Guotai Haitong: Acceleration of fundamentals in the third quarter of 25Q3, liquor sector entering strategic allocation period.

Guotai Haitong released a research report stating that although the improvement of fundamentals still requires patience, based on the performance of the third quarter reports, the revenue of major liquor listed companies has seen a significant year-on-year decline, and the balance sheets are accelerating to clear out. Meanwhile, the prices of high-end liquor have continued to decline recently, and the market is accelerating the search for a balance between quantity and price. The changes in the capital market have shifted from not knowing when the bottom will be reached to being able to predict when it will be reached in the future. For medium and long-term funds, it is now possible to price quality companies for the long term. Therefore, for quality companies, they have entered a strategic allocation period. The main points of Guotai Haitong are as follows: Fundamental analysis: 25Q3 fundamentals are accelerating downward, balance sheets are clearing out quickly The liquor industry achieved operating revenue of 310.28 billion yuan in the first three quarters of 2025, a year-on-year decrease of 5.48%, and a net profit of 122.69 billion yuan, a year-on-year decrease of 6.63%. In terms of changes in revenue and profit growth rates, national famous liquor brands > regional brands > mid-range brands. In 25Q3, the liquor industry achieved operating revenue of 76.31 billion yuan, a year-on-year decrease of 18.4%, and a net profit of 28.21 billion yuan, a year-on-year decrease of 22.0%. In terms of revenue growth rates, national famous liquor brands > regional brands > mid-range brands; in terms of profit growth rates, national famous liquor brands > mid-range brands > regional brands. The net profit margin of the liquor industry in the first three quarters of 25 was 40.6%, a year-on-year decrease of 0.5 percentage points, mainly due to the increase in tax rates and the decrease in gross profit margins. In 25Q3, the net profit margin of the liquor industry was 38.0%, a year-on-year decrease of 1.7 percentage points, mainly due to the decrease in gross profit margins, as well as increases in business tax rates and management expenses. As of the end of 25Q3, the advance receipts of the liquor industry amounted to 42.97 billion yuan, an increase of 20.4 billion yuan from the end of 25Q2, but a decrease of 15.0 billion yuan year-on-year. In terms of the difference in the sequential change in advance receipts, national famous liquor brands have performed relatively well. The net operating cash flow of the liquor industry in 25Q3 was 21.39 billion yuan, a year-on-year decrease of 54.2%. The cash received from selling goods and providing services was 81.90 billion yuan, a year-on-year decrease of 26.9%. The decline in cash flow exceeded the decline in revenue. The net operating cash flow of the liquor industry in the first three quarters of 25 was 110.32 billion yuan, a year-on-year decrease of 4.9%. The cash received from selling goods and providing services was 335.38 billion yuan, a year-on-year decrease of 3.5%, with the decline in cash flow being less than the decline in revenue. Valuation analysis: Valuations are below historical levels, top brands have a safety margin in valuation As of October 31, 2025, the absolute PE ratio of the liquor sector was 18.7x, lower than the average level of 27.6x since 2011. The relative PE ratio of the liquor sector (relative to the Shanghai Composite Index) was 1.14x, lower than the average level of 2.01x since 2011. Guotai Haitong believes that the current valuations of the sector and leading companies partially reflect market expectations of pressure on mid-term demand. In the medium to long term, if demand improves, balance sheets will also improve, and the industry is expected to return to a stage of valuation and performance double-hitting. In terms of dividends, the dividend payout ratio of liquor companies is expected to continue to increase in the future, and leading companies have disclosed a three-year dividend return plan. Most liquor companies currently have a dividend yield of above 3%, making them a long-term investment value, with top brand valuations having a safety margin. Recommendations Key recommendations: Luzhou Laojiao (000568.SZ), Shanxi Xinghuacun Fen Wine Factory (600809.SH), Kweichow Moutai (600519.SH), Wuliangye Yibin (000858.SZ), attention to Anhui Yingjia Distillery (603198.SH), Jinhui Liquor (603919.SH), Anhui Gujing Distillery (000596.SZ), Jiangsu King's Luck Brewery Joint-Stock (603369.SH), Jiangsu Yanghe Distillery (002304.SZ), etc. Risk factors Economic downturn affecting overall demand for liquor; food safety issues.