China Securities Co., Ltd.: The turning point of the adjustment period is approaching, and the liquor sector is welcoming a bottoming out cycle for investment opportunities.

China Securities Co., Ltd. released a research report stating that the liquor industry is entering the "five bottom stages" (policy bottom, inventory bottom, sales bottom, pricing bottom, production and sales bottom) in resonance with the capital market's "three lows and one high" (low expectations, low valuation, low public offering holdings, high dividends), combined with recent market strategies being implemented. With the Spring Festival peak season approaching, the company believes that the current liquor adjustment period is reaching a turning point, with capital market expectations leading the way, presenting a bottoming out opportunity for the liquor sector. The main points of China Securities Co., Ltd. are as follows: From a product perspective, analyze high-end liquor volume and price in a counter-cyclical manner. The "five bottom stages" of the liquor industry are approaching, with the turning point of the cycle expected: In the short term, as policy restrictions on consumption are gradually easing at the policy level, there is a significant improvement in the marginal trend, and the most pessimistic moment for liquor sales has passed. With the marginal improvement of the Producer Price Index (PPI) and the implementation of demand-stimulating measures, liquor sales are expected to bottom out by mid-year. Liquor companies are currently in the stage of clearing performance, reducing channel inventory, and have cautious expectations for the Spring Festival and 2026. Combined with the "siphon effect" of the Spring Festival, inventory digestion may accelerate, improving channel health. In the medium to long term, recent adjustments to Maotai's product strategy have accelerated the occurrence of pricing bottoms in the industry. With Maotai as a direct sales engine and channel marketing transformation, even if Feitian increases production and prices soften, the deviation from 1499 RMB is expected to be relatively controllable, and the industry's pricing bottom is at hand. Concerning future consumer demand, the exit of small and medium-sized enterprises, the pause of leading enterprises in capacity expansion, the company expects that when liquor production in 2025 falls below 4 million kiloliters, it will be the bottom, while liquor demand in specific scenarios in China is still indispensable, as liquor companies' marketing strategies are more in line with the preferences of the "Generation Z", the fundamental for liquor consumers remains stable. The "three lows and one high" of the liquor sector, highlighting the allocation value. Market expectations for the liquor industry have been continuously weakened since 2021, with consecutive negative annualized returns. The valuation level and public offering holdings of the liquor sector are at low levels, with leading liquor companies strengthening dividends and returning to shareholders, market capitalization management. The liquor segment has a high configuration price ratio, making it one of the few segments in the capital market with low valuation and upcoming turning points. Currently, the historical percentile of the liquor sector is within the bottom 15%, providing support for the sector's valuation bottom. Looking at the funding side, the proportion of public offering funds continuously weakening, as of the end of the third quarter of 2025, the liquor sector's heavy positions accounted for only 5.52% of public offering fund holdings. If passive fund holdings are excluded, the proportion of active funds holding liquor sector stocks enters the underweight phase in the second quarter of 2025, with the sector's funding chips relatively clean. In addition, listed liquor companies have responded to policy calls, with leading companies committing to dividend payout rates and dividend amounts, emphasizing investor returns, actively participating in market repurchases and share repurchases by major shareholders to stabilize stock prices and market expectations. High-end liquor is the industry's cycle barometer, and it is expected to rebound ahead of the industry. Looking back at the stock performance during the liquor adjustment period from 2013 to 2015, leading liquor companies were the core barometers of the industry cycle bottoming out, being the first to achieve bottoming out in fundamentals and stock prices. Looking at the liquor cycle in 2026, with recent significant adjustments in business strategies and product pricing logics, companies have cautious expectations for the new year. In resonance with the "five bottom stages" of the industry and the "three lows and one high" of the capital market, the company is optimistic that high-end liquor stock prices will outperform the industry. Reiterating the ten-year investment opportunity in liquor's bottom On January 29, the liquor sector saw an epic surge, with 20 stocks hitting the limit up, the index rising by 9.79%, and Maotai up by 8.61%. This surge was mainly driven by Maotai's sales price exceeding expectations, its reform being recognized, and the relaxation of real estate policies and expectations of a positive Producer Price Index (PPI) trend. On January 30, Maotai's sales price continued to rise, with Feitian, vintage liquor, and zodiac liquor prices all increasing, and channel sales were strong. It is predicted that the industry will reach a bottom in 2026, with the market share of leading companies increasing. It is believed that the liquor sector may see a ten-year bottom investment opportunity around the Spring Festival period. The current competition in the snack market is improving, and there is an expectation of profit growth in individual stores in 2026 due to improved performance. Liquor: End sales recovery drives Maotai's pricing increase, the liquor sector sees an epic surge, and it is anticipated that the liquor sector may welcome a ten-year bottom investment opportunity around the Spring Festival. The recovery in Maotai's end sales and price increase have driven an epic surge in the liquor sector on January 29, with 20 stocks hitting the limit up, Maotai up by 8.61% to 1437.72 RMB, and a turnover of 26.3 billion RMB, the sector index up by 9.79%, with net inflows of over 6 billion RMB. The core reason for this surge is Maotai's sales price exceeding expectations, with the capital market recognizing its price marketization reform, as well as the relaxation of real estate policies and expectations of a positive trend in the PPI. Maotai's sales and delivery progress in January is faster than the previous year, with sales increasing year-on-year after New Year, the effectiveness of price reform is evident, and the industry is following up to regain pricing control and reconstruct channel mechanisms. Coupled with the improvement in the bottom of the real estate market and the transmission of positive PPI expectations to the consumption side, it is expected that the liquor industry will bottom out in 2026, with inventory pressures easing and leading companies' market share steadily increasing. Looking forward to a ten-year bottom investment opportunity in the liquor sector around the Spring Festival, the liquor sector's valuation is at historical lows, with a strong bottom configuration value, while also paying attention to the catalytic effect of consumption policies. The bottom configuration logic includes clearing performance burdens, strong brand support for sales, empowering operations to enable channels, and exploring new marketing models. From the perspective of reform core, leading liquor companies are taking the lead, with the whole industry following suit. The core is to truly regain the pricing autonomy of liquor products, break the inherent constraints of past channel and pricing systems, and construct a more dynamic and market-friendly new channel incentive mechanism that binds channel value with brand and industry value deep. Expectations for real estate bottom improvement: Real estate companies are no longer required to report the "three red lines" indicators monthly, and policies are shifting from tight to loose. Expectations for PPI improvement: The upward movement of prices for industrial materials such as non-ferrous metals, chemicals, and oil and gas is expected to drive a positive trend in the PPI, and high-end liquor prices are highly correlated with the PPI, with expectations of the PPI trend being transmitted to the consumer side. Industry cycle: Based on the stage of industry development, it is expected that the industry will bottom out in 2026, with reduced channel inventory pressure and the most difficult times of the liquor ban in the past. In terms of industry competition, leading market share will continue to increase. It is recommended to seize the current low position layout opportunity. High-end and steady leading liquor companies: With strong brand power and rigid demand, they will benefit first 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 the valuation recovery, but also provide a stable dividend yield of >3%, leading to a higher comprehensive return estimate. Mid-range and regionally flexible liquor companies: Regional leaders are expected to increase market share through in-depth market foundations and refined operations in the recovery of common needs such as banquets. Dynamic liquor companies: Companies that expand market through optimization of merchant recruitment and product innovation, with the potential of achieving excess returns if phase-wise merchant adjustments yield results and exceed expectations of sales. Cross-year market growth leads growth, liquor quietly awaits the arrival of Spring Liquor: Several liquor companies are sending positive signals, capturing undervalued configuration opportunities. Leading liquor companies such as Anhui Gujing Distillery, Xijiu, and Luzhou Laojiao have held core meetings with distributors and shareholders, revealing their annual achievements and 2026 strategic plans in the context of deep industry adjustments and high inventories. The companies are showing clear signals of stable operations and active breakthroughs. Specifically, Anhui Gujing Distillery achieved its development goals in 2025 by optimizing product structure, launching new products, and expanding growth space with unique consumption scenarios, deepening manufacturer cooperation and online layout at the channel end. In 2026, the company will focus on its core liquor business, enhancing quality construction and market expansion, while also focusing on the nurturing of new businesses in the health industry; Xijiu delivered impressive results, maintaining its sales at 19 billion RMB throughout the year, significantly reducing social inventories to a low level in recent years, achieving a record high sales rate, with substantial investment in inventory reduction and market control to solidify channel foundations, and will advance national upgrades through marketing 2.0 reforms; Luzhou Laojiao summarized the achievements of the digital transformation in the 14th Five-Year Plan, clarified the strategic goal of ecological chain in the 15th Five-Year Plan and the development of a chain-based enterprise, promoting low-degree, youthful layout, and strengthening the defense of high-end brand value. Although the liquor industry is still in a phase of adjustment, leading liquor companies are strengthening their core competitiveness through precise strategic layouts and pragmatic actions, showing good long-term development potential in the industry. Currently, the liquor sector's valuation is at historical lows, with strong bottom configuration value, and attention should be paid to the catalytic effect of consumption policies. Liquor cycle bottom configuration, digging into the three major main lines of popular brands Currently, the food and beverage sector has experienced a long period of correction, with valuations at historically low levels, weak market expectations, and a clear bottom logic for high-quality assets such as liquor. Key areas to focus on are: 1) Liquor. Focusing on three types of high-quality assets, waiting for demand recovery. Stimulative policies are expected to increase, with economic data expected to bottom out and drive consumer recovery. 2) Snacks, Health Supplements & Beverages. Resonating new distribution channels and product categories in snacks, multiple investment opportunities. The trend of health and functionalization in beverages is popular, with high prosperity in segmented categories. The reevaluation of the health supplement new consumer drive is expected to drive the health supplement race. 3) Dairy Products. The cycle for dairy prices is nearing, liquid milk is expected to reach a turning point, and the rise of the deep processing industry. 4) Catering chain. Focus on efficiency slowing down, embrace the trend to expand new sales channels. Liquor: The industry signals a clear bottom structure, capturing undervalued configuration opportunities. Liquor demand is at a bottoming stage, with sales still under pressure but showing a gradual increase compared to Q3, and it is expected that liquor companies will continue the trend of clearing performance burdens to relieve the market, indicating a clear bottom structure in the industry. Maotai's proactive governance of the chaotic low-priced sales on the Douyin platform is stabilizing price expectations and may help stabilize Feitian's pricing, further improving market sentiment. Currently, the liquor sector's valuation is at historical lows, with strong bottom configuration value. The logic of the bottom configuration includes clearing performance burdens, strong brand support for sales, empowering operations to enable channels, and exploring new marketing models. Maotai's crackdown on low prices is an opportunity to seize the opportunity for low-position liquor layout: The prominent issue of low-priced Feitian Maotai on the Douyin platform has significantly improved this week. After adjusting and controlling related stores on the platform and price governance by Douyin, as of the 17th, the price of Flying Maotai on sale on the platform has basically stabilized at 1700 RMB and above, stopping the decline in low prices. Although there are still a few anchors selling low-priced Maotai, a large number of illegal low-priced links have been dealt with, which has to some extent alleviated the impact on legitimate offline distributors and helped stabilize the confidence in Flying Maotai's pricing and channels. Looking ahead, the domestic economy is expected to gradually stabilize and recover, with cyclical industries represented by liquor entering a high-growth channel once again. It is suggested to seize the current low-position layout opportunity. High-end and stable leading liquor companies: With strong brand power and rigid demand, they will benefit first 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 the valuation recovery, but also provide a stable dividend yield of more than 3%, leading to a higher comprehensive return estimate. Mid-range and regionally flexible liquor companies: Regionally leading companies, with deep market foundations and refined operations, are expected to increase market share as mass demand for banquets recovers. Dynamic liquor companies. Liquor building bottom stabilization, cyclical recovery expected The food and beverage sector has experienced a long period of correction, with low attention to domestic demand, significantly reduced valuations, and low market expectations. Liquor and other high-quality assets have a clear bottom logic. The focus is on four sectors: 1) Liquor. Focusing on three types of high-quality assets, waiting for demand recovery. Stimulative policies are expected to be stacked, and economic data is expected to bottom out, driving a recovery in consumption. 2) Snacks, health supplements & beverages. Snacks resonate with new channels and product categories, with multiple opportunities for investment. Beverages are entering the trend of health and functionalization, with heightened prosperity in segmented product categories. Health supplement drives new consumption, and the health supplement track is being reevaluated. 3) Dairy products. Dairy prices are expected to bottom out cyclically, with liquid milk potentially reaching a turning point and the rise of the deep processing industry. 4) Catering chain. The emphasis is on slowing down efficiency and embracing trends to expand new sales channels. Liquor: Focusing on three types of high-quality assets, waiting for demand recovery Since 2025, consumer confidence remains low, with liquor CPI continuously negative, mainstream products gradually lowering prices, and soft demand in business, banquet, and collection scenarios. High-end liquor and medium-high-end liquor show relatively stable performance, while mid-range prices continue to face significant pressure. The liquor industry has entered an era of competition between famous liquors, with internal differentiation evident among listed companies. The competition has intensified even further. Liquor companies are actively managing market order, advancing product iterations, promoting consumer activities, increasing expenditure to boost sales, and helping channel destocking, which in turn improves market share positively. Although the industry still shows signs of structural upgrades, profit rate acceleration has slowed down. Considering the complex consumption environment and the difficulty for most liquor companies to achieve their expected targets in 2025, their goal-setting trend is cautious, focusing more on enhancing relative competitive advantages. The market demand was good during the 2025 Spring Festival, weakening afterward. Looking ahead to 2026, economic recovery remains the most important factor influencing the liquor industry trend. Due to investors' low expectations, the valuation of the liquor sector has fallen to historical lows, with significantly increased safety margins. Liquor companies have enhanced shareholder returns through increased dividend payout ratios, share buybacks, or using share buybacks for employee stock holding or equity incentives, effectively raising corporate governance. The attributes of the liquor industry, high profitability, high free cash flow, and high brand value, have not changed significantly, and investors should stick to leading liquor companies, waiting for demand recovery, and expecting good investment returns. Investors should focus on three types of high-quality assets, waiting for demand recovery. 1. Leading brands in aroma-type liquors: Strong brand, low valuation, stable demand, clear competition structure. 2. Regionally operated quality companies: Deep market roots, refined operations, with room for increased net profit margins. 3. Companies with great growth potential. Risk warning: - Demand recovery falls short of expectations, economic growth has slowed down in recent years due to factors such as macroeconomic conditions, and the growth of national income is also affected. The recovery pace of medium-term residents' income and the increase in consumption power in the future may be slower than expected. - Food safety risks have been a concern for consumers in recent years, although industry chain companies are continuously improving production quality management levels, due to the long industrial chain and the involvement of various links and companies, there are still risks in terms of food quality and safety. - Cost volatility risk, in recent years, there has been a greater fluctuation in the prices of commodity products in the food and beverage sector, with high-margin products such as high-end liquor less affected by raw material price fluctuations, but low-end liquor and condiments with a high proportion of costs may be relatively more affected by raw material price volatility.