Huachuang Securities' Investment Strategy for the Food and Beverage Industry in 2025: Liquor valuation hits bottom and rebounds, Dairy, condiments, and yeast have all shifted to the right.

Huachuang Securities released a research report stating that the overall bottom of the food and beverage industry is currently established, and the direction of marginal improvement is clear. With the sharp decline in valuations in the first three quarters of this year, the bottom of the sector has been established. Looking ahead to next year at the current point, listed companies in the condiment, dairy, beer, and liquor industries are expected to see inventory and financial risks clear up starting in 2024, with various sub-industries expected to gradually clear out and replenish inventory in 2025, driving a cycle from profit forecast downward adjustments to upward adjustments. In addition, B-end supply chain companies related to catering may directly benefit from macroeconomic stimulus policies such as catering consumption vouchers. After significant adjustments, these companies are expected to experience a reversal in low expectations. Key points from Huachuang Securities are as follows: Liquor: Valuations hit bottom and are expected to rise in 2024, with industry expectations bottoming out in 2025. In terms of industry cycle stages, it is anticipated that the first half of 2025 will still be in a clearance period, with industry expectations bottoming out around the middle of the year. Two key indicators are the expected Maotai batch price and the profit expectations of leading liquor companies. On the batch price front, the industry is still in the destocking phase next year, with the expected Maotai batch price likely to continue to decrease, but taking into account Maotai's diversified channels and improved management capabilities. On the profit expectation front, the industry's pressure in 2024 has now been transmitted from off-balance sheet to on-balance sheet, indicating that the liquor cycle adjustment is in its final stages. In 2025, liquor companies will focus on slowing down and with the transmission of macro policies showing results, it is expected that after a clear downward revision in the first half of 2025, profit expectations will stabilize. Based on the experience of the previous liquor cycle, valuations leading in 2014 indicated a turning point, industry expectations turned in 2015, and fundamentals (prices and performance) accelerated in 2016. In terms of industry structure, companies such as Maotai and Wuliangye hold dominant positions in various price ranges and regions, with high confidence in profit targets. Other liquor companies, such as Luzhou Laojiao and Fen Wine, are brewing new opportunities in the adjustment period and may complete the adjustments ahead of others due to strong management skills and strong brand power. Mass Products: Dairy, condiments, and yeast have reached the right side, while beer is at the bottom of the clearance. The transformation of mass products goes through three stages: the first stage is inventory clearance and pressure offloading from financial statements, with improved profit margins despite continued pressure on demand. The second stage awaits demand recovery and revenue acceleration. The third stage optimistically anticipates strong demand driving supply shortages, leading to cost increases in the upstream and downstream price hikes. Industry structure determines the speed of destocking, with condiment leader Haitian and Angel Yeast Co.,Ltd. clearing out in the first half of the year, leading the cycle upwards. The dairy industry, with a duopoly structure, accelerated clearance in the second quarter and the trend has been clear since the third quarter. The beer sector, under an oligopoly structure, has increased investment in the second half of the year to accelerate inventory digestion and is expected to enter 2025 with low inventory and a low base. Additionally, B-end supply chain companies related to catering are not affected by inventory cycles, with demand recovery transmitted quickly. Companies in frozen foods and ready-to-eat sectors are expected to experience a rebound in elasticity due to their low base numbers, and special attention is drawn to new products from Bairun Whisky. Investment Recommendations: Seize the window of certainty for leading stocks and select high-elasticity products in transformation. The current investment in food and beverage is like configuring a "call option": dividend yield provides sufficient safety margin, macro stability consolidates the bottom, and the potential for returns comes from valuation increases in a loose liquidity environment and from policy translation to demand recovery. Leading companies with excellent business properties and competitive advantages are now in a rare opportunity for certain configurations, and with ETF funds entering the market, stocks such as Moutai, Luzhou Laojiao, Yili, Haitian, etc., are expected to benefit directly. Specific recommendations include: Liquor: Select Kweichow Moutai and Luzhou Laojiao for certainty, and Luzhou Laojiao and Shanxi Xinghuacun Fen Wine Factory for transformation and elasticity. In terms of profit target certainty, top choices are Kweichow Moutai and Wuliangye Yibin, as well as Anhui Gujing Distillery expected to maintain double-digit growth next year. In terms of transformation and elasticity, prefer Luzhou Laojiao, Shanxi Xinghuacun Fen Wine Factory, and Jiangsu King's Luck Brewery Joint-Stock, with a focus on ZJLD. Mass Products: Embrace the dairy, beer, and yeast sectors, and monitor the catering supply turnaround and the elasticity of new products from Bairun. Combining medium-term inventory cycles with micro business cycles, a selection of dairy companies includes Inner Mongolia Yili Industrial Group and Mengniu Dairy, with a focus on New Hope Dairy; the beer sector strongly recommends Tsingtao Brewery and China Resources Beer; yeast leader Angel Yeast Co.,Ltd. is expected to move away from peak consolidation and enter a period of declining costs in the future 1-2 years. Additionally, for B-end catering supply elasticity opportunities, prioritize Shanghai Bolex Food Technology and keep an eye on Ligao Foods, Juewei Food, and Shanghai Bairun Investment Holding Group.Market feedback on the new product of Shiji.Continuously recommend Eastroc Beverage (605499.SH), NONGFU SPRING (09633), Foshan Haitian Flavouring and Food (603288.SH), Anjoy Foods Group (603345.SH), etc., pay attention to Jonjee Hi-Tech Industrial And Commercial Holding (600872.SH) and Sirio Pharma (300791.SZ). Risk Warning: Macroeconomic policy implementation falls short of expectations, end demand falls short of expectations, industry competition intensifies, etc.