Guotai Haitong: The food and beverage industry continues to differentiate, with mass market products leading the way in recovery, and the liquor industry undergoing deep adjustment.

Guotai Haitong released a research report stating that there is a clear differentiation between hot and cold in the food and beverage industry. The sector's revenue for the first quarter of 2026 was 312.8 billion yuan, an increase of 3% year-on-year, with a net profit of 73.7 billion yuan, an increase of 2% year-on-year, achieving positive growth. In terms of structure, the industry continues to differentiate internally, with mass market products leading the recovery and Baijiu continuing to clear out. 1) Baijiu is preferred as a target with price elasticity; 2) Ingredients and seasonings have the potential for price and quantity rebound elasticity; 3) Dairy products; 4) Beverages with growth potential, while also focusing on undervalued high dividend stocks; 5) Expectations for a recovery in the beer market during peak season; 6) Growth targets in food raw materials and snacks. Guotai Haitong's main points are as follows: The current industry differentiation is significant, with mass market products adjusting early and showing improvement, while Baijiu is deeply adjusting. The overall revenue of the food and beverage sector in 2025 is expected to be 1.218 trillion yuan, a decrease of 6% year-on-year, with a net profit of 208.9 billion yuan, a decrease of 15% year-on-year, both revenue and profit growth rates turning negative year-on-year. In the fourth quarter of 2025, the sector's revenue and net profit decreased by 13% and 40% respectively compared to the previous three quarters, showing a significant deterioration. In the first quarter of 2026, the sector's revenue was 312.8 billion yuan, an increase of 3% year-on-year, with a net profit of 73.7 billion yuan, an increase of 2% year-on-year, achieving positive growth. However, considering the late timing of the Spring Festival, there may be seasonal factors at play. Looking at both quarters together, the revenue and net profit of the food and beverage sector in the fourth quarter of 2025 and the first quarter of 2026 decreased by 4% and 13% year-on-year, showing no significant improvement compared to the second and third quarters of 2025. In terms of structure, the industry continues to differentiate internally, with mass market products leading the recovery and Baijiu experiencing a larger decline. Highlights for mass market products, with stable income recovery: 1) The food supply chain is performing well, with frozen foods and seasonings experiencing significant revenue and profit growth due to downstream demand and improved market conditions, with revenue and profit increasing by 7% and 5%, respectively, in the first quarter of 2026, leading the sector in growth; 2) Dairy products are rebounding from pessimistic expectations, showing signs of improvement in performance; 3) Soft drinks are still performing well, with new product categories and channel penetration leading to a profit increase of 27% in the first quarter of 2026, indicating further growth in the industry; 4) Beer profitability remains resilient; snacks benefited from economies of scale and decreased competition in the first quarter of 2026, leading to improved market conditions; 5) Yellow wine market is revitalized through high-end strategies to improve profit margins, with profits growing faster than revenue, up 18% year-on-year in the first quarter of 2026. Baijiu supply is accelerating clearance, with bottom features gradually becoming clear: The baijiu industry has suffered a heavy blow in 2025, with slow sales, inventory clearance, price declines, and pessimism in the distribution channels. The sector saw a year-on-year decrease of 18% and 24% in revenue and profit respectively. In the fourth quarter of 2025, revenue and net profit both decreased by 30% and 46% year-on-year. There may be a smoothing effect between the fourth quarter of 2025 and the first quarter of 2026, with a combined year-on-year decrease of 11% in revenue and 15% in net profit. Referring to industry adjustments in the period from 2012 to 2016, clearing the balance sheets often takes several quarters. Considering the current situation of distribution inventory, sales velocity, and price trends, the industry believes that the bottom characteristics of this round are becoming clearer, and the balance sheet clearance will still take time. Valuations may bottom out in the second half of the year, and in the medium term, it remains a high-quality asset with stable cash flow. Risk warning: Consumer recovery falls short of expectations, increased market competition, and further cost increases.