CITIC SEC: Acceleration of consolidation in the liquor industry, beer expected to benefit from peak season catalysis.

CITIC SEC has released a research report stating that the bottom of the liquor industry has been reached, with top liquor companies accelerating their clearance, inventory reduction, stabilizing prices and quantities, proactive supply contraction, improving channel ecology, low market expectations, and other bottom characteristics gradually emerging. Macro-level positive signals have been accumulating gradually from multiple dimensions since the beginning of the year. The overall sales volume of the liquor industry has shown a reduced decline compared to the same period last year, and if future demand gradually stabilizes, considering the base effect of 2025, the bank estimates that the performance of liquor companies is expected to improve to a certain extent starting from the second quarter of 2026. Although it is difficult to predict the time and pace of the recovery in domestic demand, the long-term trend is positive, and considering that the liquor industry has bottomed out, with top liquor companies continuously improving shareholder returns through increased dividends, buybacks, and shareholdings, providing a good investment safety margin. The bank continues to recommend the allocation of top liquor companies. Regarding beer, the bank predicts that the beer industry will be in a moderate recovery trend in 2026. Looking ahead to the whole year of 2026, the bank expects that with the arrival of the peak season, the beer sector will experience a certain degree of catalysis, with beer companies maintaining a pace of stocking up, continuously promoting the optimization of product structure, and stabilizing and moderately recovering industry prices and quantities. Key points from CITIC SEC: - Accelerated clearance of liquor, the bank judges that the industry has reached its bottom. - The liquor sector prices have been continuously weak due to factors such as weakening domestic consumption, industry adjustment period, continuously lowered market expectations of the liquor industry, and tightening policies. Despite the low performance of liquor sector stocks since 2021, with the sector showing a continuous decline for six years and significantly underperforming core indices such as the Shanghai and Shenzhen 300 since 2024, as of May 15th, 2026, the liquor sector has declined by about 10%, underperforming the Shanghai and Shenzhen 300 by about 15 percentage points. However, considering the following six factors: 1) clearance of inventory, accelerated performance bottoming out for top liquor companies; 2) inventory reduction, channel inventory shifting from passive accumulation to active clearance; 3) stabilization of prices and quantities, a significant slowdown in the downward trend of batch prices; 4) proactive supply contraction, liquor companies shifting from "retrieve payments" to "open bottles" strategies; 5) channel ecology improvement, manufacturer relationships moving from game theory to mutual cooperation; 6) low market expectations, active fund holding levels reverting back to 2016, the bank concludes that the bottom of the liquor industry has been reached. - Liquor sector awaits industry recovery, with stable and increasing shareholder returns providing a thickening investment safety margin. - The essence of the liquor industry recovery is a process of gradually transmitting from the macro to micro, from channels to reports, from prices to profits. Considering that the liquor industry has experienced significant adjustment and clearance, a recovery in macro demand is expected to drive industry recovery. Positive signals have been accumulating gradually from multiple dimensions at the macro level since the beginning of the year. Most liquor companies' actual sales performance in the first quarter of this year has been better than that of listed companies' performance, and with the base effect starting from the second quarter of 2025, the bank believes that the performance of listed liquor companies is expected to stabilize gradually starting from the second quarter of this year. Additionally, top liquor companies have been increasing shareholder returns through increased dividends, buybacks, and shareholdings, with the current overall dividend yield of the liquor industry at 4.1%, providing a good investment safety margin. - Beer: Multiple dimensions indicate a stable recovery trend in the beer sector. - 1) Improvement in sales volume: According to National Bureau of Statistics data, the cumulative output of beer companies above a certain scale in the first quarter of 2026 was 9.054 million hectoliters, a year-on-year increase of 4.2% (excluding base effects, a 3.8% increase year-on-year in the first quarter of 24), with sales growth accelerating in the first quarter. - 2) Improvement in ton price: According to first-quarter report data from various listed beer companies, most beer companies achieved a year-on-year increase in ton price. - 3) Improvement in profitability: Some listed companies achieved double-digit growth in net profit in the first quarter. - 4) Macro factors: Consumer confidence index, CPI, and other macroeconomic indicators continue to improve. In the first quarter of 2026, consumer confidence indices all increased year-on-year. CPI has achieved consecutive year-on-year growth in the first four months of 2026, signaling continuous improvement in consumption. The bank judges that the beer industry will be in a trend of moderate recovery in 2026. By channel, the on-demand channel is expected to still be in a phase of moderate recovery at the bottom, with attention needed to seasonal macro and consumption trends; the off-demand channel has become the focus of beer companies' competition, with the rapid development of emerging channels such as instant retail, companies with first-mover advantages are more likely to break through. Risk factors: - Macroeconomic consumption demand falls short of expectations. - Pressure from rising production costs for alcoholic beverages. - Intensified competition. - Food safety issues. - Further tightening of policies related to banquets.