Guotai Junan: Profit outlook of the liquor industry reconstructed, sector valuation differentiation continues.

Guotai Junan Securities released a research report stating that the logic of market share in the liquor industry has significantly strengthened, and in the next stage, attention should be focused on destocking, pricing, and corporate strategies. It is expected that the liquor inventory cycle will continue to expand, industry profit expectations will be restructured, sector valuations will continue to differentiate, and the contribution of certainty to valuations will be highlighted. From a relative return perspective, it is recommended to grasp the logic of market share and to recommend increasing holdings in: 1) strong brands, stable sales targets; 3) undervalued, high-growth targets. Weak improvement in the autumn, exacerbating differentiation, with the inventory cycle continuing to expand. Liquor industry sales in August and September showed a slight rebound month-on-month, but on a year-on-year basis, total demand in most regions continued to decline, with price pressures more significant than sales pressures (Feitian representing price pressures). Product sales focus mainly on core flow items in the 100-200 yuan price range and items priced above 200 yuan. Recently, channels have been continuously squeezed on both profit margins and turnovers, and the role of expenses in channel recoveries is limited. Combined with the financial data of liquor companies in the second quarter of 2024 (cash flow, margin pressure from advances received), Guotai Junan Securities believes that channels are gradually losing their cushioning effect, and the expansion of the inventory cycle will be reflected in a significant decline and differentiation in the apparent growth rates of enterprises. Peak season verification: significant strengthening of market share logic in the industry. Through multidimensional observations, Guotai Junan Securities found that the strategic goals of most enterprises at present are "share prioritization," that is, maintaining a relatively stable market share and revenue scale. In the golden autumn peak season of 2024, apart from Maotai and Wuliangye Yibin, beverage companies have generally relaxed their pricing structures and increased their costs. Looking ahead, Guotai Junan Securities speculates that the characteristics of "reduced dependency on real estate" and "reduced luxury" in liquor consumption will continue to be highlighted. In this dimension, "market share is brand," and companies can leverage their product structure advantages, use strong channels, big brands, and large production capacities, strategically position at appropriate price ranges, and continue to squeeze out competition. In the next stage, attention should continue to be focused on destocking, pricing, and corporate strategies. The main contradiction in the future investment of the liquor sector is the rebalancing of supply and demand and the restructuring of industry growth expectations. In this dimension: 1) the market is more concerned about the expansion of destocking and the new balance of high-end liquor pricing. Guotai Junan Securities believes that the sales performance of core single products and apparent growth rates will match, and high-end liquor pricing such as Maotai will reach a new equilibrium after the peak season, providing support to the valuation of the sector. 2) It is urgent for companies to decide on their strategic direction. Guotai Junan Securities believes that, except for a few brands like Maotai, companies that are less confined by prices and product structures will have a competitive advantage. Companies need to adapt their share strategies to suit themselves, and it is necessary to observe the flexibility of corporate strategies.