BoFA Securities' 2025 Outlook on China's Consumer Industry: The pro-consumption policies are expected to continue to strengthen this year, with target prices of several domestic demand stocks being raised.

Bank of America Securities published a research report on the outlook for China's domestic demand industry in 2025, with a focus on policy and other factors. The report states that Bank of America Securities' basic expectation is that gradual and targeted consumption stimulus measures will be implemented by 2025, but stronger policies may also be adopted under economic and geopolitical pressures. With the gradual progression of stimulus policies, the late-cycle nature of consumption, and the backdrop of the most severe downturn in 30 years, it is expected that the earnings per share of domestic demand stocks may further decline in the short term, potentially softening in the first quarter. However, the market may shift its focus to policy and the emergence of recovery. The Bank believes that the second half of 2025 may be a key time window. Bank of America Securities states that the expected price-to-earnings ratio for the domestic demand industry is 13 times, ranging between the historical low of 11.3 times in mid-September 2024 and the high of around 15 times over the past 12 months. Considering the downward revision of earnings per share and noise from the US/China, the Bank expects trading to fluctuate within a range, but to be protected on the downside by policy or policy expectations. Once earnings per share stabilize and/or policies begin to take effect, the median value is expected to increase slightly. Furthermore, the Bank believes that the fundamentals and stock prices of domestic demand stocks in 2024 have been impacted by the "4D" (demand, inflation, destocking, and deconsolidation). Despite persistent pressure, some domestic demand companies are expected to recover considering base effects and their own efforts (such as cost control). In industries with unique demand (health, outdoor, experience, personal interests, etc.) or supply-side dynamics, structural growth still exists. The Bank adds that there may be continued focus on cash flow and shareholder returns until 2025, with actions by companies potentially including increased dividends, maintaining a minimum dividend limit, and more buybacks. Overall, Bank of America Securities has lowered earnings per share forecasts for domestic demand stocks in 2024 and 2025 by 4% and 1%, respectively, while raising the average target price of the 16 stocks they cover by 6%. They have upgraded their rating on CHINA FEIHE (06186) from "neutral" to "buy," and mentioned a preference for defensive stocks while being bearish on liquor stocks.