Guosheng: The demand for consumer products is gradually improving. It is recommended to focus on three strategies for allocating quality assets.

Guosheng released a research report stating that the demand in the consumer goods industry is gradually improving, with a simultaneous enhancement in the supply and demand of dairy products. The expansion of bulk snack channels and the clear direction towards healthier products, along with the continuous promotion of new drink channels, are notable. The health product landscape is becoming more concentrated, and three strategic areas for laying out quality assets are recommended: 1) strong categories or channels; 2) opportunities arising from leading companies clearing the bottom; 3) high dividend yield or stable leading companies. Guosheng's main points are as follows: Snacks: The expansion of bulk stores and improved store efficiency drive growth, while production-oriented snacks show a seasonal slowdown and cost divergence. In reviewing the performance of the snack sector in H1 2026, the industry's authority is increasingly concentrated on bulk snacks, with channel-based companies outperforming product-focused companies. 1) Product-based companies: In H1 2026, production-oriented snack companies achieved a total revenue of 27.44 billion yuan, a year-on-year increase of 7.6%. In Q2 2026, revenue was 11.05 billion yuan, showing a slight decrease of 0.3% year-on-year. As the sector enters a seasonally slower period, overall growth has diminished, but companies like Guilin Seamild Foods, which focus on health products, and YouYou Foods and Jinzai Food Group, which are expanding channels, still achieved impressive growth. Considering that Haoxiangni Health Food is accounted for using the equity method in the investment in BUSYMING, the fair value changes have a significant impact. From a net profit perspective excluding non-recurring items, the snack sector's net profit for H1 2026 was 1.22 billion yuan, a year-on-year increase of 52.9%. In Q2 2026, the adjusted net profit was 240 million yuan, a year-on-year increase of 38.9%. The overall profit increase for the sector is driven by cost advantages from Qiaqia and Three Squirrels Inc. controlling e-commerce expenses. However, the overall profit performance is affected by the downward channel structure, and the cost performance varies by category. The snack sector's gross margin was 28.7%, up 0.4 percentage points year-on-year, with Q2 2026 gross margin at 28.5%, up 0.1 percentage points year-on-year. While maintaining relative stability overall, there is internal divergence, with cost advantages for Qiaqia and Ximai due to falling prices for sunflower seeds and oats, while Ganyuan and Jinzai face cost pressures from rising prices of palm oil and anchovies. Additionally, the rapid growth of bulk snack stores and membership store channels has led to adjustments in the channel structure. The snack sector's selling expense ratio was 16.5%, down 1.8 percentage points year-on-year, with a Q2 2026 selling expense ratio of 17.1%, down 1.8 percentage points year-on-year. The structural optimization of emerging channel expenses and the proactive control of e-commerce investment by companies have contributed to a steady decline in the selling expense ratio. The snack sector's net profit margin excluding non-recurring items was 4.5%, up 1.3 percentage points year-on-year, with Q2 2026 at 2.2%, up 0.6 percentage points year-on-year. Although the overall net profit margin has improved, a higher proportion of companies within the sector have seen a decline in their net profit margins. Future attention should focus on cost trends in key categories such as oils, oats, and konjac. 2) Channel-based companies: All bulk snack companies in H1 2026 achieved high growth, with BUSYMING achieving revenue of 45.0 billion yuan in H1 2026, a year-on-year increase of 60.0%, and Fujian Wanchen Food Group achieving revenue of 34.84 billion yuan, a year-on-year increase of 54.3%. Notably, the company saw a significant acceleration in store openings, with BUSYMING and Fujian Wanchen Food Group opening 4,457 and 5,488 new stores, respectively, with growth in county and rural areas and simultaneous expansion in northern markets. Alongside the acceleration of store openings, same-store sales still showed remarkable improvement, with BUSYMING and Fujian Wanchen Food Group achieving year-on-year same-store revenue growth of +3.2% and +8.4%, respectively, demonstrating effective fine management. Simultaneously, the overall net profit margin for the format continues to rise, with BUSYMING's net profit margin in H1 2026 increasing by 1.9 percentage points to 5.0%, and Fujian Wanchen Food Group's increasing by 1.5 percentage points to 5.4%, significantly boosted by scale effects. Dairy Products: Liquid milk returns to positive growth, and Yili actively clears inventory. In H1 2026, the dairy sector achieved total revenue of 96.98 billion yuan, a year-on-year increase of 3.5%. In Q2 2026, sector revenue was 45.91 billion yuan, a year-on-year increase of 1.9%. The sector has significantly improved after emerging from a previous state of declining volume and price. The report indicates positive growth for leading liquid milk companies in 2026, with the transition from ambient temperature to low-temperature continued, and ambient temperature products also returning to positive growth. The report concludes that the trend indicates a clear inflection point and presents a positive significance, with sector demand showing signs of improvement. The sector's net profit attributable to the parent company was 6.99 billion yuan, a year-on-year decrease of 15.7%, with Q2 2026 net profit of 1.08 billion yuan, down 63.5% year-on-year. The profit decline in Q2 is primarily attributed to industry tax adjustments, Yili's impairment losses related to AUSNUTRIA goodwill and inventory. Yili's operating profit margin continues its upward trend, and after clearing the pressure on its financial statements, its future growth quality looks much higher. In H1 2026, the sector's gross margin was 32.0%, down 0.1 percentage points, while the Q2 gross margin was 30.5%, down 0.2 percentage points, showing overall stability. However, due to channel structure impacts, companies like New Hope Dairy have seen slight declines in gross margins. Currently, as milk prices stabilize at the bottom, the industry is beginning to undergo structural upgrades, with future improvements in product structure likely to become more apparent. The sectors selling expense ratio was 16.3%, down 0.6 percentage points year-on-year, with a Q2 2026 selling expense ratio of 16.9%, down 1.0 percentage points year-on-year, indicating a contraction in overall expense levels in the industry. The sectors net profit margin was 7.0%, down 1.9 percentage points year-on-year, with a Q2 net profit margin of 1.8%, down 4.7 percentage points year-on-year. Notably, Inner Mongolia Yili Industrial Group reported a Q2 net profit margin decrease of 7.7% year-on-year, while other dairy companies experienced divergence in net profit margins post-adjustments for industry tax, with high-growth New Hope Dairy still achieving an increase in its net profit margin. Beverages: Seasonal downturn due to weather disturbances. In H1 2026, the beverage sector achieved revenue of 26.17 billion yuan, a year-on-year increase of 15.6%, with Q2 alone achieving revenue of 11.90 billion yuan, a year-on-year increase of 11.2%. The beverage sector experienced a temporary slowdown in growth during the peak season due to weather disruptions. Companies like Hebei Yangyuan Zhihui Beverage, Shanghai Bairun Investment Holding Group, Jilin Quanyangquan, Eastroc Beverage, and Juneyao Grand Healthy Drinks led the growth. The beverage sector achieved a total net profit attributable to the parent company of 4.80 billion yuan, a year-on-year increase of 21.6%, with Q2 net profit of 1.96 billion yuan, up 11.9% year-on-year. Although PET prices increased on the profit side, leading companies demonstrated a significantly stronger ability to resist cost fluctuations compared to small and medium enterprises due to bulk procurement, lean supply chain management, and national capacity layout. The beverage sector's gross margin was 43.8%, up 2.0 percentage points year-on-year, with a Q2 gross margin of 43.5%, up 1.8 percentage points year-on-year. The sector's net profit margin was 18.4%, up 0.9 percentage points year-on-year, while the Q2 net profit margin was 16.7%, up 0.1 percentage points year-on-year. The beverage sector's selling expense ratio was 16.0%, up 0.3 percentage points year-on-year, and management expense ratio stood at 4.0%, unchanged year-on-year; for Q2 2026, the selling expense ratio was 17.3%, up 0.8 percentage points year-on-year, and the management expense ratio was 4.7%, up 0.4 percentage points year-on-year. The beverage industry is highly competitive, with manufacturers continuously launching new products and positioning themselves in dining, freezer, and bulk channels. However, there remains significant upward pressure on costs, particularly regarding PET raw materials, leading to a recommendation for selecting enterprises with leading channel networks and high potential for large product growth. Health Products: Stable volume but reduced profits, with a concentrated landscape. In H1 2026, the health product sector achieved total revenue of 11.52 billion yuan, a year-on-year decrease of 1.3%, with Q2 revenue of 5.74 billion yuan, a year-on-year decrease of 3.8%. Apart from Byhealth Co., Ltd., Xiamen Kingdomway Group, Weihai Baihe Biology Technological, and Shandong Bailong Chuangyuan Bio-Tech, which saw positive revenue growth, other health product companies overall faced significant pressure. The sector's net profit attributable to the parent company was 1.40 billion yuan, a year-on-year increase of 13.2%, with Q2 net profit of 760 million yuan, up 1.6% year-on-year. Notably, Xiwang Foods disposal of overseas subsidiaries significantly boosted profits; however, adjusting for non-recurring items, the sector's net profit for H1 and Q2 registered year-on-year declines of -32.3% and -41.2%, respectively. The sector achieved a gross margin of 45.6% in H1 2026, an increase of 1.0 percentage points year-on-year, with Q1 gross margin at 46.7%, up 2.8 percentage points year-on-year, indicating a positive recovery in gross margins. The segment's selling expense ratio stood at 20.2%, up 3.0 percentage points year-on-year, and management expense ratio at 8.2%, largely unchanged year-on-year; Q2's selling expense ratio reached 22.2%, up 3.9 percentage points year-on-year, with management expenses also remaining largely stable at 8.3%. The sector achieved a net profit margin of 12.9%, down 0.8 percentage points year-on-year, with a net profit margin excluding non-recurring items of 9.0%, down 4.1 percentage points year-on-year; Q2's net profit margin was 14.8%, up 2.4 percentage points year-on-year, and the net profit margin excluding non-recurring items was 7.5%, down 4.8 percentage points year-on-year. The report anticipates that the health product industry will continue the trend of stable volume but reduced profits in the first half of 2026, with ongoing strict regulation, accelerated channel transformations, and further category differentiation. The positive recovery in gross margins driven by channel shifts and supply chain management is noted, but heightened competition is increasing expenses and putting overall profitability under pressure. The report believes that the industry's concentration is set to continually rise, with leading firms likely to expand market share through research, product development, and management. Risk Warning: Increasing industry competition, underperformance in promoting large products, unexpected rises in raw material costs, and food safety issues.