Huafu Securities: The prosperity of the light industry sector has reached a historical low. The export outlook is promising for enterprises with high barriers to entry and leading global production capacity layout.

Huafu Securities released a research report stating that against the backdrop of macroeconomic and trade fluctuations at home and abroad in recent years, the business models of light industry enterprises are accelerating iteration, performance differentiation is increasing, and it is suggested to seek the "alpha" of enterprises. The bank continues to be optimistic about enterprises with high barriers to entry and leading global production capacity layout, which are expected to accelerate their market share growth in the process of global supply chain restructuring. Although the performance of domestic consumption and cyclical sub-industries is under pressure, the bank believes that the industry's business climate is currently at a historical low, with leading companies tapping into existing markets, creating new markets, and demonstrating stronger operational resilience. In the future, as the domestic consumption environment improves, the business climate of domestic sub-industries is expected to gradually recover, with market share further concentrating on leading companies. Huafu Securities' main views are as follows: Review of 2025: The light industry index underperformed the market, with sector performance under pressure, including stable growth in packaging and personal care. The return on investment for the 2025 light industry sector index was +20.88%, compared to an excess return of 0.31% for the Shanghai and Shenzhen 300. Looking at individual stocks, most of the leading gainers in the 2025 light industry sector were companies with transformation or restructuring concepts, with performance-driven stock price increases and reasonable valuations being seen only in HHC Changzhou Corp. Looking at the financial performance in the first three quarters of 2025, the operation of the light industry manufacturing industry still faces pressures, with stable growth in packaging and personal care, pressure on home furnishings and paper, and differentiation in exports. Outlook for 2026: The bank recommends grasping three investment themes: export alpha, steady growth, and low-end consumption. 1) Export alpha: High-quality export manufacturing companies in China are gradually upgrading from early product exports to capacity exports and brand exports. The bank recommends selecting export companies with high barriers to entry and strong profitability, as the US interest rate cuts benefit the demand recovery in the 26-year US real estate chain. Export companies recommended include Zhejiang Zhongxin Environmental Protection Technology Group, HHC Changzhou Corp., and Healthcare Co., Ltd. for profitability recovery resilience; 2) Steady growth: Paper packaging and personal care. For paper, current pulp prices are at historical cyclical lows, with expectations for pulp prices to rise in 26, recommending Shandong Sun Paper, a leading cultural paper company with certain performance growth from new capacity release, and suggesting attention to ND PAPER. The logic of "going abroad + dividends" in packaging is smooth, recommending ShenZhen YUTO Packaging Technology, MYS Group Co., Ltd., Huangshan Novel, and noting the profitability recovery resilience of metal packaging company ORG Technology. Leading personal care companies are expected to grow steadily, recommending Dencare, Winner Medical, and Chongqing Baiya Sanitary Products; 3) Low-end consumption: Home furnishings and stationery. Home furnishings have been greatly affected by the downward trend in real estate and consumer spending in recent years, with the industry accelerating consolidation and leading companies showing relative profit resilience. Home furnishing companies have significantly reduced capital expenditures and have outstanding FCF yields, and if sentiment improves cyclically in 2026, it is recommended to focus on low-end allocation opportunities, recommending Jason Furniture, Oppein Home Group Inc., paying attention to Suofeiya Home Collection, and Zbom Home Collection. The leading stationery company M&G has strengthened its brand and functionality, deepened its international strategy, increased the proportion of high-margin products, narrowed its decline in the second half of the year, and expected operational improvement in 26. Risk alerts: Risks of macroeconomic fluctuations and significant increases in raw material costs.