Pacific Securities: Market Style Balanced Switch, Emphasize Opportunities in Food and Beverage Sector

The Pacific Securities has released a research report stating that attention should be given to rebalancing opportunities in the consumer sector. The stakes have been gradually cleared, with current holdings at the lowest level in the past 20 years, now below the bottom of the liquor bear market in Q3 2016. In terms of valuation, the current PE (TTM) for the food and beverage sector is about 21x, which is in the 5th percentile over the past decade. Most companies with double-digit growth have seen their valuations retreat to the 10-20X range this year. Institutional holdings and valuations are at historically low levels, and pessimistic expectations for the sector have been fully released. The consumer sector has entered a rebalancing window following low valuation, low holdings, and low expectations, highlighting its value. Coupled with the introduction of the "15th Five-Year Plan for Expanding Consumption," high-quality consumer assets with low congestion levels possess strong cost-effectiveness. The main points from The Pacific Securities are as follows: The high prosperity of bulk snack foods continues, with ongoing optimization of operational efficiency, improvement in both new store openings and same-store sales, and ample profit margin elasticity. Strong players exceeded store opening expectations in the first half of the year. As of July 20, BUSYMING has signed over 30,000 stores, and it is expected to open more than 4,000 stores in H1 2026. The average single-store GMV has improved year-on-year, and the annual average single-store GMV target is likely to be maintained, with ongoing efficiency being confirmed for high-turnover discount models. According to market data, Fujian Wanchen Food Group has already surpassed 20,000 stores, with same-store performance improving in Q1 2026. Presently, leading bulk snack companies are optimizing store models, operating member services, and expanding categories, demonstrating ample profit margin elasticity. Key focus should be on leading companies with strong store expansion capabilities, optimized store models, and advantages in penetration, including Fujian Wanchen Food Group. The logic of "channel adaptation + new product iteration" for leisure snack brands continues to deepen. Brands like Yanker Shop Food and WL DELICIOUS, which are deeply integrated with channels and have strong product innovation capabilities, continue to benefit from the growth of membership stores, instant retail, and bulk store channels. Yanker Shop Food is expanding new offline channels, deepening cooperation with BUSYMING and other mid-tier bulk snack systems to create core blockbuster products and increase SKU coverage. Looking forward to the year, konjac sales are expected to maintain rapid growth, and the revenue proportion of high-value-add products like quail eggs is likely to continue increasing. As the impact of e-commerce adjustments from a high base fades and bulk and quantitative distributions maintain rapid increases, revenue growth is expected to pick up sequentially. Currently, the PE (TTM) is only about 15 times, providing a strong cost-effectiveness. WL DELICIOUS is expected to release growth in the second half of the year through channel recovery and new product innovation. On the channel side, the positive effects of Q2 channel adjustments are expected to continue; core channels like bulk, KA, and CVS are performing well. On the product front, the strong demand for vegetable products continues to be fulfilled, with new products like stinky tofu and konjac with Dai and beef liver flavors receiving positive market feedback, likely contributing additional volume in the second half of the year. Key recommendations include Yanker Shop Food and WL DELICIOUS. Upstream cow production capacity is clearing, providing ample elasticity for profit recovery, while the value of low-temperature product categories downstream is becoming evident. With the dairy cycle bottoming out and the cow cycle on the rise, the profitability of leading agricultural companies is expected to be released. High-value categories like low-temperature fresh milk and low-temperature yogurt are enjoying high prosperity, and there is clear structural growth momentum. New Hope Dairy is deeply exploring the low-temperature sector, leveraging the "Fresh Cube Strategy," with significant effects from product structure upgrades and channel development; income from low-temperature products accounts for over 50%, and the proportion of high-margin, innovative products is continuously increasing. Through innovations like DTC channels, the company is achieving sustained performance and improving CKH HOLDINGS' profitability. Key recommendations include New Hope Dairy. Short-term disturbances do not change the recovery of beverage scenarios and the main trend of multi-category platform growth. With the impact of weather disturbances fading, Eastroc Beverage, relying on high-density channels, frozen displays, and "1+N" multi-category layout advantages, is expected to benefit first from scenario recovery. The company has outstanding operational resilience, maintaining steady shipment levels even under short-term disturbances in Q2, combined with annual PET pricing locking in cost advantages. From a mid to long-term perspective, the revenue center is expected to exceed 40 billion: core product Dongpeng special drink is expected to replicate the market momentum outside Guangdong, with a long-term target of 25 billion; the second curve with products like Water La, Guo Zhi Tea, and Da Ka reveals considerable potential, with an overall scale expected to reach 10 billion; overseas expansion in Southeast Asian countries envisions a scale of 5 billion in the mid to long term. Currently, the PE (TTM) is only about 15 times, in the 3rd percentile since it was listed, as previous adjustments have already reflected a great deal of pessimistic expectations, providing strong layout value. Key recommendations include Eastroc Beverage. Risk warnings: Food safety risks; intensified industry competition; risks of rising raw material costs; expectations for new product promotions not being met; expectations for network expansion not being met.