CITIC SEC: It is expected that the fundamentals of the liquor industry will bottom out in the third quarter, and there is optimism about the opportunity to allocate at the bottom of the industry.

CITIC SEC released a research report stating that the performance of the Autumn Sugar and Alcohol Expo in 2025 met expectations, and the industry is actively embracing the consumer end to expand market demand. Looking ahead, the bank predicts that the industry's fundamental bottom is expected to appear in the third quarter of 2025. It is expected that this year's third quarter is the stage with the greatest pressure on industry sales, prices, and market confidence, and the second half of the year is the stage with the greatest pressure on the financial performance of listed liquor companies. Considering the clear trend of gradual recovery, the bank is optimistic about the opportunity for bottom allocation in the liquor industry. The beer industry has a lower base in the second half of the year, with a stable pace of pre-holiday stocking. However, considering the increasing intensity of competition and the impact of alcohol restrictions, there is expected to be some pressure on the financial performance in the third quarter. CITIC SEC's main points are as follows: The performance of the sugar and alcohol expo met expectations, and the industry is actively embracing the consumer end. On October 18, 2025, the Autumn Sugar and Alcohol Expo closed, attracting more than 4,000 exhibitors. It was perceived as somewhat dull compared to the Spring Sugar and Alcohol Expo in 2023, which had over 6,500 exhibitors (according to Xinhuanet Co., Ltd.). At the current stage, the bank believes that the Expo's function for attracting merchants has weakened, with distributors and consumers seeing it more as a good market education opportunity. At this expo, companies like Jiangsu King's Luck Brewery Joint-Stock (603369.SH) have introduced low-alcohol new products targeting young consumers and different consumption scenarios. The liquor industry association also launched activities related to liquor education and prevention. From the perspective of Baijiu exhibitors, two interesting trends were observed at this year's Expo: 1) a variety of custom liquors, and 2) a large number of original liquor suppliers. These trends reflect that the liquor industry is in an adjustment period at the bottom, with both well-known brands and small businesses seeking to expedite fund recovery and revenue recognition. From the perspective of beer exhibitors, the bank found that the flavors and bottle types of the exhibited beers were more diverse, with new varieties such as tea beer and fruit beer emerging and specifications ranging from 250ml to 9L. Outlook for Q3 2025: Pursuing a balance between inventory and income growth. The bank believes that Baijiu companies in the third quarter should focus on slowing down their month-on-month growth rate, taking into account the health and stability of the upstream liquor industry chain and the controllable safety of downstream inventory. Top-tier companies in the high-end liquor sector are likely to seek to respect the market. Companies in the mid-range segment may maintain a moderate decline after adjustments, with insufficient consumer power being a major reason. For regional liquor companies, distributors and end users have low enthusiasm for stocking up, so the third quarter will continue to focus on destocking, continuing the performance adjustment trend from the second quarter. Risk factors: Increased competition in the Baijiu and beer industries; core product prices of the Baijiu industry performing below expectations in the market; risk of channel inventory in the Baijiu industry; slower-than-expected recovery in dining consumption; food safety issues, etc.