Guosen: Focusing on the layout of service consumption in the first year, optimistic about improved segmentation trends and cycles.

Guosen released a research report stating that boosting domestic demand will be a top priority for economic development in 2026. The service consumption of Chinese residents compared to overseas has great potential for improvement, and is expected to become a new focus for the country after optimizing subsidies for consumer goods. Money, time, and supply side constraints all provide good starting points for policies. Sector fund allocation is at a historical low and overall valuation reflects many pessimistic expectations. The bank suggests focusing on 2026 as the beginning of the year of service consumption, along with the gradual transmission of policies to residents' income expectations. The main focus for the year will be on inflation expectations recovery and the segmentation of the economy. Guosen's main points are as follows: Sector Review 1) Overall moderate recovery, structural prosperity. Consumer market is moderately recovering, with service consumption growth > consumer goods consumption growth > restaurant growth from January to November, and the proportion of service consumption is gradually increasing. 2) Changes in demand, policy, and technology play a key role. Consumer behavior is becoming more rational, with younger customers focusing on emotional satisfaction and experiential consumption, driving growth in sectors such as tourism, concerts, national culture, and trendy playthings; B-end business demand is still at a bottoming stage. Policy factors and global layout affect business decision-making and development, with some industries facing market reshuffling and transformation, such as high-end dining; Hainan's sealed operational platform aims to attract consumer flows and going global remains an important growth curve. Technological development and business model reconfiguration such as AI + education and AI + manpower are increasing efficiency and experience, while the food delivery war is reshaping upstream brands and platforms. Market Review: The social service sector has run behind since the beginning of the year, with sector fund holdings dropping to historical lows, but has outperformed the benchmark since Q4. The overall social service sector has risen by 14.55% since the beginning of the year, underperforming the Shanghai and Shenzhen 300 by 3.81%; with the gradual introduction of policies to promote consumption in the country, some industry leaders are expected to stabilize, combined with improved market liquidity, leading to a 7.81% increase in the sector since Q4, outperforming the Shanghai and Shenzhen 300 by 7.45%. Structural trends dominate the specific sectors. Looking at the details, strong alpha tea, beverage, and hotel leaders along with strong employment-focused leaders have led the way since the beginning of the year, with tax-free and hotel leaders dominating since Q4. As of the end of 2025 Q3, Guoxin's social service sector with heavy funds had a 0.29% holding ratio, a decrease of 0.10 points from 2025 Q2, reaching historical lows. Sub-industries: Performance differentiation under layered demand and supply iteration, with future service consumption policies and CPI trend being key variables. Tax-Free: With policy efforts, the core supply agreement of the supply side and the strengthening of leading supply chains, domestic tax-free is expected to gradually meet the high-end demand beta, policy-driven consumption flow narrative and building of domestic platforms are expected to help a new cycle and valuation uplift. Hotels: Focus on the cyclical opportunities of future supply and demand patterns, with steady growth in leisure travel demand, coupled with policy support for service consumption and the gradual bottoming out of business travel demand bases, the most steep phase of supply replenishment has passed, with leading management strategies shifting from OCC prioritization to optimal RevPAR to promote price stabilization. Scenic Spots: The effect of calendar-related transactions in scenic spots is significant, focusing on directions that align with demographic trends such as blessings and cruises, both have internal growth directions, simultaneously paying attention to local asset integration. OTA: As a travel ETF, it stands to benefit directly from the stimulus of service consumption policies. Profit margins are steadily rising in a stable industry environment, with a focus on the progress of leading overseas investments and the downward trend in business sentiment. Chain Catering: With the gradual reduction in takeaway subsidies, leaders are actively expanding new product lines such as the mutual penetration of milk tea and coffee, continuous product innovation, and the curve of responding to base pressure; the growth rate of catering leader income is stable, disturbed by factors such as price reductions, high-end dining policy disturbances, and public opinions on pre-made food. If CPI transmission warms up, platforms and brands are expected to see a bottoming out rebound on a low base. Education: Grasp the "employment-oriented" and AI commercialization, the industry's prosperity in the employment-oriented fields, such as public examinations and vocational education training, which are relatively lagging behind in response to population impacts, are expected to continue, while also focusing on industry AI application iterations. Human Services: Labor is a barometer for economic recovery, focusing on improvements in business sentiment and AI technology empowerment. Risk Warnings: Systemic risks such as macroeconomic and epidemic factors; policy risks; lower-than-expected acquisitions, shareholder reductions, market fund style changes, etc.