Guosen: Policy guidance against internal competition and seeking incremental growth. Short term focus on leading companies with excellent semi-annual reports.

Guosen released a research report stating that it maintains a rating of "outperforming the broader market" for the sector. With the external environment showing a moderate trend, and domestic policy stimulus intensifying and liquidity remaining loose, it is expected to continue to drive the overall market trend. The sector as a whole has been relatively stagnant compared to the broader market in the past month, mainly due to adjustments in the mid-term expectations of star stocks and the impact of fund rotation. However, the short-term pullback also brings new opportunities for the long-term layout of fundamentally outstanding stocks: 1) cross-border expansion; 2) gold and jewelry; 3) beauty and personal care; 4) traditional retail. Consumer policy stimulus still has room for further intensification in the future, and the mid-term expectations of individual stocks are expected to continue to diverge. Since the beginning of this year, domestic policies have focused on stimulating domestic consumption demand and countering the internal competition. As related policies are successively implemented, they create a healthy and positive environment for future consumption recovery: 1) Supply side: In July 2025, the Central Economic and Financial Committee proposed "governing the disorderly competition of enterprises in accordance with laws and regulations," prompting the e-commerce industry to explore a model of benign competition. The National Development and Reform Commission and the State Administration for Market Regulation have publicly solicited opinions on the draft amendment to the Price Law of the People's Republic of China, which will further rectify low-price disorderly competition behaviors and promote orderly competition in the industry. For consumer product industry leaders, this will help guide a return to rational competition on the supply side based on "quality over subsidies" and "service over subsidies." 2) Demand side: On July 28, the General Office of the Communist Party of China Central Committee and the General Office of the State Council issued the "Implementation Plan for Child-Rearing Subsidy System," which has a strong policy signal significance. It is expected to not only increase the consumption ability of families but also give families greater consumption autonomy. Additionally, on July 30, the Central Political Bureau meeting emphasized the need to effectively release domestic demand potential and to further implement special actions to boost consumption. The subsequent release and updates of policies such as consumer assistance and stable employment are worth looking forward to. Risk warning: Consumer recovery falls short of expectations; intensification of industry competition; changes in business management, etc.