[CITIC Securities Consumer] April Consumption Investment Outlook

How can service consumption policies stimulate endogenous motivation through innovative scenarios? The weekend saw a resurgence in the US-Iran conflict, with price increases becoming the market's focus. How should we view investment opportunities in the consumer sector in April? Which listed companies deserve special attention? The chief analysts of Cathay Pacific Haitong in seven major industries: Food and Beverage/Beauty Care - Zi Meng, Social Services/Retail - Liu Yuenan, Home Appliances - Cai Wenjuan, Light Industry - Liu Jiakun, Textile and Apparel - Sheng Kai, Agriculture - Lin Yidan/Wang Yanjun, will hold a conference call to provide insights! [Cathay Pacific Haitong Food and Beverage - Zi Meng] Spring Sugar Feedback: Rationality and Structural Opportunities Feedback from the Sugar and Wine Fair: The foot traffic at the Spring Sugar event was on par with previous years, with wine companies making rational investments in their displays. Leading enterprises have withdrawn from hotel exhibitions, and there is high attention on new categories and new channels. Structurally, the popularity of mass-market products is relatively better than that of liquor, with industry concentration continuing to rise and small and medium brands accelerating their exit. We have observed a diversification and reconstruction of beverage channels, from B-end to C-end; the direction of products is clear towards lower alcohol content, youthfulness, and health; the trend of food health is evident, with increased attention on IP foods. We believe this year's Spring Sugar is similar to that of 2015-2016, with a growing consensus in the market on the industry's bottoming out, but there are divergences regarding the slope of upward recovery. Liquor: Pragmatic and Rational, the Industry is Moving Towards C. The heat of this Spring Sugar exhibition was average, with famous liquor companies like Moutai and Wuliangye withdrawing from hotel exhibitions, making the industry more pragmatic, aligning with the trend of C-end operations in recent years. After the holiday, the overall performance of liquor was flat, with significant differentiation among brands, and Moutai's batch price stabilized and slightly rebounded. The liquor forum during Spring Sugar reinforced expectations that the industry is at the bottom of the cycle, with adjustments at the total level not yet finished, and the cycle is expected to take several quarters to complete its bottoming out. Structurally, this is reflected in the trend towards leading brands, C-end focus, channel transformation, and lower alcohol content. Currently, the sales of liquor have not yet confirmed stabilization, and inventory and reports have not been fully cleared. We believe that in the short term, attention should be paid to the annual reports and Q1 reports of liquor companies, especially indicators such as performance and receivables, which are expected to influence the market's judgment on the cycle's bottom. Mass-market Products: Improvement in Dining Demand, Focus on Product Innovation Direction. The marginal recovery in dining demand drives the improvement in seasoning demand, with the trend of structural upgrades remaining unchanged. Leading beer brands still favor single products, with new flavors and channel innovations accelerating. Yellow wine and beverages are speeding up product innovation and upgrades, focusing on youthfulness, health, and functionality. Snack brands are emphasizing the development of distribution channels, with wholesale channels remaining prosperous, and konjac gaining high popularity. Risk Warning: Increased macroeconomic volatility, intensified industry competition, food safety risks. [Cathay Pacific Haitong Beauty Care - Zi Meng] Spring 2026 Investment Strategy: Seize Growth and Leading Improvements Industry: Beauty demand is warming up, with increased volume and reduced prices in medical aesthetics. In 2025, the cumulative year-on-year growth of retail sales of cosmetics is +5.1%, outperforming the overall retail market by 1.4 percentage points, significantly warming up compared to 2024, with 25H1 and 25H2 growing year-on-year by 2.9% and 7.3%, respectively, with noticeable improvement in industry growth in the second half of the year. On the channel side, starting from 25Q3, Douyin's growth has slowed, and Tmall has slightly warmed up, with the growth rates of the two platforms converging; In terms of categories, online sales of cosmetics and personal care products are expected to grow by 10% and 14% respectively in 2025, outpacing the 7% growth in skincare. The medical beauty market is experiencing volume growth but price reductions, with the approval of new products accelerating. The competitive model among upstream manufacturers is evolving from single large products to product combinations. Landscape: The foreign investment in beauty is recovering, with high-end and affordable products dominating. The pace of domestic substitution is slowing down, with Estée Lauder, L'Oréal, and Shiseido in the China/North Asia region showing year-on-year growth of 9%, 4.7%, and 8% respectively in Q3 2025, all turning from negative to positive. This growth momentum is expected to continue into Q4 2025, with increasing differentiation among domestic brands, and brands in an upward cycle maintaining rapid growth. This is reflected in the price segments, where high-end products are recovering, and the trend of cost-effectiveness continues. Mid-range brands that benefited from product innovation in the past two years are slightly under pressure. Meanwhile, mature beauty ingredients are extending into personal care and health products, bringing opportunities for product innovation. Key companies: Select growth, focus on leading improvements. Looking ahead to 2026, the beauty market is expected to continue steady growth, with the sector showing significant growth attributes due to numerous product innovations and the overall growth phase of domestic brands. It is recommended to selectively choose products and brands with strong momentum for rapid growth from the bottom up, while also paying attention to leading stocks showing signs of recovery at the bottom. Risk warnings: 1) Economic slowdown dragging down discretionary consumption; 2) Intensified brand competition; 3) New product promotion performance below expectations; 4) New brand incubation not meeting expectations. 【Guotai Junan Retail/Social Services Liu Yuenan】Reiterates the importance of domestic demand, service industry welcomes accelerated development Service consumption has become a key focus of policy promotion. The "2026 Government Work Report" has been released, with numerous incremental statements and target changes regarding domestic demand, consumption, service travel, and livelihood education. Benefiting from the maturity of policy pathways, service consumption is expected to see many favorable developments in terms of scenario innovation, leisure time, and disposable income. Segmented fields such as travel chains, local life services, and education and sports are all expected to benefit. Reiterating the importance of domestic demand, the policy pathway for promoting consumption is becoming increasingly mature. ① The "Report" first reiterates the importance of domestic demand, but also emphasizes that the endogenous motivation of residents must be coupled with consumption promotion policies in the 2026 statement. This change indicates a shift in policy from purely demand-side stimulation to stimulating endogenous motivation, namely improving income and boosting expectations simultaneously, reflecting the maturity of consumption promotion policy thinking. ② Changes in income distribution: For the first time, the report mentions increasing residents' property income, indicating recognition that property income is an important supplement to residents' income. The report also mentions systems such as wages and social security as important pathways to reduce precautionary savings. ③ The report mentions "adjusting and optimizing the scope and rates of consumption tax, and advancing the postponement of the collection of certain items." This statement indicates that the postponement of consumption tax collection has become a clear work plan. Service consumption has key statements, and the integration of cultural tourism and sports industries is an inevitable trend. ① There are many statements regarding service consumption and the service industry in the "Report," and we believe that the policy thinking for promoting service consumption has become relatively clear: innovating consumption scenarios and providing more leisure time. Innovative consumption scenarios include cultural tourism, events, and health and wellness Leisure Time: Spring and Autumn Breaks for Primary and Secondary Schools, Staggered Paid Leave. This article believes that the elasticity of service consumption demand is more sensitive to leisure time. ② There is much discussion on the development of the cultural, tourism, and sports industries. The "Report" mentions: "To develop the cultural tourism industry with high quality, enrich the integrated formats of cultural tourism and sports commerce. Actively develop event economy, ice and snow economy, and outdoor sports, build and utilize sports facilities close to the public, and cultivate more distinctive mass sports events." Benefiting from the prosperity of the Scottish Premier League in 2025, the operation of sports events is mentioned multiple times throughout the text. China's current sports industry development is in the early stages, with significant potential for integration and development with the tourism and cultural industries. Inclusive livelihood support services are the direction, with stricter platform regulation in the context of anti-involution. ① The "Report" consistently emphasizes the improvement of inclusive support services in the livelihood areas of "employment, income, education, medical care, and health." ② Flexible employment personnel are particularly emphasized in participating in insurance policies. Essentially, this is also a bottom-line policy to reduce precautionary savings. ③ In the dimension of platform economy, it again mentions strengthening platform audits, and places it under the unified deployment of anti-involution work. It clearly states: optimize the ecology of platforms, operators, and workers. ④ We believe that the focus of the above work on promoting service consumption demand, optimizing the service industry chain ecology, and reducing residents' precautionary savings will significantly enhance disposable income. Risk Warning: Changes in the international situation may affect domestic demand, intensified industry competition, and the pace of capacity optimization may be lower than expected, with uncertainties in international trade such as tariffs. 【Citi Haitong Home Appliances Cai Wenjuan】 AWE Exhibition Research Insights: The integration and upgrade of AI in home appliance products, leading companies achieve practical breakthroughs in embodied intelligence, and the valuation system of home appliance companies is expected to be reshaped. Trend 1: The integration and upgrade of AI and traditional home appliances, possessing proactive perception, decision-making, and execution capabilities, transitioning from "responding to commands" to the "proactive service" stage. Trend 2: Embodied intelligent robots achieve practical breakthroughs from "motion display" to "task execution." Robots are beginning to solve unstructured complex tasks in households, such as organizing, cleaning, and cooking, entering the eve of commercialization. For example, Ecovacs home service robot "Eight Realms," equipped with OpenClaw and VLM large models, can understand the relationship between objects and space, executing tasks like tidying toys and organizing shoe cabinets; Roborock G-Rover wheeled robot, using a dual-wheel leg structure, can autonomously cross thresholds and climb stairs, addressing multi-level cleaning pain points; Fotile cooking robot kitchen, through high-precision mechanical arms and humanoid robots working together, achieves fully automated operations from food preparation to cooking. Trend 3: Cross-domain integration, expanding from "home ecological closed loop" to "person - vehicle - home - outdoor" full-domain linkage. For example, the tracking of the entire scene ecology extends from cleaning appliances to smart travel and whole-home intelligence, integrating sweeping and mopping robots, mechanical arm kitchen appliances, and smart travel devices, achieving integrated control of home cleaning, cooking, and short-distance travel, completing the upgrade from single product intelligence to whole-home - travel ecology In addition, the vehicle systems showcased by companies like BYD and Tesla can now remotely control all household appliances and preset home environments, with cars deeply integrated as mobile smart terminals within the home ecosystem. Trend Four: Interaction is spreading from "central entry" to "scene entry." The interaction entry is shifting from centralized devices such as mobile apps, smart speakers, and central control screens to more lightweight, seamless, and biometric wearable devices. AI capabilities are embedded in everyday personal items, such as Alibaba's Qianwen AI glasses G1 series, which provide real-time translation, scene recognition, and seamless navigation experiences; the Leap AI perception ring can control home devices through gestures and monitor physiological signals such as heart rate, blood oxygen, and emotional stress, achieving seamless and biometric interaction. Risk Warning: Uncertainty in tariff policies, uncertainty in overseas demand, and the effect of the trade-in policy on subsequent demand may be less than expected. 【Guotai Junan Light Industry Liu Jiakun】 We are optimistic about the investment opportunities in leading companies in the paper sector against the backdrop of stabilizing PPI, which still has strong odds at the current point in time. Pulp is a globally priced commodity in US dollars, with the upstream being timber and wood chips, resonating with commodities like oil. The industry cycle is on the right side, with pulp prices rising nearly 30% from July-August 2025 to March 2026. The paper-making segment is more midstream, priced based on domestic supply and demand, currently in a left-side cycle but gradually recovering. After the Spring Festival, boxboard and corrugated paper companies have successively raised prices, with good performance in corrugated paper; white card paper, cultural paper, and household paper have also issued price increase notices in March 2026. On the supply side, new capacity in 2026 is significantly reduced, and new capacity in the industry will be limited in 2027-2028. On the demand side, there is potential for upward bullish options in the future. The sector's valuation is at a historically low position, making it the core investment line for 2026; we strongly recommend flexible targets such as Nine Dragons Paper and Bohui Paper, as well as value targets like Sun Paper and Huawang Technology. During the "golden three silver four" season in real estate, the new and second-hand housing markets in cities like Shanghai and Shenzhen are relatively active, with micro-research showing positive changes in the industry. Real estate chain home furnishing companies have high dividend yields and valuations, but the core driving force for stock price increases needs marginal changes in fundamentals. From Q4 2025 to January-February 2026, some companies have shown differentiated growth trends in order situations. We recommend Gujia Home Furnishing as the first choice, as the company has advantages in fundamental performance, annual strategy, and valuation safety margins. The market's expectations for PPI transmission to CPI are diverging, but essential consumer companies possess price transmission capabilities and stable volumes, making companies with high valuation cost-effectiveness worthy of attention, especially Hong Kong stock companies. Source Reports: "Review and Sorting of the Light Industry Oil Chain" "January Industry Price Increases Gradually Materializing, Profitability Entering Improvement Channel" "When Expectations Meet Reality, Winner-Take-All" "Q4 Meets Expectations, Cultural Paper Collectively Issues Price Increase Notices" Risk Warning: The downstream demand for trendy toys is below expectations, risks from changes in new consumption policies, risks from changes in the external trade environment, and risks from weak downstream demand in paper and metal packaging 【CITIC Securities and Haitong Securities Blooming】 Cotton prices have entered an important window period. The "dual reduction" trend has been established in Brazil and the United States, the two major cotton-exporting countries. Under the dual signals of cost inversion and basis recovery, the bottom characteristics of U.S. cotton prices are clear, and we are optimistic about the opening of the upward channel for U.S. cotton prices. Currently, cotton prices have entered an important window period: planting in Brazil was completed in early March, and subsequent tracking of weather changes and growth conditions is ongoing, while the United States and China are about to enter the new cotton planting season. Last week, cotton and cotton yarn prices rose broadly, with the new cotton season planting in Brazil completed and production reductions confirmed. On March 13, 2026, ICE No. 2 cotton closed at 65.80 cents/pound, up 2.5% for the week; 3128B cotton price closed at 16,877 yuan/ton, up 1.2% for the week; Zheng cotton futures closed at 15,415 yuan/ton, up 0.8% for the week. In terms of cotton yarn, OEC10S/C32S/JC40S cotton yarn closed at 15,450/22,000/25,000 yuan/ton, up 0.5%/0.3%/0.3% for the week, respectively. Regarding the price difference between domestic and foreign cotton, the price difference of 3128B cotton compared to ICE No. 2 cotton is 6,872 yuan/ton, which expanded by 1.4% during the week and has increased by 22.6% since the beginning of the year; on March 2, local time, Conab announced that the new cotton planting for the 2025/26 season in Brazil has been successfully completed. According to Conab's latest forecast in March, Brazil's cotton production for the 2025/26 season is expected to be 3.795 million tons, a year-on-year decrease of 6.9%, with production forecasts adjusted down by 23,000 tons and 8,000 tons compared to January and February, respectively. Additionally, according to the latest forecast for the core cotton-producing state of Mato Grosso (MT), the planting area and lint production for the 2025/26 season are expected to decrease by 8.06% and 15.16% year-on-year, respectively, confirming the trend of production reduction in Brazil's new cotton season. In January and February, China's textile and apparel exports saw significant growth, while exports from Taiwanese manufacturers weakened month-on-month in February. In January and February 2026, China's total textile and apparel exports increased by 17.6% year-on-year, with the same period last year having a base of -4.5%. Among them, textiles/apparel/shoes and boots increased by +20.5%/+14.8%/+6.1% year-on-year, with the same period last year having bases of -2.0%/-6.9%/-18.3%, respectively. The high growth in exports is attributed to the later timing of the Spring Festival and the relatively low export base in the same period last year. Risk Warning: Terminal consumer willingness is not as expected, raw material price fluctuations, and intensified industry competition. 【Guotai Junan Agricultural Lin Yidan/Wang Yanjun】 Pets: Seize the low valuation of pets and be optimistic about domestic market growth. The appreciation of the RMB exchange rate in 2026 may impact the profitability of some companies' export businesses, while companies with overseas production capacity and increased orders are expected to rise against the trend. The domestic pet market continues to grow rapidly, with recent large pet exhibitions held in cities like Beijing and Shenzhen, showcasing the vigorous development of the pet industry. The revenue growth rate and gross profit margin level of domestic independent brands are key to assessing the investment value of pet companies. Zhongchong Co., Ltd. and GuaiBao Pet's valuation levels are at a near five-year low. Against the backdrop of a still strong industry and the company's strong competitiveness, we highlight investment opportunities in pets. Planting: International regional conflict situation, continue to be optimistic about the upward trend of agricultural products. As conflicts in the Middle East continue, the international energy market has experienced significant fluctuations. Rising energy prices typically enhance the economic viability of biodiesel, thereby increasing demand expectations for vegetable oil raw materials. Recently, the prices of major agricultural products have remained high. As of March 27, 2026, the spot price of soybeans in China is 4,277 yuan/ton, unchanged week-on-week; the spot price of corn has reached 2,453 yuan/ton, basically flat week-on-week; the spot price of wheat is 2,588 yuan/ton, slightly down 0.5% week-on-week. We remain optimistic about the favorable conditions for planting companies, high-quality seed companies, and agricultural product processing companies due to the prosperity of grain prices in 2026. We continue to recommend the leading company in core corn seed variety iteration, Kangnong Seed Industry. We are optimistic about the performance growth brought by Noposion's seasonal blueberry sales. Breeding: Weight remains high, expected prices to continue to be sluggish. According to data from Yongyi Consulting, the average weight of pigs slaughtered last week was 128.71 kg, continuing to grow week-on-week. In March-April, the three conditions of large weight, large slaughter volume, and weak demand are expected to continue to keep pig prices sluggish. Pig prices have recently hit new lows, and the price of piglets is declining. At this stage, we expect the logic of capacity reduction in March to continue to improve, and the downward trend of breeding sows is expected to unify in March. Meanwhile, as prices of agricultural products like corn rise, along with feed price increases, the difficulty of reducing costs in the breeding industry will also increase. Therefore, in the first half of 2026, we will focus on the progress of destocking under the dual logic of falling pig prices and rising costs. Risk Warning: Industry competition intensifies, and consumer recovery is less than expected. Legal Statement: This public subscription account (WeChat ID: gjretail) is a WeChat public subscription account established and operated by the Food and Beverage/Beauty Research Team of Guotai Junan Securities Research Institute. The team leader, Zi Meng, holds a securities investment consulting (analyst) qualification, with certificate number S0880513120002. This subscription account is not a platform for the release of Guotai Junan Securities research reports. The content contained in this subscription account is derived from research reports officially published by Guotai Junan Securities Research Institute. For detailed securities research information, please refer to the complete reports published by Guotai Junan Securities Research Institute The information pushed by this subscription account is only valid on the day of the full report release. 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Guotai Junan Consumer Research Team Zi Meng Chief Analyst of Food and Beverage/Beauty Care Industry zimeng@gtht.com Liu Yuenan Chief Analyst of Social Services/Commerce Industry liuyuenan@gtht.com Cai Wenjuan Chief Analyst of Home Appliance Industry caiwenjuan@gtht.com Liu Jiakun Chief Analyst of Light Industry liujiakun@gtht.com Sheng Kai Chief Analyst of Textile and Apparel Industry shengkai@gtht.com Lin Yidan Co-Chief Analyst of Agriculture Industry linyidan@gtht.com Wang Yanjun Co-Chief Analyst of Agriculture Industry wangyanjun@gtht.com Qiu Miao Analyst of Consumer Industry qiumiao@gtht.com