CITIC SEC: In 2027, mass consumer goods will focus on three main themes; the sector is bottoming out on three frontsvaluation, capital flows, and fundamentals.

CITIC SEC released a research report stating that for 2027, it recommends focusing on three main themes: 1) Competition easing dimension: considering the gradual rise in raw material costs, improvement in product oversupply, and stabilization of channel structure, the firm is optimistic that competition in the catering supply and dairy industries will comprehensively slow in 2027. The firm expects store openings in the bulk snack industry to slow in 2027, and believes that competition among leading bulk snack players will also become more stable and controllable. 2) High dividend dimension: considering that leading mass consumer goods companies continue to maintain stable-to-rising market share, stable fundamentals, and ample free cash flow, leading mass consumer goods companies have the capacity for sustained high dividend payouts. 3) Great health growth prosperity dimension: it is expected that in 2027 consumers will continue to maintain growing demand for great health food and beverages, with directions such as low GI, low sugar & sugar-free, high protein, high fiber, and sports health worthy of attention. The main viewpoints of CITIC SEC are as follows: The mass consumer goods sector has completed bottoming out across three dimensions: valuation, capital flows, and fundamentals 1) Valuation dimension: although the market capitalization of mass consumer goods sectors such as dairy, catering supply, beverages, and snacks has continued to decline over the past 5 years, sector profits have indeed grown steadily, valuations have been significantly digested, and the overall sector PE is at the 10%~15% valuation percentile of the past 10 years. At the same time, mass consumer goods companies are continuously increasing dividend payout ratios, and the sector's rolling dividend yield now ranks second among all CITIC level-1 industries, offering strong attractiveness. 2) Capital flow dimension: as of the end of June 2026, public fund institutions' holdings in the mass consumer goods industry further declined to 0.9%, with the holding ratio continuing to decrease and the structure improving. 3) Fundamentals dimension: although terminal demand remains relatively weak, leading mass consumer goods companies have continuously strengthened their internal capabilities over the past years to cope with changes and challenges in the external environment (weakening prosperity, channel shifts, intensifying competition, demand changes, high inventory, etc.). After a round of self-adjustment and capability enhancement through a downturn cycle, leading companies in various mass consumer goods sub-sectors have now achieved stable or improved market share and stabilized fundamentals. At the same time, considering factors such as rising raw material costs, slowing capacity deployment, stabilizing channel structure, and stricter regulation in some industries, the firm believes that the mass consumer goods industry is expected to show a trend of slowing competition in 2027, supporting stable-to-rising fundamentals for leading mass consumer goods companies. Dairy: Raw milk cycle begins to upturn, sector prosperity rises in tandem Over the past 2 years, dairy cow herd reduction combined with stabilizing dairy demand in 2026 has led to continuous improvement in raw milk supply and demand. Since 2026, milk prices have bottomed out and rebounded, with contract milk prices cumulatively rising by 0.09 yuan since mid-April, ending a 5-year downtrend. Considering the aging of the herd structure and the 2~3 year expansion cycle for dairy cows, the firm judges that raw milk will enter an uptrend cycle in 2027 and 2028. Looking ahead to 2027, overall dairy demand is expected to stabilize at the bottom, with demand prosperity for low-temperature dairy and cheese continuing, while the uptrend in the raw milk cycle will directly drive elastic profit growth for dairy farming companies, and is also expected to drive product price recovery, market share restoration, and expense investment optimization for leading dairy enterprises, benefiting their performance growth. Catering supply chain: Weak demand and cost pressure, focus on competition easing and pricing pace After a short-term recovery in 2026Q1, the prosperity of the catering supply industry declined significantly quarter-on-quarter in 2026Q2. On the cost side, prices of core raw materials such as soybeans, soybean oil, and surimi have continued to rise since the beginning of 2026. In 26H1, benefiting from low-priced inventory, cost pressure was generally small for companies, but from 26H2 onward, cost pressure is expected to gradually materialize. Fortunately, the catering supply industry continued the trend of easing competition that began in 25H2 in 2026. According to Mashaungying data, in the first three quarters of 2026, CR5 increased year-on-year in most catering supply sub-segments, corporate expense investment and trade discounts continued to moderate, and leading companies represented by Anjoy began attempting price increases to pass through cost pressure. Looking ahead, the firm expects it will be difficult for industry demand to show significant improvement in the short term, and cost pressure will gradually be reflected in corporate financial statements. Therefore, it recommends selecting investment targets from three directions: sustainability of revenue prosperity, price increases, and high dividends. Beverages: Focus on demand & cost trends, capture individual stock investment opportunities In 2026, industry demand came under pressure, mainly due to weak consumer spending power and poor weather affecting outdoor travel, while the sharp rise in PET prices brought significant pressure on corporate profitability (especially in 26H2). Leading beverage companies outperformed the overall industry, but sector valuations declined overall, with only a few companies showing relatively good stock price performance due to high dividends. Looking ahead to 2027, the firm believes there is uncertainty in both demand recovery and cost trends, and beverage investment should still mainly focus on key individual stock opportunities. Snacks: Valuation advantage of bulk snacks stands out, brand snacks await timing Since the beginning of 2026, leading bulk snack companies have accelerated store openings while maintaining good net margin improvement. Although bulk snack store openings have exceeded expectations this year, the market is concerned about opening too quickly and subsequent store opening space being squeezed. However, the firm believes that current valuations have fully reflected market concerns about the subsequent fundamentals of leading bulk snack companies. Considering there is room for store openings and room for same-store operating efficiency improvement, the firm is optimistic that leading bulk snack companies are expected to maintain double-digit revenue and profit growth over the next 2 years. At the same time, low PE and ample cash flow will also support leading companies in potentially providing shareholders with higher cash returns. Health supplements: Continue to recommend H&H Group, watch yeast protein opportunities Since the beginning of this year, regulators and e-commerce platforms have successively taken measures to rectify industry chaos, and regulation of the health supplement industry has become stricter. The continued strengthening of regulation by policies and platforms will cause some short-term disruption to online demand in the health supplement industry, but will also raise entry barriers and drive industry share concentration. Since the beginning of 2026, whey protein prices have surged, and tight whey protein supply and demand is expected to continue into 2027. Risk factors: Downturn in consumer prosperity; catering recovery below expectations; price increase results below expectations; intensifying industry competition; unexpected impact from emerging channels; continued rise in raw material prices; food safety issues.