Orient: The relative return value of food and beverage is highlighted; it is recommended to increase the allocation ratio to the consumer sector.

Orient has issued a research report stating that the food and beverage sector currently offers good relative return allocation value. On fundamentals, risks were concentratedly released in the Q3 reports, and the sector's earnings bottom has basically been established. With the low-base effect gradually emerging from 2026Q4, subsequent earnings are expected to improve quarter by quarter. On trading structure, the sector's overweight ratio is at the second-lowest level since 2003, and its trading structure is better than other dividend assets, leaving substantial room for increased allocation. As policies to expand domestic demand and boost consumption continue to gain traction, it is recommended to increase the allocation weight to the consumption and domestic demand sectors, prioritizing high-dividend leaders, followed by stocks with expectation gaps and small and medium-sized enterprises with reform logic, specifically focusing on three main lines: the dividend main line, the expectation-gap main line, and the industrial trend main line. Orient's main views are as follows: Earnings adjustment is sufficient, and a fundamental inflection point is approaching In 2026Q3, the food and beverage sector achieved revenue of RMB233.1 billion and net profit attributable to parent of RMB38.2 billion. For the first three quarters, revenue and net profit attributable to parent were -1.2%/-8.1% year-on-year respectively. The adjustment magnitude widened in the single Q3 quarter, and industry risks have been concentratedly released. Baijiu was the first to show signs of improvement, with Q3 revenue and net profit attributable to parent declines narrowing by 7.1pct and 8.5pct respectively versus Q2, and Kweichow Moutai's Q3 revenue and net profit attributable to parent returning to positive growth; small and medium-sized enterprises adjusted earlier and stabilized first, with companies with revenue below RMB3 billion in 2025 achieving Q3 revenue growth of +2.8% year-on-year, while leading enterprises are in the relay clearing stage. The bank judges that the period of the steepest downward revision in sector earnings has passed, the earnings bottom has basically been established, and subsequent quarterly repair is expected. Structural highlights are emerging, with new channels, new categories, and new cycles opening up growth space On new channels, value-format snacks are expanding rapidly, and channel transformation continues to release incremental volume; on new categories, health-oriented and functional categories are accelerating iteration, with subcategories such as electrolyte beverages, tea drinks, cheese, and oats maintaining relatively fast growth. Anjoy Foods Group and Jonjee Hi-Tech Industrial And Commercial Holding achieved high earnings growth relying on product innovation and category expansion; on the cycle side, the average price of fresh milk turned positive year-on-year, the raw milk cycle has reached an inflection point, the certainty of profit repair at upstream pastures is relatively high, and dairy product demand remains resilient. Institutional allocation has bottomed and rebounded, with capital flowing back to core assets In 2026Q3, the food and beverage overweight ratio was -1.02%, up 0.17pct from Q2; the actual allocation ratio to baijiu rose from 1.06% to 1.55%, Kweichow Moutai saw an increase in holdings of 0.25pct, ranking 5th in increased holdings in the consumption sector; the actual allocation ratio to Hong Kong stock food and beverage rebounded to 1.56%. Excluding Moutai, the sector's actual allocation ratio is only 1.37%, and the industry remains in a clearly underweight range, with broad room for subsequent increased allocation. Investment recommendations and investment targets Investment recommendation: increase the allocation weight to consumption, prioritizing domestic demand. 1) Dividend main line: recommend Kweichow Moutai (600519.SH, Buy), Shanxi Xinghuacun Fen Wine Factory (600809.SH, Buy), Inner Mongolia Yili Industrial Group (600887.SH, Buy), NONGFU SPRING (09633, Buy); 2) Expectation-gap main line: recommend Eastroc Beverage (605499.SH, Buy), Beijing Yanjing Brewery (000729.SZ, Buy), New Hope Dairy (002946.SZ, Buy), and related targets Fujian Wanchen Food Group (300972.SZ, Not Rated), BUSYMING (01768, Not Rated), Jonjee Hi-Tech Industrial And Commercial Holding (600872.SH, Not Rated); 3) Industrial trend main line: recommend YOURAN DAIRY (09858, Buy), Zhejiang Guyuelongshan Shaoxing Wine (600059.SH, Buy), and related targets Anjoy Foods Group (603345.SH, Not Rated), Jilin Quanyangquan (600189.SH, Not Rated), Shandong Huifa Foodstuff (603536.SH, Not Rated), Guilin Seamild Foods (002956.SZ, Not Rated), H&H International Holdings (01112, Not Rated), Xiamen Kingdomway Group (002626.SZ, Not Rated). Risk warnings Food safety issues, management changes, industrial policy adjustments, accelerated increases in raw material prices, consumption demand recovery falling short of expectations, etc.