HAITONG INT'L: Find certainty in essential consumption, focus on beer, dairy and other sectors.

HAITONG INT'L released a research report stating that investors should seek certainty in essential consumer goods. The recent turbulent international political environment has led to drastic fluctuations in stock markets, bond markets, commodities, and multiple countries and markets, showing a trend of "few joys and many sorrows", with investors' risk appetite significantly decreasing. Essential consumer goods sectors have generally maintained relatively good performance and stock prices in special periods such as wars, diseases, and natural disasters. Essential consumer goods are also a preferred direction for long-term foreign capital allocation. Currently, low performance expectations and valuations provide a high safety margin. Key areas of focus include: products benefiting from the recovery of catering scenes, especially beer; industries displaying long-term prosperity after coming out of the bottom of the cycle, starting with the dairy industry. HAITONG INT'L's main points are as follows: Demand In March 2026, 8 essential consumer goods industries showed 4 increases and 4 decreases. Frozen foods, condiments, catering, and soft drinks are growing, while mid-range and above white spirits, mainstream and below white spirits, dairy products, and beer are declining. Beer's month-on-month growth has turned negative, while the other declining industries remain stable or narrowing. The trend is attributed to the fading of the Spring Festival consumption dividend, weakening of the catering chain restoration efforts, short-term weakness in beer terminals, uneven recovery in white spirits, stabilization of dairy demand, and stable growth in soft drinks during peak season. Prices Month-on-month, in March, wholesale prices of white spirits saw more declines than rises, with prices above 1500 yuan and 700-1500 yuan all declining, while some products below 500 yuan increased in price. Discounts on condiments, soft drinks, convenience foods, beer, and liquid milk have all increased, with average values decreasing by 11.3%, 6.3%, 5.3%, 2.2%, and 1.6% respectively compared to the end of February. Year-on-year, discounts on soft drinks, condiments, liquid milk, convenience foods, and beer have all increased, with average values declining by 19.0%, 13.6%, 12.8%, 10.1%, and 0.2% respectively compared to the same period last year, with only infant formula showing a smaller decrease of 3.9%. Costs In March, the spot cost indexes of 6 consumer goods rose across the board from the futures cost indexes. Spot cost index changes for soft drinks/instant noodles/condiments/dairy products/beer/frozen foods were +13.85%/+10.45%/+9.69%/+2.92%/+2.52%/+1.05%, while futures cost index changes were +6.42%/+7.43%/+6.62%/+3.68%/+2.90%/+1.60%. Year-on-year changes for aluminum cans/plastic/paper/glass prices were +12.93%/+45.34%/+5.28%/-9.14%. Spot price changes for soybeans/corn/palm oil/white sugar were +9.4%/+5.1%/+1.0%/-13.4%. Funds As of the end of March, Hong Kong stocks had a net inflow of approximately 65 billion Hong Kong dollars (down from 80.32 billion last month), with essential consumer goods being a key area for southbound capital layout, with the sector's market value share increasing month-on-month. The market value share of dairy products through Hong Kong stocks continued to increase, with food additives industry holding the second place, both seeing increases from the previous month. Tsingtao Brewery remained the top essential consumer goods stock by Hong Kong stocks holding percentage, followed by YOURAN DAIRY and ANDRE JUICE, with significant holdings. Valuation At the end of March, the PE historical percentile for A-share food and beverage was 10% (20.0x), a 7% decrease from the end of the previous month, with lower percentiles observed for sub-industries such as white spirits (5%, 17.0x) and beer (3%, 19.5x). The median valuation for A-share food and beverage leading companies was 21x (down 1x from the previous month). The PE historical percentile for H-share essential consumer goods was 12% (16.5x), ranking 12th among the 12 primary industries (unchanged), with lower percentiles for sub-industries like dairy products (4%, 10.5x) and alcoholic beverages (8%, 16.0x). The median valuation for H-share food and beverage leading companies was 18x (down 1x from the previous month). Risk Warning: Slow recovery in real estate, escalating trade conflicts, and the yuan shifting from appreciation to depreciation.