Construction Machinery: 2018sector outlook – promising outlook driven by increasing salesvolume and ASP    We believe profitability improvement will be a key sector theme in 2018. Chinese constructionmachinery manufacturers are showing a competitive advantage over overseas manufacturers. Weexpect outperforming manufactures can continue to outperform in 2018. We expect machines soldduring the 2010-2012peak to be replaced gradually, a trend that will continue in 2018. Meanwhile,steady FAI growth in urban infrastructure, property and mining should bring extra momentum.Utilization has continued to rise even with an exponential increase in machinery sales volume,suggesting that downstream demand for construction machinery remains robust. Lonking our toppick.    Financial Leasing: 2018sector outlook – NIS to remain a concern in 2018    Under the pressure of narrowing NIS as market interest rates continue to increase while the Chinaeconomy slows moderately, we remain positive on leasing companies with diversified businessoperations such as Universal Medical and Far East Horizon. In addition, aircraft leasing is still anattractive sub-sector given its long lease durations, the large proportion of prepaid interest,predictable cash flows, relatively stable lease rates, and given the security deposit aircraft leasingcompanies hold even if airlines default. Our top pick is Universal Medical.    China Insurance Sector: 10M17life premiums update; maintain Positive rating    We think Ping An’s increasing agent number and new product releases designed to satisfy theNo.134Document will support life premiums growth next year. Meanwhile, Oct FYPs for China Life,CPIC and NCI might be weak temporarily due to an adjustment to the preparation for a seasonalsales campaign in early 2018. We have a positive outlook on the China life insurance sector given:    1) there is now a better-regulated life insurance business environment; 2) life insurance companiesmay benefit from the rising 750D-MA 10Y government bond yield; and 3) a tax-deferred pension planwould be long-term positive for the China insurance sector.    Utilities: 2018sector outlook – focus on subsectors benefiting from policy support    We estimate that urban natural gas sales volume will grow at a CAGR of 15% during 2H17-2019.We believe that wind power operators are not particularly inclined to increase investment at themoment, and expect newly installed capacity in 2018to come in flat with this year. Biomass powergeneration and hazardous waste treatment are showing strength, while water treatment PPP projectsare driving new sewage treatment demand. We expect low-cost solar power grid-connection to beachieved around 2020, and we are positive on the upstream polysilicon materials industry.

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