HAITONG INT'L: Mandatory consumption is still under pressure in the short term.

HAITONG INT'L released a research report stating that out of the 8 industries tracked in January 25, 4 experienced positive growth while 4 experienced negative growth. Industries with single-digit growth included catering, seasonings, frozen foods, and soft drinks; industries with single-digit decline included mid-to-high-end liquor, dairy products, and beer; mass-market and lower-end liquor saw double-digit declines. Compared to the previous month, 5 industries saw a decrease in growth rate while 3 saw an improvement. Despite the boost from the Spring Festival, the high base from last year, and the shift in consumer focus towards optional consumption areas such as travel and entertainment, essential consumption represented by food and beverages is being squeezed. HAITONG INT'L's main points are as follows: Mid-to-high-end liquor: In January, the domestic mid-to-high-end liquor industry generated revenue of 51 billion RMB, a 6.8% year-on-year decrease. With the approach of New Year's Day and the Spring Festival, consumption of mid-to-high-end liquor continued to improve month-on-month, maintaining the downturn trend seen in the previous months. Improved demand and manufacturer control of inventory helped drive an increase in product prices, especially for top brands like Kweichow Moutai and Wuliangye Yibin. While most famous liquor stocks are gradually decreasing, distributors are prioritizing destocking and minimizing new purchases due to lack of confidence in continuous price hikes. Liquor manufacturers are facing significant pressure on receivables, and it is expected that the negative growth in revenue will continue, with a possible wider decline in February. Mass-market and lower-end liquor: In January, the domestic mass-market and lower-end liquor industry generated revenue of 22 billion RMB, a 21.4% year-on-year decrease. Starting from February 24, there has been a consecutive 12-month decline in revenue. The impact of stocking up for the Spring Festival on mass-market and lower-end liquor products is relatively small, with businesses still focusing on reducing inventory and maintaining cash flow. Compared to mid-to-high-end products, distributors have less pressure on inventory. However, due to weaker brand power and channel strength, the pressure on receivables is greater, leading to a larger decline in revenue compared to mid-to-high-end liquor enterprises. Beer: In January, the domestic beer industry generated revenue of 18.3 billion RMB, a 1.6% year-on-year decrease. During this year's Spring Festival, travel and dining activities surpassed those of the same period last year. Additionally, with the average national temperature in January rising 1-2 degrees compared to the previous year, it provided a strong boost to on-site consumption of beer. Looking back at 2024, the beer industry experienced a slight decline in sales volume and a slowdown in structural upgrades. Due to the marginal improvement in catering and retail markets during the Spring Festival period, we expect a narrowing of the decline in beer industry sales in January, while prices continue to maintain a stable increasing trend. Seasonings: In January, the domestic seasoning industry generated revenue of 46 billion RMB, a 3.4% year-on-year growth. The demand during the end-of-year stocking period for seasonings was robust, with sales performance of various brands meeting expectations. The demand from the catering sector during the Spring Festival period was strong, with earlier-than-usual New Year festivities leading to a similar growth rate in January compared to December. Consumer demand remains relatively robust, but competition is fierce. Dairy products: In January, the domestic dairy industry generated revenue of 45.5 billion RMB, a 2.2% year-on-year decrease. Sales during the Spring Festival period were relatively flat, matching or slightly lower than last year, in line with market expectations. Shipments from major manufacturers decreased by low single digits, with active inventory control in channels. Due to faster shipments compared to sales during the Spring Festival last year leading to prolonged destocking periods, the top manufacturers this year are reasonably adjusting shipment targets downward, resulting in a healthy channel inventory. Frozen foods: In January, the domestic frozen food industry generated revenue of 14.5 billion RMB, a 3.2% year-on-year growth. The peak season for stocking up prior to the Spring Festival arrived earlier than the same period last year, with an increase in growth rate in December. However, the growth in demand for the first quarter of 25 is under pressure. Traditional frozen food products had relatively weak demand during the Spring Festival period, while pre-packaged meal products showed strong demand. Since the fourth quarter of 24, various manufacturers have increased promotional efforts for online shopping street products, leading to a decrease in factory prices. Soft drinks: In January, the domestic soft drink industry generated revenue of 92.5 billion RMB, a 2.4% year-on-year growth. Against the backdrop of high base numbers from last year, the soft drink industry had a relatively flat performance, recording single-digit growth rates. During the Spring Festival period, there was differentiation in product performance, with large packaging items suitable for group gatherings and high value products performing well, while gift box products showed weaker performance. There was also differentiation among categories, with tea and fruit juice showing strong sales while packaged water was relatively weak. Catering: In January, the total revenue of listed catering companies in the domestic market was 16.5 billion RMB, a 4.6% year-on-year increase. During the Spring Festival period, the turnover rate and queuing situation of many chain catering brands were relatively weak, and it is expected that demand for catering during the holiday period will weaken compared to last year. Risk warning: Economic growth lower than expected, slow income growth, food safety issues.