Guosen: The bottom signal of liquor is solid, pay attention to the opportunity of allocating high-quality liquor enterprises.

Guosen released a research report stating that the contradiction between supply and demand will become more prominent by 2025, leading liquor companies to lower their growth expectations gradually to alleviate channel pressure. The liquor sector has entered a customizable range, with leading company Kweichow Moutai (600519.SH) seeing improvement in the relationship between quantity and price, showcasing dividend asset attributes, with a estimated dividend yield of 4% in 2026 supporting valuation; the market has already fully priced in expectations of declining performance in the sector, so any improvement in supply and demand could act as a catalyst. Guosen's main points are as follows: Looking back at 2025: Supply and demand contradictions become more apparent, liquor companies lower growth expectations, gradually alleviating channel pressure. Since the beginning of 2025, the liquor index (Shenwan) has dropped by 12% (underperforming the Shanghai and Shenzhen 300 index by 33%), with Wind's consolidated forecast predicting a 17% decline in the sector's net profit attributable to owners, and a 6% increase in forecast PE (FY25). Performance is the main reason for the decline in stock prices. Since 2023, the market has been concerned about the long duration of growth in the liquor industry, with valuations and holdings constantly decreasing, now at historical lows, reflecting market pessimism. On the sales side, affected by alcohol policies in the second quarter, sales hit a low point in June-August. Currently, liquor consumption has shown slight improvement, but actual demand is still weak, with strong supply and the phenomenon of exchanging price for quantity being common, with mainstream products selling at a bottom price; this has forced liquor companies to reduce supply, improve supply and demand relations, such as companies like Wuliangye Yibin and Anhui Gujing Distillery lowering their growth expectations and seeing a significant decline in third-quarter performance, gradually alleviating channel pressure. Looking ahead to 2026: Optimize the supply side, clear the channels, focus on opportunities to allocate high-quality companies. 1) On the industry level, there is still a supply-demand gap, but with increased policy (weakening of consumption suppression, continued boost in domestic demand), scenarios and demand are expected to gradually recover, with the liquor industry showing resilience during the Spring Festival sales in 2026, potentially stabilizing after Q2 2026 due to the low base. Liquor companies are expected to set more rational targets for 2026, but will still pursue market share gains; Kweichow Moutai's product structure and channel optimization, under the development goals of rationality, may lead to a gradual improvement in industry supply and demand dynamics. 2) Regarding channel status, after inventory peaked in Q3 2025, it decreased compared to the previous quarter, channel profits rapidly shrinking since the second quarter, with liquor companies strengthening the maintenance of dynamic distributor profits. Leading brands such as Maotai, Wuliangye Yibin have gradually relaxed channel policies, and the main brands have shown stability in batch prices after the Double Festival. Looking back at the 2013-15 cycle, the channel status entered a dynamic bottoming stage in Q3 2013, valuations & stock prices hit a bottom and rebounded in Q1 2014. With Maotai's batch prices stabilizing year-on-year in this current cycle, the signal of valuation bottoming and rebounding will also strengthen. 3) From a competitive perspective, this current cycle comes with structural changes in demand, shifting from differentiation based on price range to intensifying competition among liquor companies based on capabilities (brand, organization, channel, marketing), becoming the main factor in future market share competition. The bank believes that companies that can control pricing in a certain price range or region, or companies that can nurture new groups/channels/scenarios on the left side of fundamentals, may lead the way out of the adjustment cycle. Main themes for individual stock investment: 1) Companies with strong brands, capable of crossing cycles in the short term and enduring long-term operations, such as Kweichow Moutai and Shanxi Xinghuacun Fen Wine Factory, may see an improvement in valuation central with better market liquidity; 2) Companies that have gradually gained market share advantages in price ranges and regions, actively strengthening channels and consumer reach during the adjustment phase, like Luzhou Laojiao and Anhui Gujing Distillery, Jinhui Liquor; 3) Companies that have adjusted sufficiently, with correct short-term actions and bottom reversal potential, such as Anhui Yingjia Distillery and Shede Spirits, Jiangsu Yanghe Distillery; 4) Companies with high comprehensive shareholder returns and high cash flow safety margins, like Wuliangye Yibin. Risk warning: Macroeconomic development exceeding or falling below expectations, further slowing down the pace of demand recovery; intensified competition within the industry leading to increased investment costs affecting profit margins; increased market fund volatility.