Huachuang Securities: Weak expectations in the liquor industry are gradually breaking through, laying out the bottom range.

Huachuang Securities released a research report stating that the negative sentiment in the liquor market accelerated after the holiday, but in actuality industry expectations are emerging from the bottom. With the worries of Pu'er and Maotai prices gradually dissipating on one hand, making the psychological defense line of 2000 RMB more solid, and on the other hand major liquor companies having clearer marketing strategies and performance expectations this year, although the overall growth has slowed down, the concentration of industry share and micro-operation adjustments are offsetting each other. The path for companies such as Maotai, Wuliangye Yibin, and Gujing to achieve growth throughout the year is becoming clearer. It is expected that the expectations of the liquor sector from the current to the second quarter will gradually form and solidify. It is suggested that investors focus on safety margins in the medium and long term, value in the bottom range, and prioritize competitive brands such as Maotai, Wuliangye Yibin, and Fen Jiu, which have sufficient reserves to cross the cycle. It is also recommended to continue to invest in brands with good sales feedback, such as Gujing, Jiangsu King's Luck Brewery Joint-Stock, and Laobaigan, which will benefit once demand improves. Huachuang Securities' main viewpoints are as follows: Two key changes after the holiday: Significant improvement in Maotai pricing expectations, and major liquor companies' marketing focus becoming clearer. First, it is expected that the bottom price for Maotai this year will be strengthened above 2000 RMB. Due to the good pace of Maotai's Spring Festival deployment and product structure adjustment, and the relatively stable demand for ultra-high-end products, Maotai's pricing has slightly rebounded after the holiday, even though it has fallen slightly after recent shipments, it is still around 2200 RMB, leaving enough price safety margin. More importantly, as the market's confidence indicator, Maotai's pricing expectations have risen significantly, with major merchants in many places raising their expectations for the bottom price for the year, sweeping away the extreme concerns since last year when prices fell sharply, significantly boosting confidence in establishing a bottom price above 2000 RMB. Second, liquor companies' marketing focus is becoming clearer, with Wuliangye Yibin setting up a platform company being the focus. On one hand, various liquor companies have more practical operating goals this year, and on the other hand, their paths are becoming clearer. Leading liquor companies are moving forward with a carrier fleet marketing approach, with the main products focusing on quality and pricing, while secondary products are used to exchange volume, or new products are introduced as escort ships, making tactical sacrifices to safeguard the entire fleet. Therefore, in addition to various liquor companies recently issuing notices of halting shipments, it is expected that they will also release tactical products soon. Wuliangye Yibin's bold marketing reforms before and after the Spring Festival have undoubtedly become industry focus points, from halting Wuliangye 5 promotions before the festival and announcing a reduction in inventory, to the recent establishment of a sales platform company, which adopts a model where distributors have an ownership stake but the company leads management, constructing a direct sales system. Wuliangye Yibin has played a strategic combination in reform, achieving a price rebound for Wuliangye 5 in the short term, and ensuring stable growth in payment return through the establishment of a platform company for fund protection. The long-term aim is to shift sales dominance back to the factory, although there are still challenges in building and implementing a direct operation system for the platform company, testing strategic resolve and top-down coordination. Similar experiences from successful models like Guojiao and Jiannanchun are worth learning from. Once the reform is successful, it is hoped to fundamentally resolve the long-standing quantity-price contradictions. There are bright spots amid the muted demand, and the outlook for the Double Spring Festival banquet market is relatively positive, with the concentration effect still accelerating. The post-holiday period is the normal low season for liquor, and the sales speed on the demand side has slowed down as expected, with high-end gift-giving demand relatively stable, and banquet scenarios showing good resilience, especially the household banquet market being relatively advantageous. Considering the base effect and the Double Spring Festival effect, and combining feedback from channels on the current situation of banquet reservations, some channels anticipate a certain improvement in liquor sales in March-April compared to the same period last year. The concentration effect on the brand side is more obvious, with leading brands such as Maotai, Wuliangye Yibin, and Gujing having relatively good feedback, while small and medium-sized brands facing difficulties in turnover, high inventory, and contract renewal pressure. 1) Maotai: Flying Fairy promotions and stable pricing, Maotai 1935 supporting banquets, and its high cost performance in the 700 RMB price range, have resulted in elastic growth in sales opening bottles; 2) Wuliangye Yibin: Wuliangye 5 is gradually shipping small quantities after the holiday, with pricing remaining strong and increasing, terminal shares staying stable, and core distributors participating in the platform company investments, launching a combination of marketing reforms; 3) Laobaigan: Taking advantage of the flexible characteristics of the Jiangsu and Zhejiang markets, the company actively promotes 39/45-degree products, maintaining high enthusiasm and management advantages, and keeping market share stable in East China; 4) Fen Jiu: Basic quality of cash returns being high, Qing 20 maintains elastic growth, Bai Fen restoring volume control, recovering price, and facing supply shortage, with plans to promote Qing 26 in the future; 5) Yanghe: Increased competition with provincial and regional brands, halting sales of Hai/Meng Zhi Lan after the holiday, with inventory still needing to be digested; 6) Jiangsu King's Luck Brewery Joint-Stock: Digesting inventory after halting sales with the opening/filling of barrels, clear advantages in the Nanjing market and relative strength in the Suzhong region; 7) Gujing: Seeing a slight increase in inventory after the holiday, starting to request returns, increasing investment in products such as Ge 8 in the province; 8) Sichuan Swellfun: Facing slight pressure on returns and sales, with a focus on destocking in the near future.