Orient: 2026 is expected to be a turning point for demand side. The core contradiction in the food and beverage sector is performance.

Orient's research report stated that the starting point for the food and beverage industry in 2026 is easy to rise but difficult to fall, with the core contradiction lying in performance. The bank believes that from 2021 to 2024, the food and beverage sector mainly aims to release performance to dispel valuation bubbles. By the end of 2025, the sector's valuation returns to the historical bottom range, but factors such as weak consumption power have led to performance downgrades. The core contradiction in the sector returns to the performance end, namely, performance. Orient's main points are as follows: Performance end: From structural dividends to total recovery, holding on to the "old" while embracing the "new". The bank believes that with the economic structural transformation and household balance sheet repair, 2026 is expected to be a turning point for demand, where demand-side "L-shaped" consumption and structural characteristics may coexist for a certain period of time. New consumption performance boom continues, while old consumption performance is cleared out. As time unfolds, consumption is expected to show a situation where total recovery and structural prosperity coexist, with both traditional and new consumption sectors expected to achieve performance upgrades, with traditional consumption likely to release performance elasticity. Holding on to the "old": Bottoming out in demand, operational improvement, traditional consumption will see a bottom reversal. For traditional consumption, the bank believes that baijiu (Chinese liquor) in 2026 is the best indicator to observe. The bank expects the first half of 2026 to see a sufficient decline in baijiu performance, entering a phase of month-on-month improvement, which will mark the bottoming out of the food and beverage industry's performance. Based on this, sectors in the food and beverage supply chain such as fast frozen foods, condiments, wine, dairy products are in good inventory and have a low performance base, allowing some targets to achieve performance reversal or profit elasticity release. For baijiu, after entering the "L-shaped bottom" in performance, the top enterprises enhance their "bond-like asset" attributes, with favorable odds for stock price positions and sector stock prices expected to be driven by valuation increases. Embracing the "new": Structural dividends continue, new consumption boom continues. As a mature industrial country, China is in the midst of economic structural transformation. Taking into account population cycles and external environments, the bank believes that the structural characteristics of consumption will continue for a considerable period of time. The features of "large total volume, strong structure" in domestic consumption remain unchanged, with high acceptance of innovation and new categories, new channels, and new markets will continue to drive the performance of consumer goods. Risk factors: 1) Food safety; 2) Industry policy adjustments; 3) Management team changes.