Caitong: The adjustment in the liquor industry is nearing completion, with leading management continuing to increase market share.

Caitong released a research report stating that, from the pace of adjustment in the two-wheel liquor industry, the current liquor industry adjustment is nearing its end, with the recovery of family banquet scenes expected to be faster than business demand. Leading companies will continue to improve their management efficiency and increase their market share. Focus on three main lines: 1) Companies with product price ranges suitable for family banquet scenes, with clear regional market competitive advantages and potential for consumption upgrades. 2) Companies with prominent brand positions, strong market operation capabilities, and comprehensive organizational support systems. 3) Liquor companies that dare to break through in product innovation, channel model innovation, and try to reconstruct their business models. Caitong's main points are as follows: Comparison of the pace of adjustment in the two-wheel liquor industry The reasons for the adjustment in the liquor industry and stock prices from 2013 to 2016 were due to the decline in industrial enterprise profits and real estate development investment, which affected business scene consumption. The subsequent ban on three public consumption had a significant impact on the demand for government liquor scenes, leading to a significant adjustment in liquor prices and the performance of listed companies. From the pace of industry adjustment, taking high-end liquor as an example, Wuliangye Yibin and Guojiao 1573 factory prices decreased before the bottoming out of wholesale prices. After the stabilization of wholesale prices and the positive growth in liquor industry revenue and profits, the SW Liquor Index began to achieve obvious continuous absolute returns and relative returns to the Shanghai and Shenzhen 300 Index. Compared to the period from 2013 to 2016, since 2022, liquor business demand has continued to shrink, with the strict implementation of frugality and anti-waste measures by the CPC Central Committee and the State Council in May 2025, impacting government liquor demand but to a lesser extent than the previous round. This round of adjustments is mainly driven by the continued decline in business demand. In terms of the pace of adjustment, by the end of 2023 and 2024, companies like Luzhou Laojiao provided strong policy support to distributors for payments. In recent months, Maowulubu's high-end products are still exploring lower wholesale prices but there are signs of stabilization. From the perspective of urban per capita disposable income and high-end liquor wholesale prices, residents' purchasing power for Wuliangye Yibin has far exceeded the lowest liquor price point in 2014, and the consumer base has expanded with the economic conditions in place. In terms of the duration of the adjustment, this round has lasted for 5 quarters since 3Q2024, and compared to the previous adjustment lasting 8 quarters, the industry is expected to rebound around 2Q2026. Major market changes and their impact on investments Three major changes in the liquor industry are worth noting: 1) The top 6 sales-listed companies in the liquor industry account for 48.1% of revenue, with the comprehensive strength of liquor companies increasing and the industry's self-discipline significantly improving, as the government continues to guide the healthy development of the industry, the industry's adjustments will be more moderate; 2) The significant expansion of soy sauce production capacity has not been reflected in the revenue share, and in the upcoming flavor competition, soy sauce will begin to have the production capacity and consumer penetration capabilities in place. 3) Liquor companies' management philosophy continues to improve, with increased dividend ratios, flexible use of share repurchase means, which will effectively enhance investor returns. Therefore, the bottom of this round of liquor stock price adjustment needs to consider the factors mentioned above. Risk warning: Market supply and demand risks; brand competition risks; policy and regulatory risks; food safety risks.