CITIC SEC: 24Q4 performance of the mass market sector improved on a month-on-month basis, with the beverage and snack sectors still showing resilience.

CITIC SEC's research report stated that compared to the peak demand pressure in the 2024Q3, the demand sentiment in the 2024Q4 sector has slightly improved, but it still remains at a weak level. The performance growth rate of many sectors in the 2024Q4 has improved compared to the previous quarter, with snacks and beverage sectors performing the most impressively. Dairy products and condiments also showed improvement, while frozen food and light catering chains still face significant pressure. The current sector valuation has fallen back to a low level, and with the stimulus of subsequent policies and recovery expectations, it is optimistic about future performance and valuation recovery potential under low valuation and low base. CITIC SEC's main points are as follows: Dairy products: The revenue in 2024Q4 has slightly improved compared to the previous quarter, but there is a certain uncertainty in performance due to impairment On the demand side, the dairy industry demand in 2024Q4 continues to be weak, with revenue from listed dairy companies' ambient temperature milk decreasing year-on-year, but the decline in sales for the Lunar New Year period has slightly narrowed, while sales of low-temperature milk have achieved positive growth year-on-year, showing strong demand. Profits: Since the second half of 2024, channel inventory levels have been healthy, terminal promotional discount intensity has contracted more compared to the 24Q2, considering the fall in raw milk prices, promotional contractions, and cost controls, it is expected that the operating profit margins of most dairy companies in 2024Q4 will continue to increase year-on-year. It is expected that many dairy companies in 2024Q4 will focus on confirming impairment related to raw milk, resulting in significant uncertainty in quarterly profits. Condiments: Low base & stocking up for the Lunar New Year have led to a general improvement in revenue growth in Q4, with the cost dividend continuing to show From the demand side, there is a certain improvement in 2024Q4 compared to Q3, but overall it is still weak. Due to the lower revenue base in the same period last year, combined with stocking up for the Lunar New Year, the revenue growth of various companies has generally improved compared to the previous quarter; From the profit side, due to weak demand, expenditure remains relatively high, but raw material prices such as soybeans and white sugar, as well as packaging materials, continue to weaken, with the cost dividend showing, and many companies still have elasticity in terms of profits. Frozen foods: Mild winter weather intensifies demand pressure, competition remains intense, performance differentiation due to base differences From the demand side, there is no obvious improvement in demand in 2024Q4, especially as the mild winter weather has a negative impact on certain categories such as instant hot pot ingredients, overall raw material trends are relatively stable, with high expenditure intensity by companies under weak demand, the overall performance pressure of the sector remains high, and the performance of various companies differs due to base differences, with Ligao Foods Co., Ltd. performing relatively well. Light catering chains: Store performance is flat, profit differentiation Demand in 2024Q4 is shaky, with store performance expected to remain weak for various companies, but the year-on-year gap is generally narrowing due to base effects. On the profit side, raw materials such as duck offal, flour, and pork are relatively stable compared to the previous quarter, but it is expected that companies will have differentiated strategies in terms of expenditure. Snacks: Revenue growth in the snack sector accelerates in 2024Q4, with significant profit differentiation Due to the untimely effect of stocking up for the Lunar New Year in 24Q4 and the growth dividend in new channels, revenue growth in the snack sector has accelerated, but fluctuations in some raw material costs and issues related to the profit base of 23Q4 have caused profit growth rates to vary among snack companies. Beverages: Industry competition slows down in 24Q4, overall cost side is favorable In 2024Q4, the beverage industry maintains a high level of prosperity, and due to the earlier Lunar New Year in 2025, sales growth is good year-on-year. In terms of competition, price competition for bottled water and sugar-free tea has slowed down in the off-peak season of Q4, with companies actively reducing promotions and expenditure. On the cost side, PET and white sugar prices have further dropped, benefiting the gross profit margin of companies. Risk factors: Decline in consumer sentiment; slower recovery in the catering sector than expected; pricing effectiveness of food and beverage companies lower than expected; intensified industry competition; unexpected impact of emerging channels; continuous increase in raw material prices; food safety issues.