CMSC: Baijiu continues to adjust, food industry's prosperity varies

CMSC released a research report stating that the number of companies, activities, and investors participating in the 25th Autumn Sugar Fair decreased compared to the previous year, with enthusiasm declining once again. The White Spirits industry experienced an expected decrease in sales during the double festival peak season, with the industry gradually accepting the current situation. More companies actively/passively began to clear inventory, and the inventory levels at liquor stores and in society decreased to a low level. The clearance of the Q3 financial reports of liquor companies in 25Q3 and the demand and pricing situation during the 26th Spring Festival peak season will be important validation indicators. The food industry is experiencing differentiation in prosperity, with significant destocking effects observed in the beverage sector during the holidays. Farmers and Dongpeng continue to show strong performance. There is still room for expansion in the snack sector in quantity stores, and channels continue to contribute incrementally. CMSC's main observations are as follows: The enthusiasm for the 25th Autumn Sugar Fair has decreased again. The number of liquor companies participating in the fair has decreased, with a greater inclination towards consumer-end spending, and liquor traders showing strong cautious sentiment. Overall, nationwide famous liquor brands have shown reduced enthusiasm for participation, while regional liquor brands have been more active. Important activities such as liquor companies' investment promotion and new product launches have significantly decreased, leading to higher industry concentration, weakened exhibition functions, and companies preferring to allocate expenses towards consumer-end solutions to address sales challenges. Liquor traders continue to show strong cautious sentiment, preferring to purchase goods as needed to control inventory levels. Additionally, immediate retail, online platform subsidies, and other factors have impacted offline distributors, further increasing liquor traders' cautious sentiment. The decline in sales during the double festival peak season for white spirits was as expected, with top brands displaying resilience. Through communication with companies and channels, the overall decline in white spirit sales during the 25th double festival peak season was in line with expectations. The decline for top brands was slightly better than the industry average, with Flying Fairy and Puwu single products showing outstanding cost-performance ratios after price reductions. The concentration in the industry increased further. 1) Looking at specific products, high-end white spirits and mass-consumed products have performed relatively well. After the price of Moutai decreased to around 1800 yuan, the opening rate during the double festival increased, expanding consumer scenarios and demographics. Wuliangye Yibin's sales were better than competitors after a price decrease, and with recent channel subsidies increasing, later distributor confidence is expected to improve. Laojiao maintained firm market prices, with short-term sales impacted, and low-degree and series liquors remained stable. 2) In terms of scenarios, banquet performances slightly exceeded expectations, with the number of wedding banquets increasing year-on-year but the amount of alcohol consumed decreasing. Demand from political and business events in various regions is recovering month-on-month, but it is expected to decline by 20%-30% year-on-year. Consumer demand remains stable, with bottled liquor performing well, and BoFen continues to sell at a higher price. 3) Future outlook: Sales during the 26th Spring Festival are expected to continue to improve, with brand performance differentiating. The clearance in the second half of 25H2 and the growth in sales during the 26th Spring Festival will be important validation signals for the bottom of the industry. The food sector shows differentiation in prosperity, with continued focus on growth trends and demand recovery. The beverage sector experienced significant destocking effects in some regions during the double festival, with top brands like Farmers expecting double-digit growth and an increased market share for bottled water. Eastroc Beverage performed well overall, and attention should also be paid to the actions of companies in the fruit juice and tea market in 26. Yibao's decline in 25 was better than it appeared, and improvements may be seen amidst changing competitive landscapes. In the snack sector, top brands have opened new stores primarily in "money-saving supermarkets," replacing convenience stores and small supermarkets. The performance of existing stores declined by about a mid-single-digit percentage year-on-year, but there is still room for expansion in store numbers. The dairy sector continued to face pressure from room-temperature liquid milk during the double festival period, with a shift in product structure. Investment recommendations: White spirits continue to adjust, while the food sector shows differentiated prosperity. The enthusiasm for participation among companies, industry, and investors at this Sugar and Liquor Fair has reached its lowest point in recent years. Demand still faces pressure, but with shrinking supply, the industry's bottom is becoming clearer. Targeted recommendations focus on leading companies such as Kweichow Moutai (600519.SH), Shanxi Xinghuacun Fen Jiu (600809.SH), Luzhou Laojiao (000568.SZ), Wuliangye Yibin (000858.SZ), as well as ZJLD (06979) and Anhui Yingjia Distillery (603198.SH) which are contributing to clearing inventory and increasing sales. Jiangsu Yanghe Distillery (002304.SZ) is also recommended for its pragmatic reform under new management and ongoing inventory clearance. In the food sector, recommendations continue to focus on prosperous sectors such as snacks and beverages, while structural opportunities in the dairy sector are worth monitoring. For the snack sector, Guilin Seamild Foods (002956.SZ) is recommended, with attention on WL DELICIOUS (09985) and Yanker Shop Food (002847.SZ). In the beverage sector, NONGFU SPRING (09633) and Eastroc Beverage (605499.SH) are recommended. In the dairy sector, Inner Mongolia Yili Industrial Group (600887.SH) is highlighted for its better performance during the double festival, with dividend support. Risk factors include sales performance falling short of expectations, pricing not meeting expectations, intensified competition, rising costs, and channel research data not reflecting the overall situation.