Securities: accelerated clearance of food and beverage, sector investment value is expected to increase.

East Money Information Securities released a research report pointing out that compared to the mismatch between supply and demand in 2024, which led to the deterioration of industry operations, companies have gradually lowered their growth targets to adapt to demand in 2025. The financial statements of companies have been adjusted gradually in the second and third quarters, which not only eased the supply-demand contradictions but also increased the investment value of the sector. The main logic is to shorten the industry destocking cycle, and the bank expects to achieve positive growth in financial reports at the second or third quarter of next year. The main points of East Money Information Securities are as follows: Review During the first three quarters of 2025, industry revenue has slightly increased under weak demand, while profits have been under pressure. In the third quarter of 2025, Shanghai Food and Beverage's operating income and net profit attributable to shareholders decreased by -4.9% and -14.6% respectively year-on-year. The sector accelerated its clearance in the third quarter. Traditional consumption has been constrained by consumption scenarios and slow demand recovery, with strong demand for banquets and public gatherings, but weak performance in beer due to pressure on demand in terms of quantity and price. Sectors such as snacks and beverages that have opportunities for new product launches and channel expansions have continued to do well, with rapid growth in the konjac category since 2024. Companies that actively reform and innovate, such as Kuaijishan Shaoxing Rice Wine, have shown strong momentum. Analysis and Outlook of Different Categories Liquor: Industry acceleration in clearance, turning point gradually clear. In the first three quarters of 2025, the sector's overall revenue and net profit attributable to shareholders decreased by -5.8% and -6.9% respectively year-on-year, with decreases of -18.4% and -22.2% in the third quarter of 2025. Industry decline in revenue or profitability may gradually narrow under improved demand. On the demand side, rigid demand from banquets and public gatherings remains strong, while business activities have suffered, and the decline in prices has stimulated consumer demand, possibly stabilizing Maotai prices. The appearance of the balance of supply and demand is expected to stabilize channel expectations for operations, and companies are expected to see improvements in their financial reports around the second quarter of 2026 on a low base. Low-alcohol beverages and beverages: 1) Beer: stable performance in terms of quantity and price, pay attention to the impact of immediate retail channels. In the first three quarters of 2025, the sector's overall revenue and net profit attributable to shareholders increased by +2.0% and +11.8% respectively year-on-year, with increases of +0.6% and +11.3% in the third quarter of 2025. Revenue growth slowed under weak demand, with costs such as barley and glass at low levels, and cost dividends continued. There is hope for recovery in 2026 under improved demand, and changes in immediate retail channels may affect competition in certain regions. 2) Yellow Wine: Companies' efforts may bring about more positive changes in the industry. Leading companies are leading reform efforts, such as Kuaijishan Shaoxing Rice Wine, which continues to nurture products such as 1743 and Lanting, leading to product structure upgrades, and Zhejiang Guyuelongshan Shaoxing Wine collaborating with CHINA RES BEER to launch "Yue Xiao Beer". In the first three quarters of 2025, Kuaijishan Shaoxing Rice Wine's gross profit margin increased by 4.6 percentage points to 54.7%. Led by top companies, the industry is expected to break through boundaries in categories and expand regionally. 3) Low-alcohol beverages and beverages: industry vitality continues, with health, functionality, and individuality remaining the main themes in the beverage industry. Top companies continue to create major products under strong channel barriers, expanding growth boundaries. Mass-market products: 1) Dairy products: The raw milk industry is gradually bottoming out, with continuous clearance upstream and pressure on small and medium-sized farms. Demand for liquid milk remains weak, with a stabilization in milk prices for double festivals, low penetration of low-temperature fresh milk, potentially replacing some room temperature milk, increased demand for deep processing downstream, and gradual balancing of the raw milk cycle, with milk prices expected to stabilize and rise. 2) Snacks: The konjac and oat categories are expected to maintain high vitality, with gradual shifts towards emerging channels, with volume channels and membership channels being important drivers of growth this year, gradual increase in immediate retail sales, and recommendation of companies that have advantages in categories, are expected to bottom out and recover through new products, channel adjustments or cost dividends. 3) Seasonings and catering chains: Overall weak demand in the catering industry, with Western-style re-adjustments and frozen baking offering structural opportunities, some chain formats such as Zhongyin Babi Food and GUOQUAN actively adjusting, with noticeable performance improvements in store performance, and sugar prices expected to continue to decline. Investment recommendations Liquor: Accelerated clearance bottoming out, stock price expectations leading. The industry's accelerating clearance, gradual stabilization of mainstream product prices, gradual clarification of industry bottoms, narrowing of performance declines, and gradual return to positive territory are expected to lead to valuation repair. Recommendations: 1) Ethanol companies with early clearance and upward brand momentum, such as Anhui Gujing Distillery, Luzhou Laojiao, Jiangsu Yanghe Distillery, Jiangsu King's Luck Brewery Joint-Stock, Jinhui Liquor, etc.; 2) Companies with strong brand momentum, full product matrix, and excellent channel operations, such as Shanxi Xinghuacun Fen Wine Factory, Kweichow Moutai, Wuliangye Yibin, etc.; 3) Companies that actively initiate model innovations, profit-sharing with channels, and are expected to reverse after clearance or have differential growth opportunities in channel expansion, such as ZJLD, Shede Spirits, Jiugui Liquor, etc. Low-alcohol beverages and beverages: 1) Yellow Wine: Leading companies undergoing positive changes, enhancing product innovation and channel cultivation, with potential for category diversification and regional expansion in the medium and long term, recommended to pay attention to Kuaijishan Shaoxing Rice Wine, Zhejiang Guyuelongshan Shaoxing Wine; 2) Beer: Demand is expected to improve with gradual repairs in scenarios, recommended to pay attention to Beijing Yanjing Brewery, Tsingtao Brewery, Guangzhou Zhujiang Brewery, CHINA RES BEER, Chongqing Brewery, etc.; 3) Premixed drinks and beverages: Trends such as health and functionality will continue, with top companies having high channel barriers and strong capabilities to create major products, recommended to focus on NONGFU SPRING, Eastroc Beverage, Shanghai Bairun Investment Holding Group, etc. Mass-market products: Focus on cycle reversal, superior performance, and cost dividends. 1) The raw milk sector is gradually bottoming out, with potential for balancing the raw milk cycle as upstream clearance and downstream deep processing demand increase, and milk prices stabilize and rise, recommended to focus on upstream farms, leading dairy companies and low-temperature superior dairy companies: YOURAN DAIRY, CH MODERN D, CHINA SHENGMU, Inner Mongolia Yili Industrial Group, New Hope Dairy, etc. 2) In the snack sector, the konjac category trend is expected to continue, with some companies expected to improve and recover their performance through product and channel adjustments, recommended to pay attention to: Fujian Wanchen Biotechnology Group, YouYou Foods, WL DELICIOUS, Yanker Shop Food, Guilin Seamild Foods, Ganyuan Foods, Chacha Food, etc. 3) The catering sector as a whole is relatively under pressure, but there are still relative opportunities in segmented tracks, with sugar prices expected to further decline, recommended to focus on: Shanghai Bolex Food Technology, Ligao Foods Co., Ltd, Anjoy Foods Group, GUOQUAN, Zhongyin Babi Food, Angel Yeast Co., Ltd. Risk warning Stimulus policies falling short of expectations; risks of rising raw material prices; worsening industry competition landscape; channel expansion falling short of expectations.