China Galaxy Securities: Expect new consumer demand to continue to be highly prosperous. Pay attention to sectors benefiting from policy stimulus.

China Galaxy Securities has released a research report stating that in late October, the market will focus on the third quarter performance reports, with companies in the new consumption sector showing good performance. Investors should pay special attention to related high-quality stocks and sectors. Looking ahead to Q4 2025, the firm recommends focusing on two key points: 1) the valuation switch market trend at the end of the year, focusing on targets with solid fundamentals in the new consumption sector; 2) with the expectation that improvement in the Producer Price Index (PPI) will gradually transmit to the Consumer Price Index (CPI), investors can focus on undervalued cyclical sectors with supply clearing. Key viewpoints from China Galaxy Securities are as follows: Event: On October 23, the Fourth Plenary Session of the Twentieth Central Committee deliberated and approved the draft proposal for the "Fifteenth Five-Year Plan." According to the macroeconomic analysis by the Galaxy team, the Fourth Plenary Session has upgraded the description and positioning of "domestic demand" and "domestic circulation": 1) the relationship between supply and demand has shifted from the "Fourteenth Five-Year Plan" focusing on "innovation-driven, high-quality supply leading, and creating new demand" to "leading new supply with new demand, and creating new demand with new supply"; 2) in addition, it emphasizes the importance of orderly eliminating outdated production capacity to promote a balance between supply and demand and achieve a "positive interaction between supply and demand." Continue to focus on "new demand" represented by new channels and new product categories During the "Fourteenth Five-Year Plan" period, new consumption demand has shown strong growth, and the firm believes that related sectors will continue to achieve excess returns during the "Fifteenth Five-Year Plan" period. 1) Regarding channels, residents' lifestyles and consumer psychology are gradually becoming more rational, leading to continuous improvements in supply-side efficiency, catalyzing channel reforms and benefiting new channels such as instant retail, snack bulk sales, and membership supermarkets. 2) Regarding product categories, consumers' focus on health and functionality is increasing, while still maintaining demand for food that is delicious, trendy, and provides emotional value. Products such as coconut water, konjac, and health food are expected to benefit. Focus on areas benefiting from policy stimulus such as dairy products and the restaurant supply chain 1) Dairy products: The firm believes that the demographic structure issue is a key focus during the "Fifteenth Five-Year Plan," and expects the introduction of a series of incentives for childbirth. With reference to the clear statement in the 2025 Two Sessions to formulate policies to promote childbirth, as well as the issuance of the "Special Action Plan to Boost Consumption" by the Central Committee and the State Council which specifically proposes increasing support for childcare, the firm believes that the positive significance of childbirth subsidies for newborns is significant, benefiting markets such as liquid milk, infant formula, and children's cheese. 2) Restaurant supply chain: The distribution of restaurant consumption vouchers has temporarily boosted the recovery of social zero-food consumption, and the firm believes that the systemic and continuous support during the "Fifteenth Five-Year Plan" period is expected to continue. Local government subsidies for restaurants and banquet subsidies still have room for further enhancement, which may unleash the vitality of restaurant service consumption. Promoting a balance between supply and demand through anti-internal competition, focusing on the transmission of PPI repair to CPI Since 2021, the price of raw milk has declined significantly. The firm believes that the supply-demand contradiction will ease during the "Fifteenth Five-Year Plan," and milk prices are expected to moderately rise. 1) Supply side: with the orderly advancement of anti-internal competition, the animal husbandry industry is expected to experience a cyclical reversal, with the willingness to cull cows increasing after the rise in beef prices, combined with reduced import supply and the clearance of small and medium-sized livestock enterprises, the supply of raw milk will continue to be depleted. 2) Demand side: policy stimulus is expected to continue to boost dairy consumption demand. Risk warning: Risks include demand recovery falling below expectations, increased industry competition, downstream channel reform having less impact than expected, and food safety risks.