China Securities Co., Ltd.: Strongly promote investment opportunities in retail chain transformation.

China Securities Co., Ltd. Securities released a research report stating that in the baijiu (Chinese liquor) sector, by 2025, Sichuan Swellfun (600779.SH) and Yanghe (002304.SZ) are expected to see a significant decline in performance, mainly due to industry adjustments combined with proactive inventory control and price stabilization by companies. Yanghe has also promised that dividends in the next three years will not be less than 100% of the current year's net profit. The logic of industry recovery and concentration enhancement remains unchanged, with clear industry performance improvement elasticity relying on brand and channel barriers. Looking ahead to Q1, China Securities Co., Ltd. Securities recommends focusing on three main themes: first, snack, dairy and other consumer goods are leading the way in the cross-year market, with baijiu gathering strength and waiting for recovery after Spring Festival; secondly, as the annual report pre-announcement period approaches, leading companies in the consumer goods sector are expected to exceed profit expectations; and thirdly, the end-of-January Spring Festival stocking boost data, combined with low valuations and emotional recovery, will amplify the elasticity of Q1 performance surpassing expectations. China Securities Co., Ltd.'s main points and suggestions for Q1 are as follows: 1. Cross-year market and spring dynamics: Growth comes first, baijiu gathers strength for spring From the monthly data and market performance, the cross-year market trend may show a clear feature of "growth first, baijiu gathering strength". Currently, market funds tend to focus on sectors with clear prosperity and higher elasticity, such as snacks and dairy products, which, under the resonance of policy support and industry trends, have seen continuous improvement in monthly data, becoming the core drive of the cross-year market. The baijiu sector is in the phase of "gathering strength and waiting for recovery", as the Spring Festival approaches, terminal stocking demand gradually picks up, recent marginal changes such as stabilizing prices and decreasing inventory by leading baijiu companies are starting to show, it is expected that after the Spring Festival, with the recovery of consumption scenarios and concentrated demand release, baijiu will usher in a valuation recovery trend. 2. Performance forecast: Opportunities for exceptional performance in segmented sectors As the 2025 annual report performance forecast period approaches, certain targets in the food and beverage sector may exceed profit expectations due to differentiated advantages. In the baijiu field, leading baijiu companies, through controlling inventory and optimizing channel structure, have slowed down revenue growth in the short term, but profitability remains steady. Some regional baijiu companies, relying on advantages in down-market areas and improved distribution, are expected to exceed profit expectations; in the consumer goods sector, sub-sectors such as catering supply chains, functional and healthy single products benefit from the recovery of consumption scenarios and product upgrades, achieving higher-than-expected profitability through refined channel operations and cost control. In addition, some companies have successfully passed on cost pressures through price increases and structural upgrades, coupled with market share consolidation after industry clearance, performance growth is expected to significantly outperform the industry. 3. Late-January events catalyzing: Potential for exceeding quarterly expectations under multiple favorable conditions Starting in late January, multiple event catalysts may lead to the possibility of exceeding quarterly expectations. At the corporate level, the liquor industry enters the peak season of Spring Festival sales, while the Spring Festival-related inventory of some consumer goods companies is expected to drive good data in January and the first quarter. In addition, the food and beverage sector is currently at historically low valuations, and with the return of funds and emotional recovery, the possibility of exceeding quarterly expectations brought about by event catalysts is expected to further amplify the upward elasticity of the sector. Baijiu: Continuous clearance of baijiu inventory In terms of the external environment, the baijiu industry is affected by macroeconomic factors, industrial cycles, and policies. The recovery of traditional business banquets is slow, and inventory levels remain high. Regarding internal management, companies adhere to the three major directions of "balancing basics, deepening adjustments, and consolidating development": first, controlling shipment pace and optimizing inventory to ensure the safety of channel funds; second, improving channel structure and price system stability through measures such as stopping shipments, adjusting promotional policies, and strengthening price management; third, continuing to invest in brand building, terminal expansion, and organizational capabilities to strengthen competitiveness after the recovery period. We believe that the current adjustments are in line with the logic of industry value return and lay the foundation for long-term, steady development. The core logic of consumer recovery and concentration enhancement in the baijiu industry remains unchanged. In 2026, the industry is expected to enter a structural recovery period of "reducing inventory and stabilizing prices in the first half of the year, with moderate recovery in the second half of the year". With the stabilization of mass and high-end prices leading the trend, the destocking and price stabilization of the mid-range sector will gradually take effect. It is recommended to seize the current opportunity to layout at low levels. High-end and stable leading baijiu companies, with strong brand power and rigid demand, will be the first to benefit from the recovery of business and gift consumption, with high performance certainty and stability as the main return. These companies can not only benefit from valuation recovery, but also provide a dividend yield of 3%, with an estimated high overall return. Mid-range and regionally flexible baijiu companies, with deep market foundations and refined operations, are expected to gain market share in the recovery of mass demand such as banquets. Baijiu companies focusing on sales optimization and market expansion through product innovation, if the phased sales adjustment is effective and exceeds expectations, may achieve excess returns. After the destocking and financial statement adjustments in 2025, if the sales inflection point occurs in 2026, there is a greater potential for recovery. Beer: Multiple specialty beers launched, industry inventory clearance at low levels Recently, Lebao Beer launched its new concept 2026 Spring Collection, and CHINA RES BEER and Panda Brew jointly released their first exclusive custom product - Panda Brew Belgian-style white ale. On January 18th, CHINA RES BEER's Guiyang branch launched the upgraded Huangguoshu Waterfall Beer. According to data from the National Bureau of Statistics, the output of beer by enterprises above a certain scale in December 2025 was 22.27 million kiloliters, a year-on-year decrease of 8.7%. The industry continues to clear inventory, with a cumulative beer output of 353.60 million kiloliters in 2025, a year-on-year decrease of 1.1%. Considering that the industry is in the off-season of sales and various companies are in inventory clearance mode, attention should be paid to their upcoming plans for the new year. The beer sector has experienced a decline in stock prices due to factors such as the previous ban on alcohol, rising aluminum prices, and the industry's off-season in Q4. In 2026, with a low base for catering and stabilizing CPI, as well as the boost from the 2026 World Cup, the beer industry is expected to see a recovery. Dairy Products: Yunrun & Xian seeking mergers or initiating livestock industry consolidation, focusing on configuring opportunities at the turning point of the dairy cycle In the third week of January, the average milk price in the main production areas was 3.02 yuan/kg, a 0.3% increase month-on-month, and a 2.6% decrease year-on-year. The milk price cycle continues to bottom out, with the two major livestock companies seeking merger opportunities as the turning point of the cycle approaches, and receiving full support from major shareholders. They aim to enhance market share by integrating industry resources, demonstrating confidence in the future development of the industry. Beijing Sanyuan Foods' reform actions such as organizational adjustments, personnel optimization, elimination of inefficient products, and divestment of inefficient subsidiaries in 2025 have shown results. In 2026, domestic deep processing capacity may be intensively put into operation, curbing demand for raw milk, promoting domestic substitutes for raw materials in the B-end, and with huge market space. Seasoning & Frozen Foods: Price competition in the peak season of catering may slow down, and new harvest season for yeast sugar may release cost elasticity The new harvest season of yeast sugar has begun, with southern sugar procurement underway. According to data from Pan Sugar Technology, the average price of sugar syrup in December was 787.23 yuan/ton (a 33.79% decrease year-on-year). In January, the latest transaction price reached 716.00 yuan/ton, indicating a significant decrease in the raw materials price of yeast core. In 2026, there is potential for continued profit elasticity due to price reductions, and companies are accelerating the construction of yeast protein and extract production capacities, opening up the second growth curve in the domestic market.