Sealand: Top picks are high-quality leading companies with strong operational certainty; maintain "Recommended" rating for the baijiu industry.

Sealand released a research report stating that as industry clearing accelerates, the bottoming range is gradually becoming clear. It recommends prioritizing high-quality leading companies with strong operational certainty and maintains a "Recommended" rating for the industry. It top-picks Kweichow Moutai, which prioritizes scale, has strong operational certainty, and ranks among the top in brand value. The company has a deep brand heritage and is actively promoting market-oriented reform, shedding historical burdens. Its mass-market Moutai products have a solid position in the RMB 1,000 price band, and sales momentum is improving as prices follow the market. Amid industry difficulties, it demonstrates operational resilience that transcends cycles. At the same time, under the logic of share gains, it is expected to open up a second growth space, and its valuation is expected to be revised upward at an accelerating pace. Sealand's main views are as follows: Where is the baijiu industry currently? In 2026Q2, A-share liquor companies' revenue/net profit attributable to parent companies changed by -18.0%/-21.4% year on year, respectively. The main reasons are, first, the impact of impaired consumption scenarios in 2025 still continued; second, liquor companies actively cleared their financial statements, focusing on destocking and relieving pressure; and third, they increased expense investment to sort out channel conditions. From the perspective of industry concentration, Kweichow Moutai's share rose passively, with Q2 revenue/net profit attributable to parent companies increasing by 7.2pct/12.8pct year on year, respectively. Leading players' shares are accelerating concentration, while the other top six liquor companies all declined sharply year on year (excluding Wuliangye Yibin, which had statement adjustments). Baijiu industry demand is constrained by the macroeconomic environment, and companies find it difficult to reverse the situation in the short term. More attention should be paid to observing the repair of the supply-demand gap. In 2026Q2, liquor companies actively cleared their financial statements, reversing industry supply and demand, and the characteristics of the bottoming range are obvious. Three characteristics of the bottoming range signal a cyclical turning point The baijiu industry's transition from bottoming out to recovery begins with improved sales momentum repairing valuations, followed by financial statement realization contributing to performance. The bank believes that the following characteristics of the industry's bottoming range deserve attention. First, leading company Kweichow Moutai's concentration has risen to a historical high, while other liquor companies have released performance pressure more fully. Second, in 2026Q2, public fund holdings in the baijiu sector fell to a relatively low level last seen in 2013. If capital style subsequently switches, baijiu is expected to absorb incremental funds. Third, companies actively reduced production, and cash flow quality rebounded. In 2026Q2, the baijiu industry's year-on-year growth rate of cash collections remained at a low level, and channel cash flow stabilized and improved, but it has not yet entered a comprehensive repair range. At the same time, liquor companies' capital expenditure, inventory, and output contracted simultaneously, becoming more cautious about future supply expansion, reducing investment in new production capacity, and lowering the historical burden of inventory digestion. Kweichow Moutai: Reform-driven reshaping, independent alpha gradually becoming clear In 2026H1, Feitian volume growth was high, and H2 supply may be tight. If short-term demand fluctuates significantly, wholesale prices have stronger upward elasticity. The bank believes that the current overall supply and demand for Moutai liquor are matched. Even if demand subsequently rebounds slightly, the company has sufficient supply to respond. Wholesale prices are expected to remain rational overall. At the same time, as irrational premiums from scalpers and social channels are gradually squeezed out, the price system is expected to further reflect true supply-demand relationships. At the investment level, the bank recommends examining the company's value foundation from a long-cycle perspective. During this round of adjustment, the company has demonstrated strong strategic resolve. As market-oriented reform continues to deepen, the company's operating mechanism and operational efficiency are expected to continue improving. Historical burdens such as speculative inventory and returned liquor are also gradually being shed, laying a good foundation for long-term operations. Risk warnings: policy risks, consumption recovery falling short of expectations, market panic caused by wholesale price fluctuations, macroeconomic liquidity contraction, and liquor company reform falling short of expectations.