Guotai Junan: The liquor industry is at the bottom-seeking stage of the cycle, facing a critical stress test in Q2 of 2025.

Guotai Junan released a research report stating that the liquor industry is currently still in the phase of seeking the bottom of the industry cycle, with the divergence between supply and demand continuing to widen and channel inventory pressure not fully released. From a full-year perspective, the industry has reached the bottom of channel profitability, and will need to undergo the dual test of inventory bottom and performance bottom. The second quarter of 2025 may become a key point for the annual stress test, and corporate differentiation will further intensify. In the short term, the sector is entering a period of data validation, with individual stocks showing strong sales performance expected to achieve excess returns; in the medium to long term, attention should be paid to structural opportunities dominated by market share logic. Guotai Junan's main points are as follows: The sector is entering a stage of data validation, with priority given to certainty. The bank believes that the liquor industry is still in the phase of seeking the bottom of the industry cycle, with the divergence between supply and demand continuing to increase, and the inventory cycle still unfolding; from a full-year perspective, the industry is currently at the bottom of channel profitability, and will undergo the inventory bottom and performance bottom. The bank believes that the second quarter of 2025 is still the most critical point for the annual stress test, and corporate differentiation may further increase. The current sector is entering a stage of data validation, with individual stocks showing good sales performance expected to achieve significant excess returns in the short term. The main trend for liquor in 2025 is the share logic. The bank believes that the stock price performance of individual stocks in 2025 is essentially the reshaping of the industry cycle downturn combined with the growth logic of individual stocks: liquor is showing obvious stock competition at the bottom of the industry cycle, shifting from "rising quantity and price" to "rising quantity and falling price", with company growth mainly coming from continuous acquisition of market share and continuous competitive displacement of competing products in the industry. Overall, there is a clear share logic; relatively speaking, acquiring market share requires three factors: 1) strong brand, large capacity; 2) a rich product line, especially occupying the mid-range price segment; 3) strong organizational efficiency and channel structure. In the short term, focus on economic expectations, and in the medium term, evolve towards bond-like assets. Looking ahead, the bank believes that in the short term, the sector will continue to benefit from optimistic expectations such as the stabilization of the real estate chain and consumption boost, and is expected to see a temporary valuation lift, with performance support, strong fundamentals leading the way, and possible spread to high elasticity targets in the future. Considering that the industry cycle has not yet formed a solid bottom, indicators such as social financing, M2, second-hand housing prices in core cities, and long-term interest rates still have guiding significance for the sector. In the medium term, the industry still needs to go through the inventory cycle to de-stock, with a share logic, companies that can continuously increase market share are expected to maintain excess returns, and the industry will need to continue to go through the bottom of channel profitability, inventory, and performance. After achieving supply-demand balance, the share logic will be fully demonstrated, and the sector will evolve from growth to value, from "high growth, pro-cyclical" to "stable growth, high dividends". Risk factors: food safety, industry policy adjustments, etc.