressure from consumption upgrade    Rising property prices have helped drive a recovery in consumer spending on luxury goods, whilethe popularization of mobile payment and consumer loans have also spurred consumer demand. Webelieve that the overall risk in the economy will be manageable in 2018, and that consumerconfidence should remain stable with consumption upgrade to remain an important industry trend.The large number of F&B companies with outdated brands have suffered greatly from the significanttrend of consumption upgrade. Looking into 2018, we suggest building positions in sub-sectorleaders and large companies that respond quickly to market changes.China Securities Sector: Promising outlook as HK-based Chinese securities companies striveto become top-tier investment banks in Asia    Taking advantage of HKEx's “connect” strategy and the long-term trend of HNW clients shiftingassets overseas, and with improved business quality and market share, we see a bright outlook forHK-based Chinese securities companies in Hong Kong, and believe that over the long-term somewill emerge as top-tier players in the Asia market. Businesses have been diversified substantially,improving abilities to endure market volatility, and companies are now increasingly focused onupgrading business quality, risk control capabilities, and financial cost management. Guotai JunanInternational is our top pick.    Rail: CRC announces procurement of 75China Standard EMU units    The CRC has announced a tender for a number of items including 75China standard EMUs. It alsoplans to procure 44locomotive units. According to Caixin, the total tender amount for the 75unitswill be Rmb170m per unit, a similar average price compared with the previous two tenders. The CRCis expected to announce one more EMU tender before the end of the year; we expect theprocurement size and timing to be a positive surprise for the market. In addition, the procurement ofthe 44locomotive units should be a driver for CRRC and CRRC TE.    Construction Machinery: 3Q17results show strong momentum continues    The machinery sector maintained its strong momentum during 3Q17, with revenue at nine majorChinese companies and the top-ten global companies up 69% and 30% YoY, respectively. Most ofthe Chinese companies also saw rapid net profit growth during the period. Profitability continued toimprove, with GPM at the Chinese companies up from 16.8% in 3Q16, to 22.3% in 3Q17. Balancesheets remain healthy. Following the strong 3Q17results, we expect attention to turn to Oct salesvolume; excavator sales data are expected this week. Our top pick is Lonking.    Sunny Optical (2382HK): Industry leadership continues to strengthen on optical andoptoelectronic products    We think that as a leading camera module player the company will continue to benefit from the rapidincrease in dual camera penetration over the next few years. Also, its optical component segment islikely to maintain high revenue growth going forward given an improving handset lens sets productionstructure and exponential growth in the vehicle lens sets market. Considering that its opticalcomponent and optoelectronic segments continued to demonstrate relatively high growth during Jun-Sept 2017, we estimate 2017-2019EPS of Rmb2.35, 3.32and 4.56.    Yuhua Education (6169HK, NR): Timing of top-up placement gives advantage over peers foracquisitions    Yuhua Education announced a top-up share placement at a 10.4% discount to Thursday’s closingprice. The proceeds will be used to prepare for potential acquisitions. The company is in activediscussions with a number of potential targets and aims to complete one or more acquisitions in thenext six months. We believe the successful placement indicates that institutional investors, especiallythose with long-term investment horizons, are positive on the education sector. With listed highereducation peers and companies that could soon be listed also looking for acquisition targets, Yuhua’stiming to replenish funding could give it an advantage to land deals.

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