Recently, the liquor and traditional Chinese medicine sectors have welcomed a recovery under the resonance of favorable policies and market funds. The liquor sector has seen a "limit-up wave" while the traditional Chinese medicine sector has experienced "valuation recovery," with a noticeable warming trend in the secondary market.

On February 6, under the catalysis of favorable policies, the traditional Chinese medicine sector led the A-shares, with TY PHAR. and Hansen Pharmaceutical strongly hitting the limit-up. Moreover, since the beginning of this year, private equity tycoon Lin Yuan has also publicly researched a traditional Chinese medicine company.

The liquor sector is experiencing a "limit-up wave."

If we talk about the most worry-free play in A-shares recently, it must be the "drinking and medicine" combination. The liquor sector has "drunk" its way to a rebound peak, while the traditional Chinese medicine sector has seen valuation recovery thanks to "policy prescriptions," allowing investors to stop chasing hot spots aimlessly.

First, looking at the liquor sector, it is undoubtedly a model of "from adversity to prosperity." From February 2 to February 5, the China Securities Liquor Index recorded four consecutive days of gains, and prior observations revealed that after hitting bottom on January 28, the index successfully recorded a single-day increase of 9.79% on January 29, with 18 out of 20 stocks in the sector hitting the limit-up (see Table 1).

Recently, while the stock price of Kweichow Moutai has gradually risen, the batch price of 53-degree Feitian Moutai has also warmed up, with the original box price at 1,660 yuan/bottle and the loose bottle price at 1,610 yuan/bottle. Even the recycling market for Moutai has seen price increases, with scalpers' acquisition prices climbing to 1,640 yuan/bottle, reflecting the market's enthusiasm. Behind this, in addition to the extended holiday during the Spring Festival driving business banquets and family gatherings, the key factor is the "reassurance" provided by policies.

The favorable policies for liquor can be described as "from restrictions to affection": the Ministry of Industry and Information Technology has included the liquor industry as a "historical classic industry," alongside silk, porcelain, and traditional Chinese medicine, completely reversing its previous restrictive positioning; the implementation plan for expanding domestic demand has been put on the agenda, the central bank has lowered interest rates by 0.25 percentage points, and a 400 billion yuan technical transformation quota helps liquor companies reduce burdens, while the Central Huijin has also increased its holdings in liquor ETFs, injecting a strong boost into the market; coupled with the relaxation of real estate policies, which indirectly drives the recovery of high-end liquor consumption, multiple dividends are stacking up, making it difficult for liquor not to thrive.

Policy catalyzes the traditional Chinese medicine sector to lead the market.

Now looking at the traditional Chinese medicine sector, it focuses on a "steady comeback." On February 6, the industry as a whole led the market, with TY PHAR. and Hansen Pharmaceutical strongly hitting the limit-up, while Enwei Pharmaceutical and Wanbangde also saw significant gains, with many stocks in the sector showing strong performance (see Figure 1), and the China Securities Traditional Chinese Medicine Index also steadily rising.

According to the latest data, many traditional Chinese medicine companies have a price-to-earnings ratio below 20 times (see Table 2), with Jilin Aodong and Darentang even having a price-to-earnings ratio of less than 10 times, which is at a historical low, providing ample room for valuation recovery. The core driving force behind this wave of market activity is the recently issued "Implementation Plan for the High-Quality Development of the Traditional Chinese Medicine Industry (2026-2030)" by eight departments.

The policy support for traditional Chinese medicine is sincere and substantial, not only clearly increasing the cultivation efforts for traditional Chinese medicine companies to go public but also supporting the establishment of industrial development funds. Additionally, there are plans to cultivate 60 high-standard traditional Chinese medicine raw material bases and 10 major varieties of traditional Chinese medicine by 2030. Local policies are also keeping pace, with regions like Zhejiang and Henan introducing supportive policies to cultivate traditional Chinese medicine industry clusters. The gentle price reductions from medical insurance negotiations and the standardization of centralized procurement have completely dispelled market concerns about policy uncertainty, transforming traditional Chinese medicine from a "medicine jar" into a "hot cake" in the eyes of investors.

In recent years, the traditional Chinese medicine industry has experienced rapid development under policy support. From the payment side, the inclusion of traditional Chinese medicine in medical insurance continues to expand, with the national medical insurance catalog for 2024 including 1,394 varieties of traditional Chinese medicine and 892 types of traditional Chinese medicine decoction pieces, among which there are 246 Class A traditional Chinese medicine products and 1,148 Class B traditional Chinese medicine products. From the perspective of medical insurance payments, the varieties included in the catalog perform well, supporting the steady development of the traditional Chinese medicine market. Moreover, the pass rate for traditional Chinese medicine in medical insurance negotiations is relatively high. From 2021 to 2024, the pass rates for traditional Chinese medicine outside the catalog were 38%, 53%, 64%, and 58%, respectively; the average price reduction for traditional Chinese medicine outside the catalog in 2024 was 67.9%.

Lin Yuan's research on traditional Chinese medicine stocks at the beginning of the year

After discussing the market and policies, what everyone is most concerned about is how stock prices will move in the future and how to invest to make money. The answer is quite simple: avoid chasing high prices and focus on the core. In the liquor sector, high-end liquor brands like Kweichow Moutai and Wuliangye, leveraging their brand advantages, are expected to see stable growth in performance and valuation recovery, likely leading to a slow bull market, but it is unlikely to experience the explosive growth of previous years; mid-range and regional liquors should be cautious of inventory pressure after the Spring Festival, suitable for wave-based layouts.

In the traditional Chinese medicine sector, leading brands like Pian Zai Huang and Tong Ren Tang, with their exclusive formulas and the advantage of falling raw material prices, are expected to see both performance and valuation rise; companies focusing on classic prescriptions and evidence-based medicine may also have good thematic opportunities.

For ordinary investors, the advice is to focus on "stability," prioritizing the purchase of high-end leading brands in liquor at low prices, holding them long-term without chasing prices, and paying close attention to wholesale prices and inventory data; for traditional Chinese medicine, it is advisable to allocate brand targets at low valuations and increase positions after performance verification, while being cautious of the risk of a rebound in traditional Chinese medicine raw material prices.

It has been observed that since the beginning of this year, institutions have also been actively focusing on investment opportunities in the liquor and traditional Chinese medicine sectors, especially traditional Chinese medicine stocks, with 8 companies already being researched this year (see Table 3), including the presence of Lin Yuan Investment managed by private equity tycoon Lin Yuan

From January 13 to January 23, during the research activities of China Resources Sanjiu, Lin Yuan Investment conducted detailed research on the company alongside more than 10 institutions including Temasek and China International Capital Corporation (CICC) (see Figure 2).

The core reason for Lin Yuan Investment's research on China Resources Sanjiu aligns with its consistent "certainty investment" style—"stability" and "monopoly." The advantage of China Resources Sanjiu in the OTC field is considered "unique," with the 999 brand being the number one OTC brand in China, possessing 39 products with over 100 million in sales. Products like Ganmaoling and Sanjiu Weitai are national-level bestsellers, with channels covering 500,000 retail terminals nationwide, turning medicines into high-frequency consumer goods. This monopoly and high-frequency consumption attribute is precisely what Lin Yuan values most in target characteristics, consistent with his long-term holdings in Pian Zai Huang and Tong Ren Tang.

Additionally, the company's valuation is quite reasonable, with a current dynamic price-to-earnings ratio of only 17.3 times, lower than the average valuation of 22.42 times in the traditional Chinese medicine sector, meeting Lin Yuan's low valuation screening criteria.

Furthermore, with the dual support of policy dividends and company strategy, China Resources Sanjiu's "14th Five-Year Plan" clearly outlines the "one body, two wings" strategy, focusing on consumer health (CHC) and medical health sectors. It can also leverage its state-owned enterprise background to enhance its bidding success rate in centralized procurement, combined with policies for high-quality development in traditional Chinese medicine, providing a clear growth path for the future. This aligns perfectly with Lin Yuan's long-term layout in the aging sector, as China Resources Sanjiu deeply engages in chronic disease management and silver-haired health, precisely targeting the "life-saving demand" of the 400 million to 600 million middle-aged and elderly population. This essential and anti-cyclical track may be the "good business that can win effortlessly" in Lin Yuan's eyes.

(The stocks mentioned in the text are for example analysis only and do not constitute a buy or sell recommendation.)