CITIC Securities: The performance of liquor companies in the third quarter is expected to improve, and we continue to be optimistic about allocating to leading liquor enterprises

According to the Zhitong Finance APP, CITIC Securities released a research report stating that the demand in the liquor industry has continued to be under pressure this year. However, the decline in sales, wholesale prices, and financial performance in the second quarter has narrowed to some extent. The firm expects that the industry cycle has entered a gradual bottoming phase. After leading liquor companies actively adjusted their revenue and profit growth rates, if demand gradually stabilizes and rebounds in the future, the industry is expected to welcome an upward turning point. Additionally, considering that leading liquor companies are continuously enhancing shareholder returns through increased dividend rates, share buybacks, and stock purchases, the investment safety margin is being strengthened. The firm maintains its allocation recommendation for leading liquor enterprises. The firm believes that the performance of liquor companies is expected to improve in the third quarter due to high temperatures and a low base, but considering the impact of alcohol restrictions, industry sales are expected to progress steadily, with stable and slightly increasing per-ton prices. The firm estimates that the industry's revenue growth rate will be between 2%-5%, with profit margins remaining stable. CITIC Securities' main viewpoints are as follows: Valuations have fallen to long-term lows, and shareholder returns are enhancing investment safety margins. From January 1 to August 1, 2025, the overall stock price of the liquor sector has decreased by 6.5%, underperforming the CSI 300 Index by 9.6 percentage points; this week (July 28 to August 1, 2025), ST Lanhuang (+1.24%), Yanghe (-0.2%), and YINGJIA DISTILLERY (-0.4%) were the top three liquor companies in terms of growth. Currently, the overall price-to-earnings ratio (TTM) of the liquor sector has fallen to 18.1x, which is at the 15%/5%/3%/1%/12% percentiles for 1 year/3 years/5 years/10 years/since listing, respectively; the overall price-to-earnings ratio (TTM) of the beer sector is 24.4x, which is at the 31%/15%/9%/4%/2% percentiles for 1 year/3 years/5 years/10 years/since listing. Liquor: Moutai is adjusting at the bottom of the cycle and actively exploring new demand. Two cycles have shaped the absolute king of high-end liquor: 1) 1998-2002: The Asian financial crisis and counterfeit liquor incidents dragged the industry into a winter, prompting companies to rethink during their low periods, starting to build their own distribution systems and cultivate the market concept of "vintage liquor," with factory prices steadily increasing; 2) 2012-2016: Restrictions on "three public consumption" triggered a deep adjustment in the industry, with companies shifting towards business liquor demand, lowering distribution thresholds to expand coverage, strengthening group purchases and direct sales channels, without lowering factory prices, and supporting retail prices. At this cycle's bottom, the company is actively exploring new business development models, seeking distributors with stronger demand excavation capabilities and deeper product understanding, as well as related distribution networks. According to content from the National Liquor Moutai WeChat public account, Moutai (600519.SH) is exploring the establishment of a sales platform company and discussing the management of Moutai collection halls, which may indicate that the industry leader will begin adjusting its distributor system and structure at the bottom of the industrial cycle to better explore new consumption, new scenarios, and new consumers, maintaining Moutai's absolute leading position in the industry. Beer: Weak current consumption, growth in non-current consumption, looking at long-term healthy development. Volume: According to data from the National Bureau of Statistics, from January to June 2025, the cumulative output of large-scale beer enterprises nationwide was 19.044 million kiloliters, a decrease of 0.3% year-on-year. The firm expects stable performance to continue in the third quarter, with some impact from alcohol restriction policies Price: Affected by channel structure and consumer differentiation, the bank expects a stable slight increase in ton price in Q3 2025. In terms of profitability, leading enterprises may benefit from cost reductions, with a slight increase in gross profit margin expected in the third quarter. The sales expense ratio is expected to maintain a slight upward trend due to competition, while the net profit margin is expected to remain stable. Risk factors: Macroeconomic consumer demand is weaker than expected; intensified competition in the liquor and beer industries; core product price market performance in the liquor industry is below expectations; channel inventory risks in the liquor industry; recovery of dining consumption is weaker than expected; food safety issues, etc