Solid fundamentals backed by strong growth potential.    In our view, the near-term outlook for Chinese leasing companies continues tolook promising, underpinned by strong support from the Chinese governmentand by being a strategic focus for parent banks. The fundamentals have beenresilient thus far - since 2009 to date, the number of lessors in China haveincreased by 68% CAGR while achieving 44% CAGR in leasing contract (Fig 1).    Chinese lessors under coverage also witnessed strong business momentum –19% assets and 21% equity CAGR in 1H17 with respectable profit growth (avg.    13% from 2014-16). Within our coverage, BoCA still commands the lowestleverage at 4x (peers: ~9x) with the best RoA at 3.45% (peers: 1.05%).    Expect to see more bond issuances going forward.    So far this year, we have seen a total of 24 bond deals from the Chineselessors, raising a total amount of USD9.7bn. The primary market run rate isalready a tad higher than last year, with a 76% CAGR from 2013. Amongst thecoverage companies, ICBCIL issued the most, driven by the need to financeaircraft purchases – it now has the most aircrafts amongst peers: 300 vs. forexample 268 for BoCAVI, 192 - CDBL, 140 - BoComFL and 56 for CCBFL. Withincreasing number of committed aircrafts in orders and strong passengertraffic growth in China, we do expect bond issuance will remain the dominantfinancing channel for Chinese lessors, benefiting from the strong credit ratingsand resulting in lower cost of funds.    Top picks: ICBCIL2.75% 21s, CDBL3.22% 22s & 4.25% 24s, BOCAVI 3.875% 26s.    The Chinese leasing companies bonds have performed well this year, with thesector bond G-spread on average compressing ~30bp, with BoCAVI’s series ofbonds being the best performer. Our preference for leasing companies: Forshorter duration bonds within 5 years maturity, we prefer ICBCIL 2.75% 21sand CDBL 3.22% 22s as they both offer attractive spread/pick-up vs. relevantbank bonds of 121/27bp and 113/30bp respectively. CDBL 4.25% 24s andBoCA 3.875% 26s currently our preferences, which offer better value within thelonger duration bonds, with G-spread/pick-up of 122/37bp and 121/17bprespectively.

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