Founder: Focus on the establishment of the 2026 liquor company goals, other spirits are expected to present industry opportunities.

Founder released a research report stating that under the catalysis of multiple policies since May 25, the Baijiu sector has accelerated destocking, with the expectation that various liquor companies will continue to reduce inventory in Q1 2026. The fundamentals are expected to continue to decline, and attention should be paid to the setting of corporate goals for 2026 after the release of financial risks. As for beer, the bank believes that the cost advantage will weaken in 2026, and recommends paying attention to the recovery of demand. In addition, the consumption structure of strong liquor in China is currently dominated by Baijiu, while other types of liquor have small scale and low industry maturity. With the trend of market share shifting, there may be industry opportunities. The main points of Founder's view are as follows: Baijiu: The turning point is approaching, differentiation is intensifying, and controlled speed and quality lead to stable development Reviewing the development of the industry over the past 25 years, the fundamentals have weakened, financial reports have accelerated destocking, and under the catalysis of policies, there has been a bottoming out and recovery. The development of the sector in the past 25 years has gone through three stages: 1) Improvement in the quarter-on-quarter performance from Q4 24 to Q1 25, with enterprises actively controlling speed and releasing channel pressures. 2) Due to the dual pressures of macro environment and policies leading to weak end demand, the industry entered a deep adjustment in Q2 25, and the prices of mainstream products fell slightly. 3) The slowdown trend in Q2 25 continued in Q3, although there was some relaxation in policies, demand remained weak, and various liquor companies no longer pursued growth in financial reports, helping distributors reduce burden. The market anticipated a bottoming out, and the industry accelerated destocking. At the current point in time, stable development has become the consensus of the industry, with fundamentals bottoming out, financial reports being cleared, sector valuation being repaired first under policy support, and attention being focused on the setting of corporate goals for 2026 and improvements in demand after the release of risks. The Baijiu sector slowed down in financial reports from Q2, and a clear trend of destocking started from Q3 25. According to recent surveys, leading liquor companies have clearly identified business stability as the primary goal for 2026, not blindly pursuing channel growth. In the future, with the momentum of economic development turning for the better, there may be a recovery trend of destocking, price recovery, and sales warming driven by demand, with the policies on the formulation of Spring Festival and contract volumes in 2026 being the main observation indicators. Currently, leading liquor companies have actively started to implement policies such as controlling inventory, reducing quantity, and providing subsidies to help distributors cross the cycle. The bank believes that the financial risks released from Q4 25 and Q1 26 will continue, the fundamentals are in the bottoming phase, and there is an increasing differentiation between brands. Looking ahead, under the catalysis of multiple policies since May 25, the sector has accelerated destocking, with the expectation that various liquor companies will continue to reduce inventory in Q1 2026, the fundamentals are expected to continue to decline, and attention should be paid to the setting of corporate goals for 2026 after the release of financial risks. Beer: Weak demand recovery, declining sales volume by quarters, slight increase in ASP In the beer sector, under the conditions of "low base & low inventory + new management team taking office" in 25, the volume in Q1 started well, but subsequently, due to the continuous weakness of external catering channels and factors such as alcohol ban, the sales volume weakened by quarters. The ASP was slightly increased under the impact of cost advantage and pressure from CPI, leading to a low single-digit growth in the sector's revenue side for Q1-Q3 25 on a consolidated basis, with profit performance significantly better than revenues driven by cost advantages. Looking ahead to 2026, the bank believes that the cost advantage will weaken, and recommends paying attention to the recovery of demand. Low-alcohol drinks: Focus on the trend of changes in liquor consumption structure, other types of liquor's development space As the world's largest strong liquor market, the consumption structure of strong liquor in China is dominated by Baijiu, while other types of liquor are currently small in scale and low in industry maturity. With the trend of market share shifting, there may be industry opportunities. From the perspective of potential, whisky is currently the largest main type of strong liquor; from the perspective of scenarios, Baijiu is currently widely used as a social tool in business banquets and gift-giving scenarios. In this functional positioning, rice wine has the potential to partially replace and inherit. Risk warning: Macroeconomic recovery below expectations; consumer consumption recovery below expectations; food safety risks; deterioration of industry competition.