Soochow Securities Co., Ltd.: The Huangjiu industry experiences a supply-demand resonance, breaking through with premiumization and youthfulness

According to the Zhitong Finance APP, Soochow Securities released a research report stating that the current marginal changes in the yellow wine industry have industrial logic, and it is recommended to strengthen attention on leading companies. On one hand, the significant shift in supply and demand in the yellow wine industry today is similar to that of the Chinese beer industry around 2018; on the other hand, the Daijiu brand has achieved a transformation towards high-end products against the trend, providing a path for the current upgrade of the yellow wine industry. Considering that the current marginal changes in the yellow wine industry have medium to long-term industrial logic, it is recommended to pay more attention to industry leaders KJS (601579.SH) and GYLS (600059.SH).

The main points of Soochow Securities are as follows:

The yellow wine industry has undergone deep adjustments and is now experiencing positive changes

1. The profit margin of the yellow wine industry has reached a marginal turning point, with leading companies seeing both volume and price increases. In 2023, the revenue of enterprises above designated size was 8.547 billion yuan, down 15.90% year-on-year, while the total profit was 1.558 billion yuan, up 23.06% year-on-year. Although industry revenue is still declining, profits have achieved a restorative growth, with the profit margin of enterprises above designated size significantly increasing by 5.77 percentage points year-on-year to 18.23% in 2023.

2. The CR2 market share of the yellow wine industry continues to rise, with leaders guiding industrial transformation. During the ongoing adjustments in the yellow wine industry, leading companies have achieved counter-cyclical growth, driving the CR2 market share of the yellow wine industry from 14.9% in 2017 to 37.4% in 2023, with GYLS and KJS holding market shares of 20.9% and 16.5%, respectively. The accelerated increase in market share of GYLS and KJS is fundamentally driven by product innovation and channel expansion, gradually revealing effects of high-end, youthful, and nationalization.

Industry Reference 1: Supply and Demand Resonance Guides the Upgrade of the Chinese Beer Industry

Drawing on the logic of the beer industry's upgrade, the current supply and demand in the yellow wine industry have also undergone significant changes, which are expected to drive continuous upgrades in the industry.

1. From the supply side, the yellow wine industry has been adjusting since 2017, with leading companies KJS and GYLS achieving counter-cyclical growth. In 2023, the industry CR2 market share reached 37.4%. The current leaders have the capability to guide the continuous upgrade of the industry and are strengthening efforts in channel structure, brand innovation, and personnel allocation. Since 2023, the volume and price of mid-to-high-end products from KJS and GYLS have significantly accelerated, indicating substantial room for structural upgrades in the future.

2. From the demand side, the yellow wine industry also needs to break through in flavor categories to meet the taste preferences of mainstream consumers. Offline research shows that reasons for consumers not drinking yellow wine include "too strong aftertaste," while consumers who choose yellow wine pay more attention to "smooth and comfortable entry" and "rich and layered aroma."

Industry Reference 2: The High-End Rise of the Japanese Sake Industry Against the Trend

The development of the Japanese sake industry has gone through several phases: post-war reconstruction (1945-1951), rapid growth (1951-1973), economic downturn (1973-1990), transformation pains (1990-2000), and globalization and high-end development (2000 to present). The Daijiu brand, as a benchmark for the high-end transformation of Japanese sake, saw total sales increase from 4.6 billion yen in 2014 to 19.5 billion yen in 2024, with a CAGR of 15.54%. The success of Daijiu (DASSAI) in high-end development comes from innovative leading craftsmanship, a focus on pure rice Daiginjo and high-end scenarios, deep channel cultivation, firm globalization, and adherence to long-term value principles In comparison, Chinese yellow wine and Japanese sake are both fermented wines, but the characteristics of yellow wine are rich and complex, while the characteristics of sake are refreshing and clean. The differences are due to various factors such as the types of koji, aging time, varieties and processing of raw materials, brewing temperatures, and post-processing of the finished wine. The high-end transformation of the Japanese sake industry is worth learning from, and it is recommended to strengthen breakthroughs from dimensions such as brand culture, process innovation, structural upgrades, and regional expansion.

Risk Warning: Macroeconomic performance may be below expectations; food safety issues; intensified market competition