China Securities Co., Ltd. Food and Beverage 2026 Second Half Investment Outlook: Retail Transformation is Booming, Supply Chain Innovation Towards C

China Securities Co., Ltd. released a research report stating that new consumer trends in food and beverage are showing three major characteristics: retail channel transformation, innovation in mass market supply, and the continuous rise of Baijiu (Chinese liquor) towards the C-end market. It is suggested to move beyond the research framework of economic cycles/real estate cycles, by innovatively providing high-quality supplies to explore new demands, or creating additional volume through new channels. The current transformation in retail channels is profoundly changing the upstream and downstream structures of the entire industry, and restructuring the value chain. In terms of Baijiu, Maotai, a leading brand, is shifting from the B-end market to the C-end market. The innovation on the supply side includes healthification, functionalization, and the development of new sub-categories, with related sub-sectors maintaining a high level of prosperity. Key points from China Securities Co., Ltd. include: The bottoming-out and clearance of the Baijiu sector, with liquor companies transitioning fully to the C-end market. Following Kweichow Moutai, Wuliangye Yibin, Anhui Yingjiagongjiu, and Hebei Hengshui Laobaigan Liquor achieving positive revenue performance in Q1 2026, it is anticipated that Jiangsu King's Luck Brewery Joint-Stock, Jinhui Liquor, Shede Spirits, and Jiugui Liquor will see positive revenue growth in Q2 2026. Currently, 7 leading liquor companies have a dividend yield of over 4%, coupled with the possibility of Maotai's batch price exceeding expectations in the second half of the year, leading to a potential revaluation of Maotai above 25x and reshaping the sector's valuation. There is optimism about the investment opportunities in the 10-year cycle of Baijiu in 2026. The three main changes to focus on in the Baijiu sector are: From an enterprise perspective: Maotai leading the shift from the B-end to the C-end market. 1) Enterprise strategy: Liquor companies are turning towards the C-end, with the shift from B to C being the core focus of this current cycle; 2) Change in scenarios: Prohibition reshaping consumption structures, with the T9 summit in 2026 reaching a consensus on "Thinkingdom Media, New Wine Alley, New Scenarios", emphasizing self-pleasure, youthfulness, and healthiness, placing importance on the demand for drinking at home; 3) Typical cases: Since the end of 2025, Maotai has initiated a new round of comprehensive market-oriented reforms focusing on the C-end, with actions such as launching iMaotai, raising prices, lowering non-standard contract prices, and promoting non-standard consignment sales, all aimed at strengthening a "user-oriented" strategy, enhancing consumer experience, optimizing pricing mechanisms, and helping to stimulate genuine demand. The performance of iMaotai and non-standard batch pricing in H2 2026 may exceed expectations. From a cyclical perspective: Reaching the bottom of the cycle and gradually moving towards recovery. 1) Revenue and profit: Baijiu is gradually entering the stage of clearing performance towards an upward trend, with Kweichow Moutai, Wuliangye Yibin, Anhui Yingjiagongjiu, and Hebei Hengshui Laobaigan Liquor already achieving positive revenue and profit margins in Q1 2026. It is expected that Jiangsu King's Luck Brewery Joint-Stock, Jinhui Liquor, Shede Spirits, and Jiugui Liquor will see a turning point in revenue performance in Q2 2026, emphasizing the catalyst of Q2 performance turnaround; 2) Contract liabilities: In Q1 2026, high-end liquor and regional leading liquor companies have generally experienced an improvement in year-on-year contract liabilities, so attention should be paid to the forward-looking signal of Baijiu companies' advance payments in Q1 2026; 3) Macroeconomic environment: Currently, the characteristic of "strong supply and weak demand" is evident, with the PPI experiencing a significant increase before the CPI. Despite weak social consumption in April, expanding domestic demand is a top priority in the economic work of 2026, potentially leading to a return to a balanced situation of strong supply and weak demand, driving the recovery of pro-cyclical sectors. Risk factors: 1. Demand recovery falls short of expectations, with economic growth slowing down due to factors such as the macroeconomic environment, and national income growth being affected. The pace of recovery in short- to medium-term resident income growth and consumption power may be slower than expected. 2. Economic recovery falls short of expectations, if the improvement in company cash flow lags behind expectations, the recovery pace of demand in the commercial liquor consumption scene may not meet expectations. 3. Food safety risks; in recent years, food safety issues have always been a concern for consumers. Although industry chain companies continuously improve production quality control, there are still risks in food quality and safety due to the long industry chain, involving various links and companies.