Industrial: The mid-year report in the food and beverage sector continues to show differentiation trends, with increased differentiation in the off-season for white spirits. The high-end and real estate leaders are clearly superior.

Industrial released a research report stating that the differentiation of the liquor industry in the off-season has increased, with high-end and real estate leaders showing clear advantages. In the first half of the year, the liquor industry experienced a process of "hot first, then cold." During the Spring Festival, there was strong demand for liquor, followed by a general slowdown in sales. The May Day and Dragon Boat Festival were affected by the high base number of banquets in the same period last year, leading to a decrease in sales compared to the previous period. Specifically, the revenue of the liquor sector in 24H1 increased by +14.09% year-on-year, and the net profit attributable to the parent company increased by +13.87% year-on-year. In 24Q1/24Q2, revenue increased by +15.43%/+11.98% year-on-year, and net profit attributable to the parent company increased by +15.72%/+10.64% year-on-year. In terms of price bands, the growth rate of high-end liquor remained stable between quarters, while the growth rate of mid-to-high-end and real estate liquor decreased significantly between quarters. In 24Q1/24Q2, revenue from high-end liquor increased by +15.84%/+14.24% year-on-year, with Maotai and Wuliangye Yibin maintaining a steady pace between quarters; revenue from mid-to-high-end liquor increased by +14.22%/+8.50% year-on-year, mainly affected by the decline of Shede and Jiugui in the second quarter; revenue from real estate liquor increased by +15.15%/+8.41% year-on-year, with Jiangsu King's Luck Brewery Joint-Stock and Yingjia Brewery continuing to have good sales momentum in the second quarter, Gujing showing a decrease compared to the previous period, and Yanghe experiencing a slight decline. Furthermore, there is a significant increase in differentiation in terms of contracted liabilities, with Maotai and Wuliangye Yibin, which have strong brand strength at the end of the second quarter, still significantly increasing compared to the same period last year, while other liquor companies are expected to be significantly affected by weak sales and active destocking. With the Mid-Autumn Festival and National Day peak seasons approaching, the development trend of strong concentration and differentiation is expected to become more apparent, with brand strength and channel strength becoming key to maintaining sales resilience. Beer sales are under pressure, but gross sales performance is strong, and certainty remains high. In the first half of the year, beer revenue decreased slightly, but the upgrading of mid-range products and cost advantages were evident, leading to stable profit growth. Specifically, revenue for the beer sector in 24H1 decreased by -1.34% year-on-year, while the net profit attributable to the parent company increased by +11.78% year-on-year; in terms of quarters, revenue for the beer sector in 24Q1/24Q2 decreased by -0.78%/-1.85% year-on-year, while the net profit attributable to the parent company increased by +14.56%/+10.06% year-on-year. However, there is a clear divergence between different beer companies, with national leaders such as CR Beer and Tsingtao Beer facing more pressure, while regional leaders such as Yan Beer and Zhu Beer show a clear competitive advantage. Looking at the full year 2024, crossing the peak sales base in the first half of the year, it is likely that the sales decline in 24Q3 under low base numbers will narrow on a quarter-on-quarter basis. At the same time, the mid-range upgrade will continue, and the cost elasticity will be realized, leading to an expected acceleration in profits in 24Q3, laying the foundation for the certainty of full-year performance in 2024. Looking ahead to 2025, consumption may continue to follow a weak recovery pace, with sales expected to remain under pressure. However, based on cost elasticity and the resilience of mainstream popular price points, the performance of beer industry leaders in 2025 is expected to continue the trend of stable growth. In addition, the substantial increase in industry leader net profit margins and continuous improvement in free cash flow due to industrial upgrades, as well as the steady increase in dividend payout ratio and dividend yield on the defense side are also worth looking forward to. In terms of market review: the food and beverage index fell by 3.53% last week (September 2nd-September 6th), underperforming the Shanghai and Shenzhen 300 index by 0.82%; the meat products (+0.12%) sector slightly increased last week, while other sub-sectors saw a decrease. Investment recommendations: In general, the food and beverage sector should focus on industry leaders with high performance certainty and the potential for steady increase in dividend payout ratio, while continuing to pay attention to future recovery trends. In terms of liquor, the sector is currently in a relatively low position in terms of funding and valuation. Considering that consumption is still in a weak recovery trend and the liquor industry is facing pressure from cyclical adjustments, it is necessary to continue to focus on high-quality industry leaders with strong performance certainty. It is recommended to rely on strong brand strengths with cyclical capabilities such as Kweichow Moutai (600519.SH) and Wuliangye Yibin (000858.SZ), while also recommending companies with a logical increase in market share such as Jiangsu King's Luck Brewery Joint-Stock (603369.SH), Shanxi Xinghuacun Fen Wine Factory (600809.SH), Luzhou Laojiao (000568.SZ), Anhui Gujing Distillery (000596.SZ), and Anhui Yingjia Distillery (603198.SH). In the beer and other alcoholic beverage sector, the continued upgrade resilience and realization of cost elasticity provide strong performance certainty, with a focus on Tsingtao Brewery (600600.SH), Beijing Yanjing Brewery (000729.SZ), and Guangzhou Zhujiang Brewery (002461.SZ) with new whisky product logic. In addition, increased attention should be paid to companies with strong performance potential such as Shanghai.Bairun Investment Holding Group (002568.SZ)In terms of food, the current scene of the sector is recovering slowly, but cost dividends continue to appear. Focus on high-quality leading companies in the seasoning > snack > beverage sectors, recommending Jonjee Hi-Tech Industrial And Commercial Holding (600872.SH), Yanker Shop Food (002847.SZ), Chacha Food (002557.SZ), Eastroc Beverage (605499.SH), etc. Risk warning: Macroeconomic downturn affecting consumption; future changes in liquidity; intensified industry competition; rising raw material costs; food safety issues.