According to the Zhitong Finance APP, Huachuang Securities released a research report stating that short-term sentiment has retreated and the liquor sector has slightly adjusted, but there are signs of improvement in operational aspects. The cash flow at the channel level has marginally improved, confidence has stabilized, and there is still room for further inventory digestion. During the Spring Sugar Festival, liquor companies generally engaged in pragmatic communication and conveyed positive signals, looking forward to a clear implementation of the annual plan. The industry's fundamental expectations are expected to confirm the bottom in May-June (during the shareholder meeting research period), and the current cycle of bottoming has been clarified, suggesting to seize the bottom accumulation range.

The main points of Huachuang Securities are as follows:

Spring Sugar Observation: Reduced foot traffic at exhibitions, but the industry is marginally stabilizing, and channel sentiment is tending to be stable

This Spring Sugar Festival has clearly felt a weakening of its traditional 招商 function, with the number of participating liquor companies and channel personnel significantly decreasing compared to last year, and transaction amounts declining, while other non-core hotel booths are sparse. Among them, famous liquor brands focus more on brand image and cultural communication rather than 招商， with low participation, and the proportion of small and medium-sized brands exhibiting has further declined, especially the display of sauce-flavored liquor manufacturers has significantly decreased, while the display of 清香型 liquor companies has slightly increased. The reduction in foot traffic and exhibition space at the channel level has led to a more cautious sentiment, but cash flow conditions have slightly improved, and confidence and expectations have marginally stabilized, leading to a more stable mindset.

Thought One: Weak demand is a consensus, but the liquor cycle is bottoming out

After the liquor festival, the market has entered the off-season as expected, with the sales speed on the demand side slowing down. Some northern regions have shown a month-on-month weakening, while the southern regions have remained relatively stable year-on-year, with wedding banquets remaining flat and business banquets being weak. Based on recent feedback from channels and liquor companies, apart from leading brands like Moutai and Wuliangye, most liquor companies currently face inventory reduction pressure, and the demand trend for the whole year will be clearer by mid-year. Overall, it is judged that the current liquor industry is in a bottoming period, with continuous inventory reduction in the first half of the year and an expected improvement in the second half.

Thought Two: Confidence in Moutai's wholesale price stabilizing above 2000 yuan this year has further increased

Since the Spring Festival, the wholesale price of 普飞 has remained stable at 2200 yuan, which is attributed to three major transformations (namely, customer group transformation, scenario transformation, and service transformation), leading to a large number of emerging industries and middle-class consumers making scattered purchases; secondly, the company has refined its control over the delivery rhythm, changing from unified delivery in the past to delivering according to the demand situation in each province, while also responding quickly, allowing distributors to pick up goods from the warehouse on the same day. However, if the wholesale price is unstable at noon, they may not be able to pick up goods that day; thirdly, the company has controlled the quantity of 500ml 飞天 this year and launched kilogram packaging and other 普飞护卫舰 products to actively safeguard the stability of the 普飞 wholesale price.

Thought Three: Some distributors have seen improvements in cash flow, which may be a precursor signal of the industry bottoming out

Previously, the Spring Festival was a key period for payments, and some distributors were more cautious about cash flow management with end customers, focusing on clearing accounts receivable from credit sales customers and requiring cash payments for goods. Additionally, liquor companies are no longer strictly pressuring for goods, so although the total orders and shipments have declined, cash flow has gradually improved. The industry is thus bidding farewell to the disorderly dumping and price declines caused by the significant cash flow pressure on distributors last year, and is gradually stabilizing this year. The improvement in cash flow for liquor companies is a key indicator of the industry's bottoming and recovery, while improvements in cash flow at the channel and end customer levels may be precursor signals Thought Four: Industry differentiation intensifies, leading liquor companies experience reduced volatility, while small and medium-sized listed liquor companies clear out at their own pace

On one hand, leading liquor companies such as Moutai, Wuliangye, and Luzhou Laojiao have significantly improved their marketing reforms and digital capabilities, resulting in a substantial reduction in volatility; on the other hand, under the existing environment, small and medium-sized liquor companies are clearing out at their own pace, with brands like Zhenjiu and Shede experiencing significant declines, while companies like SCSF, which have made early adjustments, may emerge first.

Thought Five: Leading liquor companies have clear strategies, anchoring tactical moves in advantageous price ranges

The current strategies of leading liquor companies are largely based on demand and the industry, with clear strategies resulting in a low probability of errors. They anchor their tactical moves in advantageous price ranges, such as Moutai actively exploring new demand and strengthening its layout for Prince Liquor; Wuliangye undergoing comprehensive reforms in its specialized company model; Laojiao significantly enhancing its digital capabilities; and Gujing maintaining its stable vintage raw liquor series while planning to launch a new high-quality, cost-effective old famous liquor priced at around 100 yuan; King’s Luck continues to increase its market share in the province, with the V series accelerating upgrades and expansions.

Thought Six: Industry share concentration is the most certain trend, predicting that the CR6 of liquor will quickly rise from 50% to 70-80%

Firstly, under the backdrop of stagnant demand, the turnover at the industry terminal is increasingly differentiated, with leading liquor companies having better turnover for their core products, while long-tail liquor companies accelerate their clearance. Secondly, the current strategies of leading liquor companies are largely based on demand and the industry, anchoring tactical moves in advantageous price ranges, continuously squeezing product structures to harvest market share. Thirdly, from the supply side, leading liquor companies are still actively increasing their production capacity, and under the trend of squeezed growth, there is still significant room for increasing production concentration, with the concentration of leading companies expected to further rise, predicting that the CR6 of liquor will quickly increase from 50% to 70-80%.

Target Recommendations

Prioritize recommending Moutai (600519.SH) with strong certainty, Wuliangye (000858.SZ) which is expected to bring reversal catalysts through comprehensive reforms, and the solidly operated and undervalued leading Anhui liquor company Gujing (000596.SZ). Continue to recommend Fenjiu (600809.SH), King’s Luck (603369.SH), and Laojiao (000568.SZ).

Risk Warning

Continued sluggish consumer demand, inventory digestion not meeting expectations, intensified competition, etc