"Technology changes consumption" Guotai Junan 2024 Consumer Goods Annual Conference

From September 5th to 6th, the 14th Annual Consumer Goods Conference of Guotai Junan 2024 was successfully held in Futian, Shenzhen. The theme of this conference was "Technology changing consumption", bringing together industry experts, executives of listed companies, investment institutions, and others to discuss the profound impact of the technological revolution on the consumer industry. The conference invited over 100 listed companies and attracted nearly 400 investors, offering a high-quality investment research feast. At this conference, more than 10 senior industry experts and analysts from Guotai Junan's Consumer Goods Group shared their latest insights, with highlights as follows: Technology changing consumption Chen Quming Founding Partner of Beijing Shicheng Asset The essence of the world's consumption development history is a history of technological change. Looking back at China's consumption over the past 30 years, it has transitioned from a consumption-driven model during the population dividend period to a technology-driven innovation model in the aging population stage. At present, themes of technology and health in consumption are becoming increasingly prominent. Looking ahead to the next 30 years, we can expect to witness the rise of new Chinese brands, the birth of world-class brands, and technological innovations that will revolutionize consumption, ushering in a new era of consumption. With the transformation of technological data intelligence, network intelligence, and terminal intelligence, consumption is expected to be driven by technology innovation. The clock of consumption has come to the moment when technology innovation will open up "new categories", and in the next decade, the most likely emerging consumer categories include autonomous driving cars, medium-to-high-speed electric bicycles, as well as AI/AR glasses, earbuds, personal assistants, and more. Chinese companies in the era of global navigation Weng Yino Founding Partner of Hongzhang Capital The fifth industrial transfer is happening, and Southeast Asia, Latin America, and Africa are expected to become major economic recipients, with clear population dividends, and populations will be an important factor affecting the global economic landscape in the next 50 years. Looking back at Japanese companies' overseas cases, overseas expansion not only led to industry expansion and stock growth but also created leaders in the Japanese consumer industry and promoted local industry upgrades. Regarding Chinese companies' overseas expansion, Chinese manufacturing is deeply integrated into the global economy with obvious competitive advantages. Key elements of overseas expansion include the supply chain, experience, talent, and capital. Consumer trends in overseas expansion include platform expansion, the rise of service providers, and layout in emerging markets. Building global Chinese companies requires the iteration of strategic, management, and organizational capabilities across cultures and regions. Anticipate and seek resilience Zi Meng Chief Analyst of Guojun Food & Beverage/Cosmetics Liquor: As the peak season approaches, attention should be paid to batch prices. The industry is currently in the mid-autumn sales phase, and the pace of demand release is still to be observed. We believe that the short-term impact is mainly on the supply side, with disruption to batch prices occurring as the gap between supply and demand widens before the holiday, especially for premium liquor. Beverages: Consumption resilience is evident, with the prosperity expected to continue in 2024 Q3. We believe that some beverages have characteristics such as low prices, high frequency, and little impact from consumption scenarios, making the industry have strong counter-cyclical properties. Mass Brands: Overall demand still needs improvement, observing marginal changes in the subsequent peak season. The snack track still has relative prosperity, and the ability of leading companies to expand channels and categories may continue to be verified. We expect categories with cost-effective gift boxes and gift packages to see a volume increase during the mid-autumn and subsequent New Year season, with growth valuation having room for recovery. Improved competitive structure, high-quality development of service industry Liu Yuenan Chief Analyst of Guojun Social Services/Retail Focus on the improvement of competitive layout industries. 1) Capital expenditures have slowed and financing has tightened, leading to improvements in some industries. Improvement reasons: fierce competition has led to lower returns, with both capital expenditures and marketing spending slowing down. Leaders seek profitability, stable financing, and cautious investment. This round of improvement comes from the economies of scale and efficiency advantages of leaders, with more sustainable profit releases. 2) Sub-sectors that have improved: education, local life, OTA, fresh retail, local travel. 3) Potential sub-sectors for improvement: hotels, online retail, duty-free, catering, coffee. Emotional consumption structure increment, continued growth under a high base of tourism. 1) OTA: upside prosperity, improved structure, increased profitability, growth in both low-end, outbound, and international. 2) Scenic spots: under the trend of affordable travel, they have cost-effective advantages, and high prosperity is expected to continue. Focus on tourism new trends, improved transportation and new projects, and targets with little impact from subsidies or discounts. 3) Gold and jewelry: high fluctuation in gold prices affect gold demand. Leading brands focus on optimizing franchisee structures, with a focus on improving store quality and efficiency and profitability release. Leading companies enter the stage of refined operations, and the competitive landscape of channel expansion is expected to be optimized. Creating a model of overseas expansion, building global operational capabilities Tsai Wenjuan Chief Analyst of Guojun Home Appliances Overseas markets: entering a stage of showing various strengths. In the short term: export orders are optimistic. Air conditioning continues its high prosperity, with washing machines showing both elasticity and resilience, and high-end upgrades in color TVs, as well as an increase in market share for domestically-made cleaning appliances; in the long term: entering international markets means entering markets at different stages of development, and companies are expected to replicate the diversified product supply, channel operations, pricing, and marketing fundamentals developed in the multi-tiered Chinese market overseas. Domestic market: demand gradually stabilizing, with some optimization in competitive layout. On the demand side, short-term needs categories are relatively stable, and national policies being implemented are expected to drive the desire for upgrades in the larger markets (rural + third and fourth-tier cities). Moreover, after the nationwide stimulus policies introduced in the last round, the main household appliance products are entering a widespread renewal cycle; leading companies with multi-category, multi-brand layouts are more likely to gain market share. In terms of structure, some sectors are undergoing capacity clearance processes, and the number of industry players has decreased. Expect domestic demand recovery, optimistic about opportunities for corporate transformation Liu Jiakun Chief Analyst of Guojun Textiles Home Improvement: Short-term disruptions do not change the trend of recovery. Since 2024, the PE percentile has remained in the low single digits, with the valuation level of leading companies generally at 12-15XPE. The previous market's pessimistic expectations of decreased downstream demand have been largely factored into stock prices, and looking ahead, there is limited downside space and potential upward elasticity. Essential consumption: Under weak recovery, the value of enterprising companies with stable operations is highlighted. In the second half of the year, we should closely monitor the economic inflection point. With improved consumer willingness, prices may have upward elasticity, drivingEnterprise management outlook is warming up. Against the backdrop of low raw material prices, the profitability of personal care companies is expected to remain stable, and leading companies can further boost profits through economies of scale.Export chain: Brand & supply chain going overseas properly. Benefiting from the accumulation of competitive advantages in processing, with outstanding advantages in cost, delivery time, and quality control. Paper packaging: Business differentiation, accelerating upstream layout. H2 is the traditional peak season, with demand improvement driven by food and beverage consumption and autumn textbook tenders, and paper prices rebounding. Competition in metal packaging is slowing down, and mergers and acquisitions are expected to significantly increase concentration among leading companies. Sustained prosperity, seize the opportunities of leading companies Wang Yanjun Joint Chief Analyst of Guotai Junan Agriculture Pig farming: Industry profits turned positive in the mid-year report, with reduced breeding costs, decreased asset-liability ratio, and gradually improving cash flow. Capital expenditures are shrinking, with a decrease in ongoing construction projects and cautious capacity expansion. Vaccines, feed: With the rising profits in the breeding industry, we expect demand to gradually rebound in the animal vaccine and feed industries from Q2 to Q4 2024, with the animal vaccine industry benefiting first from increased breeding profits, and the feed industry gradually benefiting from the recovery of breeding herds. From a cyclical perspective, the vaccine and feed industries are currently at a cycle bottom, and are expected to gradually improve with rising breeding profits. New trends in smart home Li Ying Vice President of AVCLOUD With the penetration and maturity of smart homes, five major trends will emerge in smart homes: whole-house intelligence, front-end penetration, human-friendly living, active learning, and service coordination. In terms of products, smart homes are advancing from single product interconnection to whole-house intelligence, with deeper hardware segmentation, product intelligence, improved interaction capabilities, and the evolution of intelligent home appliances towards deep intelligence. Pig production capacity growth and future market outlook Mr. Shi Monitoring Expert in the Breeding Industry The capacity reduction of sows has ended, and production capacity growth is expected to resume after the first quarter. Looking at prices, prices in 2024 are expected to be higher than in 2023, with an average annual price of 16-18 yuan/kg. Looking ahead to 2025, prices in the first half of the year may not necessarily be weak, and profits are still expected in the second half of the year. New trends in Baijiu industry structure Mou Lei Senior Baijiu Marketing Specialist With a long history in the Chinese liquor industry, the first half of 2024 saw leading Baijiu companies leading the way, mid-tier companies differentiating, and market concentration increasing, leading to intense competition within the industry against a weak external environment. The industry adjustment cycle began in 2023 and is expected to last 3-5 years, with the clearing of bubbles bringing challenges of survival pressure, gradual iteration of consumer groups and trends. At the same time, industry market restructurings are brewing opportunities, with new and old brands and products competing, new scenarios and new consumer trends likely to provide incremental growth, and a restructuring of vendor relationships ahead. Cross-border e-commerce platforms: Various giants compete, each with its own strengths Mr. Wang Cross-border e-commerce expert Leveraging a sound policy environment, efficient industrial clusters, and logistics transportation, China's cross-border e-commerce is accelerating rapidly. From Chinese sellers battling on Amazon in 2013, to recent years where Chinese e-commerce platforms like Shein, Temu, etc., are accelerating their global presence, a new round of cross-border e-commerce landscape is reshaping. Moving from Chinese manufacturing towards Chinese platforms and brands, future development has a long way to go. Trends in the electronic cigarette industry Mr. Li CEO of Tuhu In the past two years, disposable e-cigarettes have penetrated the global market thanks to their "convenience" advantage. In 2023, the traditional "low barrier market" for e-cigarettes in countries like the US, UK, EU, and Russia is nearing saturation, entering a stage of competition among existing players, forcing some brands to seek development in high barrier markets like the Middle East, South Africa, and South America. The Consumer Goods Annual Conference also released the in-depth research report "The Advanced Path of Consumer Goods Investment," which systematically elaborates on the research framework for the consumer industry, providing a comprehensive, in-depth, and contemporary research methodology for consumer research. The "Consumer Goods Annual Conference," as a renowned brand event of Guotai Junan Research Institute, hosted by the Consumer Research Division, has now reached its 14th year, consistently providing valuable research for investors. In the future, the research institute will continue to uphold professionalism, deepen research continuously, and expand the breadth and depth of services, capturing investment opportunities for clients. This article is from the official WeChat account of "Guotai Junan Securities Research."