China Galaxy Securities: Expects new consumer demand to show continued high prosperity, focusing on areas benefiting from policy stimulus

According to the China Galaxy Securities research report, in late October, the market will focus on the third-quarter earnings, with companies representing the new consumption direction showing good performance. Related high-performing stocks and sectors can be closely monitored. Looking ahead to Q4 2025, the bank suggests paying attention to two clues: 1) the year-end valuation switching market, focusing on targets in the new consumption direction with solid fundamentals; 2) under the expectation of PPI improvement gradually transmitting to CPI improvement, it is advisable to focus on cyclical directions with low valuations and supply clearing. The main points of China Galaxy Securities are as follows: Event: On October 23, the Fourth Plenary Session reviewed and approved the draft proposal for the "14th Five-Year Plan." According to the Galaxy macro team analysis, the 20th Central Committee's Fourth Plenary Session has upgraded the expression and positioning of "domestic demand" and "domestic circulation": 1) Regarding the relationship between supply and demand, it has shifted from "innovation-driven, high-quality supply leading and creating new demand" in the "13th Five-Year Plan" to "new demand leading new supply, and new supply creating new demand"; 2) In addition, it is necessary to orderly eliminate backward production capacity as an important measure against involution, promote supply-demand balance, and achieve "positive interaction between supply and demand." Continue to prioritize attention to "new demand" represented by new channels and new categories During the "13th Five-Year Plan," new consumption demand showed high prosperity, and the bank believes that related directions are still expected to achieve excess returns during the "14th Five-Year Plan." 1) In terms of channels, residents' lifestyles and consumption psychology are gradually rationalizing, continuously leading to efficiency improvements on the supply side and catalyzing channel reforms, benefiting new channels represented by instant retail, snack wholesale, and membership supermarkets. 2) In terms of categories, consumers' attention to health and functionality is increasing, while still retaining demands for delicious, trendy foods that provide emotional value, with coconut water, konjac, and health foods expected to benefit. Focus on areas benefiting from policy stimulus such as dairy products and the catering supply chain Dairy products: The bank believes that population structure issues are a top priority during the "14th Five-Year Plan," and a series of fertility stimulus policies are expected to be introduced. Referencing the 2025 Two Sessions, which clearly pointed out the formulation of policies to promote fertility, as well as the issuance of the "Special Action Plan to Boost Consumption" by the General Office of the CPC Central Committee and the General Office of the State Council, which clearly proposed to increase support for fertility and childcare, and to study the establishment of a childcare subsidy system. The bank believes that the fertility subsidy policy has significant positive implications for the newborn population, benefiting markets such as liquid milk, infant formula, and children's cheese. 2) Catering supply chain: The issuance of catering consumption vouchers has temporarily boosted a slight recovery in social retail catering. The bank believes that systematic and normalized support during the "14th Five-Year Plan" is expected to continue, with local government catering subsidies and banquet subsidy policies still having room for further enhancement, which is expected to release vitality in catering service consumption. Counter involution to promote supply-demand balance, focus on PPI recovery transmitting to CPI Since 2021, raw milk prices have declined sharply. The bank believes that supply-demand contradictions will ease during the "14th Five-Year Plan," and milk prices are expected to rise moderately. 1) On the supply side: With the orderly advancement of counter-involution, the livestock industry is expected to welcome a cyclical reversal, and after the rise in beef prices, the willingness to eliminate cattle is expected to increase, coupled with a reduction in imported supply and the clearing of small and medium-sized livestock enterprises, the capacity of raw milk supply is continuously being reduced. 2) On the demand side: Policy stimulus is expected to continue to boost dairy consumption demand Risk Warning: The risk of demand recovery falling short of expectations, the risk of intensified industry competition, the risk of downstream channel transformation effects not meeting expectations, and food safety risks