Guosen: Demand for baijiu naturally declines in the off-season; the three-tiered price system for Flying Fairy has officially taken shape.

Guosen released a research report stating that demand has entered the traditional off-season, and the liquor industry is experiencing relatively slow sales. Business banquets and graduation celebrations have somewhat recovered compared to last year, but there is still a gap compared to the same period in 2024. In July, Kweichow Moutai implemented its second price hike of the year (contract price 1369 yuan, iMoutai retail price 1639 yuan). By early August, a consumer-oriented price system was further established, featuring three tiers: approximately 1500 yuan (small-size public)1369/1639 yuan (standard)1753 yuan (group purchase/immediate demand). The support for the price bottom has strengthened, and the company now has the ability to precisely adjust supply and demand for different scenarios, significantly reducing the risk of price cuts. The main views of Guosen are as follows: The reform logic of Kweichow Moutai has been verified, demonstrating sufficient resilience. Kweichow Moutai is positioned as a year of reform and adjustment in 2026, focusing on resolving historical issues such as product structure, channel structure, and reporting rhythms. The second quarter reported weak figures (revenue/net profit down 5.2%/6.9% year-on-year), but the operational quality remains high: Moutai liquor revenue slightly decreased, while sales saw a significant increase. Direct sales (especially iMoutai and self-operated group purchases) expanded significantly, effectively offsetting the contraction in distribution channels; series liquor was notably impacted by quantity control since 1935 and price reductions for welcoming guests. The growing pains of reform are being realized, and the channel ecosystem is shifting from "profit from price differences" to "depend on service." It is anticipated that the liquor sector will see increased divergence in its financial reports in Q2 2026, with destocking and pressure relief remaining the main themes. After the Spring Festival, the industry continues to face pressure in sales, with most liquor companies proactively controlling shipments to ease the burden on channels. This report estimates that actual terminal sales may perform better than reported revenues, with Anhui Gujing Distillery and Luzhou Laojiao expected to continue relieving channel pressure. Among the disclosed performance, Jiangsu King's Luck Brewery Joint-Stock reported revenue/net profit up 14.1%/19.2% year-on-year, benefiting from a low base and increased market share in advantageous areas such as Suzhong and Yancheng. Given the low base during the Mid-Autumn Festival, this report anticipates that the industrys sales may turn positive year-on-year. Investment recommendations: With signals of a bottom strengthening, we continue to recommend Kweichow Moutai as a top pick. The liquor sector is gradually entering a phase of differentiation, repair, and fundamental verification, with valuations and institutional holdings at historically low levels. Moutai is reshaping its price mechanism and upgrading its channels, transitioning from reliance on demand overflow to an independent ecosystem, thus solidifying its long-term competitive moat; the current share price corresponds to a P/E ratio of approximately 18-19 times for 2027, providing a high safety margin. In the short term, we recommend Anhui Yingjiagongjiu and Jiangsu King's Luck Brewery Joint-Stock, which are expected to turn positive in performance, and suggest paying attention to Luzhou Laojiao (valuation recovery from an oversold state and the momentum of the 38-degree Guojiao nationwide expansion) as well as Wuliangye Yibin, which is quickly reducing its burdens. Risk warning: Insufficient macroeconomic growth momentum leading to sustained weak demand; industry policies such as consumption tax; food safety issues, etc.