CMB International: Maintains "Market Perform" rating on China's optional consumption industry, outlook leaning towards cautious.

Guangzhou International released a research report, stating that the optional consumer sector in China in 2026 is rated as "synchronized with the market". Overall retail sales are expected to increase by about 3.5%, slightly slower than the approximately 4% in 2025. The outlook is cautious, but positive factors such as the delayed Spring Festival, extended holidays, a possible revival in the real estate sector, and a buoyant stock market are expected. It is predicted that industry stock prices will be under pressure in the first half of 2026, with more room for rebound in the second half. Guangzhou International indicated that industry valuations have likely bottomed out this year and are undergoing a recovery, currently trading at a P/E ratio of around 15 times, which is not considered expensive compared to the historical average of around 20 times over the past eight years. However, with the industry growth possibly slowing down in the next 12 months and high political risks from GEO Group Inc, valuations may not rise rapidly without significant positive policies or a clear recovery in the real estate sector. Therefore, the overall view of the bank is conservative, and investors are advised to patiently wait for a better entry point, buying on dips when stock prices fall and valuations become more attractive. The bank stated that in 2026, the following sub-sectors of the consumer industry are preferred: 1) tea and coffee, 2) trendy toys, 3) clothing, 4) textiles; and maintains a synchronized market view on the following sub-sectors: 5) catering, 6) sporting goods, 7) tourism-hotels, 8) household appliances. The bank has a better-than-market rating for the tea and coffee sector and the trendy toys sector; raised the rating of the clothing industry and the textile industry to better than the market; downgraded the rating of the catering industry to synchronized with the market; maintained a synchronized market rating for the sporting goods sector; downgraded the rating of tourism-hotels to synchronized with the market; and maintained a synchronized market rating for the household appliances industry. Guangzhou International pointed out that in the basic scenario, investments can be classified into different types of consumption, with a preference for: 1) survival consumption (frugalism, low unit price, high cost performance, etc.), including companies such as GUOQUAN (02157), YUM CHINA (09987), Luckin Coffee, Inc. Sponsored ADR Class A (LKNCY.US), DPC DASH (01405), BOSIDENG (03998), etc. 2) compensatory consumption (small moments of happiness, affordable entertainment, emotional value, experiential); 3) hedging and defensive consumption (gold, silver, high dividend stocks), including companies such as BOSIDENG (03998), JNBY (03306), LILANG (01234), TOPSPORTS (06110), all of which are rated as "buy". Guangzhou International is not optimistic about targets related to large-scale consumption (durable goods, real estate-related items, luxury goods, upscale tourism, etc.). However, in an optimistic/bullish scenario (assuming a good wealth effect with a prosperous stock market and a gradually stabilizing real estate market), large-scale consumption would be more favored, including companies such as HAIER SMARTHOME (06690,600690.SH), Midea Group Co., Ltd (00300,000300.SH), HAIDILAO (06862), ANTA SPORTS (02020), all of which are rated as "buy".