China Securities Co., Ltd.: Leading the New Year's Bull Market Growth, Liquor Industry Gearing Up for Spring

China Securities Co., Ltd. released a research report stating that from the monthly data and market performance, the cross-year market trend may show a distinctive feature of "growth leading, liquor gathering strength". Currently, market funds are more inclined to layout the snack, dairy and other tracks with clear prosperity and higher elasticity. These sectors, bolstered by policy support and industry trends, have shown continuous improvement in monthly data, becoming the core DRIVE of the cross-year market trend. The liquor sector is in a phase of "gathering strength at the bottom", with the approaching Spring Festival leading to gradual activation of end-demand stocking. The recent marginal changes of leading liquor companies stabilizing prices and decreasing inventory have started to appear. It is expected that post-Spring Festival, with the recovery of consumption scenarios and the release of concentrated demand, liquor will welcome a valuation recovery trend. The main points of China Securities Co., Ltd. are as follows: 1. Liquor: Several liquor companies are sending positive signals, capturing the opportunity to allocate positions at low valuations. This week, leading liquor companies such as Anhui Gujing Distillery (000596.SZ), Xijiu, Luzhou Laojiao (000568.SZ) held core meetings with distributors and shareholders, revealing their annual achievements and 2026 strategic plans in the context of industry deep adjustment and high inventory levels. They released clear signals of stabilizing against the trend and actively breaking through. Specifically, Anhui Gujing Distillery achieved its expected development goals in 2025, broadening growth space through optimizing product structure, launching new products, and creating unique consumption scenarios. In 2026, it will focus on its core liquor business and deepen quality construction and market expansion, while also developing the health and wellness industry to cultivate new growth poles. Xijiu delivered an outstanding performance, with annual sales revenue holding steady at about 19 billion yuan, substantial decrease in social inventory to a recent low in recent years, and a record high sales rate indicating significant progress. Luzhou Laojiao summarized the achievements of the digital transformation in the "14th Five-Year Plan" period, clarified the "15th Five-Year Plan" ecological chain strategy and the target of becoming a chain-leading enterprise, concurrently promoting low-alcoholization and rejuvenation initiatives, strengthening the protection of high-end brand values. Despite the current phase of adjustment in the liquor industry, leading liquor companies have strengthened their core competitiveness through precise strategic layout and practical measures, generally optimistic about the industry's medium to long-term development potential, believing that as consumption scenarios recover and industrial structure optimizes, the industry will gradually return to a healthy development track. Currently, the valuation of the liquor sector is at a historical low, with strong bottom allocation value, while also paying attention to consumer policy catalysis. 2. Mass Brands: Focus on three structural opportunities, EU dairy product anti-subsidy benefits the domestic deep processing sector. Looking ahead to January, we recommend focusing on three main themes: 1. Cross-year market trends and spring movements: Growth leading, liquor gathering strength awaiting the spring From the monthly data and market performance, the cross-year market trend may show a distinctive feature of "growth leading, liquor gathering strength". Currently, market funds are more inclined to layout the snack, dairy and other tracks with clear prosperity and higher elasticity. These sectors, bolstered by policy support and industry trends, have shown continuous improvement in monthly data, becoming the core DRIVER of the cross-year market trend. While the liquor sector is in a phase of "gathering strength at the bottom", with the approaching Spring Festival leading to gradual activation of end-demand stocking. The recent marginal changes of leading liquor companies stabilizing prices and decreasing inventory have started to appear. It is expected that post-Spring Festival, with the recovery of consumption scenarios and the release of concentrated demand, liquor will welcome a valuation recovery trend. 2. Performance forecasts: Opportunities for outperforming performance in differentiated tracks As the deadline for the 2025 annual report approaches, certain targets in the food and beverage sector may exceed expectations due to their differentiated advantages. In the liquor sector, leading liquor companies, while experiencing a slowdown in short-term revenue growth due to control of inventories and optimization of distribution structure, have maintained robust profitability. Some regional liquor companies, buoyed by advantages in reaching lower-tier markets and improved sales performance, are expected to exceed performance expectations; in the mass brands sector, sub-categories like ready-to-eat dishes and functional snacks benefit from the recovery of consumption scenarios and product upgrades. In addition, some companies successfully pass cost pressures on to consumers through product price hikes and structural upgrades, coupled with market consolidation after industry clearance, with performance growth expected to significantly outperform the industry average. 3. Late-January event catalysts: Multiple positive factors may trigger better-than-expected first-quarter performance Beginning in late January, multiple event catalysts may lead to better-than-expected first-quarter performance. At the corporate level, liquor companies are entering the peak selling season of the Spring Festival, and the anticipatory stockpiling by some mass brand companies is expected to drive improved data in January and even the first quarter. In addition, the food and beverage sector is currently undervalued, with capital inflow and sentiment recovery. The potential for better-than-expected performance due to event catalysts is expected to further enhance the upward mobility of the sector. [Liquor]: Several liquor companies are sending positive signals, seize the opportunity to allocate positions in liquor at low valuations At the global distributor conference of Anhui Gujing Distillery on December 26, 2025, Chairman Liang Jinhui summarized the achievement of the expected goals in 2025 and outlined the strategic prospects for 2026. The company is focused on its core liquor business without wavering, deepening quality construction, expanding the market, and launching new products and business models to cultivate new growth areas. At the Guizhou Xijiu National Distributor Conference in Guiyang on December 20, 2025, facing the severe environment of the independent pricing reforms and high inventory levels in the liquor industry, Xijiu has achieved remarkable results in countering the trend: annual sales revenue is around 19 billion yuan, with a significant decline in social inventory to a recent low, and considerable improvement in channel health. This achievement was a result of Xijiu's comprehensive measures: investing over 3 billion yuan to help distributors clear about 40 billion yuan in inventory, and significant improvements in sales performance. At the extraordinary general meeting of shareholders held by Luzhou Laojiao on December 24, discussions were held on strategic upgrades, rejuvenation layouts, low-degree product advantages, the pricing strategy of Guojiao 1573, online e-commerce positioning, and industry prospects. The company's completion of a full chain digital transformation in the "14th Five-Year Plan" period has laid a solid foundation for the supply chain, while the upcoming "15th Five-Year Plan" will focus on the strategic upgrade to build an ecological chain, advance to a chain-leading enterprise, strengthen core capabilities internally, strengthen industry chain collaboration externally, and meet the needs of the new generation of consumers to drive strategic transformations. In terms of rejuvenation layouts, the company focuses on product innovation, delves into the 38 low-degree product line, develops innovative products, and promotes consumption scenarios to resonate with younger generations. As a leading company in the low-alcohol liquor track, it has formed a core competitive advantage with technological moats, stable quality, and sufficient market validation; Guojiao 1573 will maintain brand long-term value by keeping prices stable, creating additional value through service and experience improvements, rather than simply sticking to price stability; online e-commerce is considered an important bridge to connect markets, and the future will explore compliant and win-win cooperation models and promote Wuxi Online Offline Communication Information Technology Co., Ltd.'s ecological synergy. Regarding industry trends, the liquor industry has experienced periodic fluctuations in 2025, entering a phase of adjustment since May and potentially a key adjustment phase in the first quarter of 2026. However, in the medium to long term, as long as the industry can ensure a healthy market foundation and channel ecosystem, capture consumption iteration opportunities, it is expected to return to a healthy development track. [Beer]: Beer industry production volume declined in November, watch for cost changes and inventory clearance According to data from the National Bureau of Statistics, from January to November 2025, China's large-scale enterprises accumulated a total beer production volume of 331.81 million hectoliters, a year-on-year decrease of 0.3%. In November 2025, China's large-scale enterprises produced 15.96 million hectoliters of beer, a year-on-year decrease of 5.8%. Considering that the industry is in a low season for sales with companies focusing on inventory clearance, attention is on the upcoming New Year planning. With the impact of the alcohol ban, the base for the catering industry in 2026 is low, and with gradual stabilization of the CPI and the driving force of the 2026 World Cup, beer recovery is expected. [Dairy Products]: Deep processing industry benefits from favorable policies, watch for upstream price stabilization and downstream deep processing The Ministry of Commerce has implemented temporary anti-subsidy measures on imported dairy products from the EU, mainly involving cheese and cream, which accelerates the domestic substitution of deep processing industrial production. In the third week of December, the average milk price in the main production areas was 3.03 yuan/kg, a slight increase from the previous period, indicating relative strength in social fresh milk prices during the off-season, with a decrease in milk powder volume. It is expected that milk prices have reached a bottom. In 2026, as high-growth peak periods for dairy cows occur in 2021-2022, deep processed dairy capacity will gradually come online, the turning point of raw milk prices will be reached, thereby improving performance for upstream pastoral operations and releasing profit elasticity for midstream dairy companies. In 2026, domestic deep processing capacity is expected to be intensively put into operation, suppressing the demand for raw milk, promoting domestic substitutes for B-end materials, and providing significant market potential. [Condiments & Frozen Foods]: The catering chain enters the peak season, and the price spiral may slow down, yeast sugar cane season likely to release cost elasticity The new sugar cane crushing season for yeast sugar has started, with the procurement of southern sugar cane underway. According to data from Pan Sugar Technology, the average price of sugar cane in November was 861.08 yuan/ton (a year-on-year decrease of 28.89%), and the latest transaction price on the platform in December reached 761 yuan/ton, indicating a notable decrease in core raw material prices. In 2026, it is expected to continue to release profit elasticity, with some companies speeding up the construction of yeast protein, yeast extract, and other production capacities to explore a second growth curve in the domestic market. As new products are set to be launched in December for the catering supply chain, such as AnJing's fresh lock 6.0 about to be launched, Sam's new product, black tiger shrimp slide sales climbing, and Ross benefiting from the upcoming launch of Gold Medal Chicken Wings, new production lines are set to be put into operation or accelerated for the new launch. Looking ahead to 2026, the slowdown in the price war will optimize the competitive environment and shift competition from price to quality and value, with fragmented channels, the rise of new retail, and the increasing chainization of catering. Actively embracing high-quality channels, improving supply chain efficiency, and enhancing flexible customization capabilities. [Soft Drinks & Snacks]: Approaching the Spring Festival, focus on the peak season stocking trends for snack foods With the Spring Festival approaching, distributors are beginning to stock up for the peak season of snack food consumption. As the Spring Festival falls later this year, the stocking and sales period in January is longer, giving Q1 snack food companies a chance for a good start, especially companies with strong ties to gift-giving scenarios during the Spring Festival. China's largest retailer of snack foods and beverages accelerates its IPO. In Q4, due to the misaligned timing of the Spring Festival, the off-season in the beverage industry is mainly focused on inventory clearance, with expectations for Spring Festival activities to unfold gradually in the near future. The impact of food delivery has weakened, and the competitive environment in the beverage industry is expected to perform better than in Q3. Beverage companies returning to their own product operations and channel management are expected to improve performance. [End of translation]