Guotai Junan: Weak improvement in autumn, intensified differentiation, and continuous expansion of the liquor inventory cycle.

Guotai Junan released a research report stating that the sales of the liquor industry in August and September showed a slight improvement compared to the previous months. However, when compared year-on-year, the total demand in most regions is still declining, with price pressure being more significant than sales pressure (represented by Feitian). Product sales focus mainly on core single products in the price range of 100-200 yuan and above 200 yuan. It is expected that the inventory cycle of liquor will continue to unfold, industry profit expectations will be reconstructed, sector valuation differentiation will continue, and the contribution of certainty to valuation will be highlighted. From a relative return perspective, it is recommended to grasp the logic of shares. Guotai Junan pointed out that channels have been continuously squeezed in terms of profit space and turnover recently. The role of expenses in driving channel payments has become limited. Combined with financial data from liquor companies in Q2 2024 (cash flow, pressure on advance receipts), channels are gradually losing their buffer function, and the unfolding inventory cycle will be reflected as a noticeable slowdown and differentiation in apparent growth rates of enterprises. Peak season verification: The logic of market shares is significantly strengthened. Through multidimensional observation, it was found that the strategic goal of most enterprises is currently "share priority," which is to maintain relative stability in market share and revenue scale. Looking ahead, it is speculated that the characteristics of liquor consumption "devoid of property dependence" and "devoid of luxury" will continue to be prominent. In this dimension, "shares equal brand." Companies can leverage their product structure advantages, use strong channels, large brands, and large production capacity, and leverage suitable price ranges to continuously compete against rival products. In the next stage, continuous attention should be paid to destocking, bulk pricing, and enterprise strategies. The main contradiction in the subsequent investment in the liquor sector will be the rebalancing of supply and demand and the restructuring of industry growth expectations. In this dimension, the market will pay more attention to the destocking process and the new balance of bulk pricing in high-end liquor. The performance of core single products in sales and apparent growth rates matching, high-end liquor bulk pricing reaching a new equilibrium after the peak season will provide support to the sector's valuation. It is imperative for companies to make timely decisions on their operational strategic directions. Guotai Junan believes that, apart from a few brands like Maotai, companies that are less constrained by price or product structure will have a competitive advantage in the future. Companies need to adapt their share strategies to their own situations and observe the flexibility of their strategic decisions. Recommendations for increased holdings: Strong brand and stable sales targets such as Kweichow Moutai (600519.SH), Wuliangye Yibin (000858.SZ), and Shanxi Xinghuacun Fen Wine Factory (600809.SH); Regionally dominant targets such as Jiangsu King's Luck Brewery Joint-Stock (603369.SH), Anhui Yingjia Distillery (603198.SH), Anhui Gujing Distillery (000596.SZ), and Laobaigan (600559.SH); Undervalued and high-growth targets such as Luzhou Laojiao (000568.SZ), Shede Spirits (600702.SH), and ZJLD (06979) in the Hong Kong stock market. Risk warnings: Slower-than-expected demand recovery, significant fluctuations in bulk pricing, and food safety risks.