China Securities Co., Ltd.: Supply-side reform continues, industrial chain redistribution; consumption still requires attention to segmented alpha opportunities.

China Securities Co., Ltd. released a research report stating that by 2026 many industries have already completed supply-side improvements and reshaped the distribution across upstream and downstream of the industrial chain. The bank believes consumption still requires attention to segmented alpha opportunities: on one hand, the logic of Chinese brands going overseas and consumption repatriation is becoming increasingly smooth; on the other hand, supply-side clearing is driving anti-involution. The medical aesthetics industry is gradually showing recovery with both volume and price rising; under the small-batch rapid-response trend in cosmetics, scale effects are concentrating at the production end; supply-side optimization in hotels is driving volume-price recovery; overseas brands are gradually gaining pricing power; and more industry supply-side optimization is expected going forward. China Securities Co., Ltd.'s main views are as follows: Consumption From 2025 to date, the consumer sector has generally lagged, but at this stage the chip structure has advantages, some industries also present supply-side improvement opportunities, and segments with earnings beats have sustainability. From a policy perspective, the bank believes that measures aimed at promoting a recovery in the price system and repairing households' expectations for future cash flow will help restore valuations of consumer companies. At the same time, in interest-driven consumption and artificial intelligence, there remain many emerging opportunities at home and abroad worth capturing. Duty-free sector The implementation of Hainan's island-wide customs closure opens a new phase for offshore duty-free, offshore duty-free channels maintain stable growth, the value of airports, ports and other channels continues to be deepened, nationwide tax regulatory policies are gradually standardized, the strong RMB regime, and M&A of high-quality assets are expected to promote development. The continued landing and optimization of core properties by duty-free leaders bring improvements in consumer experience and product supply. Suggested attention: China Tourism Group Duty Free Corporation. Travel and gaming Travel demand remains resilient, tourism destinations are flourishing and holiday consumption is concentrated, supply-side experience optimization and additional holiday periods are expected to drive higher consumption conversion, domestic long-haul destinations may benefit amid disruptions to outbound demand, and inbound tourism continues to grow. Attention should be paid to the operation and integration logic of high-quality assets in the travel chain; in the gaming sector, the growth of high-end demand has shown fluctuations, GGR is under pressure on a high base, and attention should be paid to the trend of rising dividend yields. Suggested attention: Anhui Jiuhuashan Tourism Development, Sands China, GALAXY ENT. Hotels Supply-side growth is expected to gradually return to rationality during the year, the RevPAR recovery trend slowed in 26Q3, RevPAR is expected to remain stable and improving in Q4, and supply chain operations and platform empowerment capabilities are gradually becoming more prominent. Industry differentiation shows profit growth outpacing revenue; domestically, current chain penetration room, the supply inflection point, brand matrix improvement, overseas exploration, member refinement, and shareholder returns are gradually approaching the development path of global hotel leaders, which may usher in long-term dividends. Suggested attention: HWORLD-S, Atour, Shanghai Jin Jiang International Hotels, BTG Hotels. Catering The supply-side optimization logic of the industry is gradually being validated and entering deep water; in 26H1 leading companies' performance diverged and most came under pressure, and value-for-money competition remains intense. In the short term, the catering industry is pursuing a balance between gross margin and customer experience; in the medium and long term, attention should be paid to attributes that transcend cycles, strong organization and execution, high-quality supply chain collaboration, quality-price ratio, rationality of development pace, cash flow, and bargaining power in the industrial chain. Attention should be paid to possible cost disruptions such as raw material price increases and labor cost rises. Suggested attention: YUM CHINA, GUMING, MIXUE GROUP, Chagee. Cosmetics Structural differences in online channels have put overall brand-side profits under pressure; the key to winning has shifted from simply scaling up to expense discipline and multi-brand structure, and brand-side gross margin-to-selling expense spread trends have diverged; at the same time, weakening demand transmitting upstream has also led to divergence in order prosperity at the manufacturing end. Focus on names with matching volume and profit and improving gross margin-to-selling expense spread. Suggested attention: on the brand side, potential names FOREST CABIN, MAO GEPING, Runben Biotechnology, Yunnan Botanee Bio-Technology Group, Proya Cosmetics, and on the manufacturing side, Nox Bellcow and Nanjing. Medical aesthetics Amid intensifying competition, single-product life cycles are shortening and price levels are declining, continuing to be reflected in brand-side financial statements; institution-side revenue growth also slowed in 26Q3, with the high-growth slope converging. New materials such as JINBO have passed their rapid harvest period, and adjustments have deepened on a high base; Imeik Technology Development's revenue decline has narrowed somewhat but still awaits validation from new products and pipeline. Individual stock growth is directly related to track position and store/product cycles. Suggested attention: on the institution side, Lancy Co., Ltd., BEAUTYFARM MED, So-Young, and on the brand side, Imeik Technology Development and SIHUAN PHARM, which have rich matrices and continue to make efforts. General retail Demand-side recovery remains weak; on the supply side, attention should be paid to emerging formats such as discount retail, which has huge potential compared with the US and Japanese markets. Suggested attention: BUSYMING; El Nio may bring major changes to the global agricultural industry, and stable mandatory demand can bring revaluation of sustained cash flow. Suggested attention: Shenzhen Agricultural Power Group. Foreign trade and cross-border Diesel generator sets and shipbuilding remain prosperous; the trend of expanding advantages in China's shipbuilding industry will not be affected by US foreign policy, and major industry participants have accumulated years of order backlog. It is suggested to continue to pay attention to Sumec Corporation, which offers high dividends, low valuation and long-term growth. Tariff refunds arriving one after another also reflect the operational resilience of overseas-expanding enterprises; currency-related impacts are expected to significantly decrease in the second half of the year, and the shift from category going overseas to brand going overseas is driving a group of overseas-expanding enterprises to go global. Suggested attention: Ugreen Group Limited, Anker Innovations Technology, Huakai Yibai Technology. Specialty chains and specialty markets Consumer electronics terminals are affected by the cost inflation driven by this round of AI, and the supply-demand landscape has undergone dramatic changes; the Apple series, with a thicker profit base, has shown relatively good resilience, and corresponding channel business is expanding against the trend. Suggested attention: Shenzhen Aisidi. Demand in the real estate aftermarket is relatively stable, supply-side clearing in the industry is relatively thorough, and leading companies' cash flow is gradually improving. Suggested attention: Red Star Macalline Group Corporation.