CITIC Securities: Positive signals for liquor clearance, bottom gradually emerging, layout of strong leaders + early clearance improvement

According to the Zhitong Finance APP, China Merchants Securities released a research report stating that the industry revenue/profit for Q3 2025 is -18%/-22%, with a single-quarter revenue decline exceeding any quarter during the 12-15 year adjustment period, indicating that the industry has entered a "corporate suffering period" in the medium term. As channel inventory clears, prices rebound from the bottom, and performance transitions to positive, the factors constraining stock prices will gradually dissipate, and the sector's stock prices are expected to bottom out and rebound, shifting from underperforming the market to keeping pace, with the potential to outperform once positive demand signals emerge. Leading companies with strong market share will continue to increase, and those that adjust or offload burdens first are also expected to reverse quickly.

The main points of China Merchants Securities are as follows:

Q3 2025 industry revenue/profit -18%/-22%, with a single-quarter revenue decline exceeding any quarter during the 12-15 year adjustment period. Wuliangye leads the industry in accelerating clearance, and the industry has entered a "corporate suffering period" in the medium term. In Q3 2025, the revenue/net profit attributable to the parent company/cash collection of the liquor industry were 78.7 billion/28 billion/83.9 billion yuan, down -18.4%/-22.2%/-26.7% year-on-year. The acceleration of clearance at the listed company level in Q3 2025 has intensified, with cash collection declining more than revenue. Although balancing the interests of all parties during this process is quite difficult, the final result meets expectations, with the significant decline of industry leader Wuliangye announcing that the industry reports have entered a deep adjustment phase. The impact of the alcohol ban policy and weak demand is concentrated in the reports. We judge that we have now entered the medium term of the "corporate suffering period." Excluding Moutai, the revenue/net profit attributable to the parent company/cash collection of the liquor industry in Q3 2025 were 38.9 billion/8.8 billion/40.2 billion yuan, down -31.5%/-48.0%/-44.1% year-on-year, with other companies outside of Moutai experiencing accelerated declines. Looking ahead to Q4 2025, considering the ongoing demand gap year-on-year, the burdens on companies still needing to be released, and the later timing of the Spring Festival in 2026, it is expected that the clearance of liquor companies' reports will continue to deepen, with Moutai striving to avoid a decline, while other companies are expected to maintain their decline.

Branch company performance: High-end liquor has been significantly impacted by policies, with batch prices under pressure, while Moutai's strong brand achieved slight revenue growth; Wuliangye's significant clearance signals are positive, and the earlier adjustments of Laojiao have resulted in controllable declines. Demand for sub-high-end products is under pressure, with company performance diverging; Fenjiu's core products are gaining traction, and its distributors are expanding outside the province, achieving revenue growth in Q3. Shui Jing Fang, Shede, and Jiu Gui are still in adjustment. The real estate liquor reports continue to clear, with previously strong companies like Gujing and Lao Bai Gan also starting to clear, while Yanghe and Jin Shi Yuan continue to decline in their reports, and Yingjia has shown some resilience in Q3 due to earlier clearance.

Channel leverage contraction, with increased remaining inventory after significant report declines, leading to distorted short-term profitability. Channel risks are continuously being released, and companies are adopting inventory control measures, accepting significant revenue declines without rushing to ship and confirm income. Contract liabilities have improved year-on-year and quarter-on-quarter, allowing companies to accumulate remaining inventory. In terms of accounts receivable/bills of exchange, Q3 continued the contraction trend, with most companies showing significant year-on-year declines, reducing channel leverage. Moutai has opened up non-Flying Fairy bills of exchange for payment, showing some improvement. During the adjustment phase, gross profit margins are under pressure and declining, while rigid expense ratios are increasing, leading to rising expense rates. Companies need to invest heavily to address batch price declines and other historical issues, resulting in a general decline in profitability for liquor companies, entering a relatively distorted state of profitability, with only Moutai remaining relatively stable Position Analysis: The proportion of liquor holdings continues to decline, with an increase in the concentration of holdings in Moutai and Wuliangye, while Fenjiu and Luzhou Laojiao have decreased. In Q3 2025, the heavy position ratio in the liquor sector fell by another 1.0 percentage points to 4.0%. The current heavy position ratio in liquor has dropped 10 percentage points from its peak, with a larger adjustment than in 2018. Additionally, when calculated based on the overweight ratio, the overweight ratio in the liquor sector for Q3 2025 is only 1.0%, which is below the levels of Q1-Q2 2013. 2) If we exclude the holdings of fund managers in key liquor tracks, the heavy position ratio of the six major liquors in Q3 2025 is only 1.9%, which is also at a historical low (close to the 2013 level). In Q3 2025, the concentration of holdings in Moutai and Wuliangye has increased, while the concentration of holdings in Fenjiu, Luzhou Laojiao, Gujing, and Yanghe has decreased, with some funds selectively increasing their positions in this phase