Summary of China/Hong Kong Consumer Strategy Conference Call Industry Overview - The consumer sector in China/Hong Kong entered 2026 with a mixed setup after three years of underperformance, with no immediate catalysts for a broad-based turnaround [1][3] - Headline consumption is expected to remain soft, necessitating flexible strategies across different sub-categories [1][3] Core Insights - **Macro Environment**: The macroeconomic backdrop has not turned decisively, with policy expected to be reactive rather than proactive regarding property and consumption. A property shock is anticipated to moderate but not end in 2026 [3][22] - **Consumer Dynamics**: Wage and employment levels remain subdued, contributing to ongoing household deleveraging and a drag on labor income dynamics. High precautionary savings and low spending confidence are prevalent [3][22] - **Consumption Growth**: Consumption in 2026 is likely to stabilize at a low growth rate rather than re-accelerate significantly. Focus is on selective segment pricing improvements and better supply discipline [3][23] Market Expectations - **Sales Growth**: Overall consumer sales growth is expected to be around 6% in 2026, with a mixed margin profile due to rising costs in certain areas like hard commodities [4][31] - **Valuation**: Consumer stocks' average P/E ratio is stabilizing around 16x, reflecting a cautious market outlook for 2026 [4][31] Investment Opportunities - Four key investment areas identified: 1. Recovery in offline services consumption (restaurants and beer in Q2-Q3 2026) 2. Supply recalibration in upstream dairy and likely liquor in H2 2026 3. Pricing recovery in restaurants, beer in H1 2026, and sports/cosmetics/liquor in H2 2026 4. Overseas growth in OEM and IP products in H1 2026 [5][21] Key Stock Picks - Recommended stocks include: - **YUMC**: Positive same-store sales growth and traffic - **Haidilao**: Recovery in dine-in demand - **CRB**: Expected growth driven by Heineken's market share gains - **Mengniu and Yili**: Anticipated margin improvements due to reduced raw milk supply [9][13] Macro Indicators - **CPI Trends**: Headline CPI is expected to show low inflation, with selective segments starting to see mild upward pricing revisions [24][27] - **Wealth Effect**: The wealth effect is differentiated across income cohorts, with higher-income groups showing improved spending intentions due to healthier balance sheets [27][31] Risks and Challenges - **Consumer Confidence**: The overall consumer sentiment remains fragile, with market sensitivity to marginal changes [20][22] - **Policy Limitations**: Current consumption-related policies are focused on protecting downside rather than stimulating growth, with limited fiscal support expected [22][27] Conclusion - The consumer sector is navigating a challenging macro environment with cautious optimism for selective recovery in certain segments. Investment strategies should focus on identifying pockets of resilience and potential growth areas while being mindful of the broader economic constraints.

Summary of Key Points from the Conference Call Industry Overview - The conference call focused on the **China Consumer sector**, with insights gathered from approximately 70 institutional investors in **Hong Kong** and **Singapore** during late January and early February 2026. Investors are currently underweight in this sector and are more interested in discussing the outlook for 2026 rather than past earnings or government policies [1][1]. Company-Specific Insights Laopu - Investor sentiment towards **Laopu** has improved due to strong year-to-date sales, alleviating previous concerns about growth sustainability. Key discussions include: - Sales and margin dynamics affected by rising gold prices, which lower earnings visibility. - Promotion-driven sales impacting profitability and brand perception. - High gold prices potentially eroding consumer purchasing power. - Laopu is viewed as a beneficiary of rising gold prices, with sales increases offsetting temporary gross profit margin pressure [2][2]. Pop Mart - Investor debates regarding **Pop Mart** focus on its growth sustainability, particularly in the US market. Positive sentiment in China is noted due to successful new releases and decent store traffic, despite ongoing concerns about the US market. Key points include: - Uncertain US demand may lead to margin pressure through operating deleverage. - Success in China may not be replicable in overseas markets. - There is a decrease in investor concern regarding secondary price declines, which may not fully reflect consumer demand [3][3]. Anta vs. Li Ning - **Anta**'s sentiment shifted positively following the announcement of its acquisition of **Puma**, which was smaller than expected. This change is attributed to: - A previously negative outlook from management that improved post-announcement. - A low probability of equity financing for Anta. - Anta's valuation discount of approximately 15% compared to **Li Ning** [3][3]. Haidilao - **Haidilao** has stabilized its table turnover since Q4 2025, with investors viewing **YUM China**'s recent results as a positive indicator for Haidilao's outlook for 2026. Despite unchanged guidance, investors are more inclined to view Haidilao as a proxy for the recovery of the restaurant industry in China. Expectations are high for the founder's return as CEO to revitalize growth through new business expansion and innovation [6][6]. Mengniu - Investors believe that **Mengniu**'s cyclical net profit recovery in 2026 will be more substantial than its peers. The market's low expectations mean that any positive news could lead to a significant re-rating of the stock. Investors appreciate Mengniu's conservative approach to operating expenses and non-cash impairment loss assessments for 2025 [7][7]. Additional Notable Mentions - The call highlighted several companies of interest, including **Mengniu**, **Haidilao**, **Anta**, **Li Ning**, **Pop Mart**, and **Laopu**, among others. Each company has unique challenges and opportunities that investors are closely monitoring [8][8]. Conclusion - The overall sentiment in the China consumer sector is cautiously optimistic, with investors looking for signs of growth and recovery in specific companies. The discussions reflect a shift in focus towards future potential rather than past performance, indicating a dynamic investment landscape in the region.

Summary of Conference Call Records Industry Overview: China Consumer Staples Key Themes and Trends 1. **Cautious Outlook for 2026**: The industry is observing a cautious outlook into 2026, with a focus on the trends surrounding the Chinese New Year (CNY) [2] 2. **Mixed Performance in Beverages**: - Nongfu and Eastroc maintained strong momentum with double-digit growth despite being in a slack season, driven by strong product cycles [1] - Tingyi and UPC beverages experienced a decline in December due to heightened competition, although subsidies for freshly-made drinks have retreated [1] 3. **Beer Demand**: - Overall beer demand remains subdued, particularly in on-trade channels, with Bud China seeing a deeper sequential decline [1] - CR Beer and Chongqing Brewery managed slight volume growth, while Tsingtao's volume increased by 12% on easier comparisons [1] 4. **Condiments and Frozen Foods Recovery**: - Haitian reported sustained growth in the mid-single to high-single digits, with a faster quarter-on-quarter growth in Q4 [1] - Anjoy's growth accelerated in December despite a higher base, indicating a favorable setup for Q1 [1] 5. **Dairy Sector Stabilization**: - Liquid milk demand is stabilizing after a period of destocking, with herd downsizing settling at a 4.5% year-over-year decline [1] - Raw milk prices held steady at approximately Rmb3.03/kg in December, with a 3.0% year-over-year decline in average prices for Q4 [1][24] Company-Specific Insights 1. **Yili**: - Management highlighted an improving raw milk supply-demand balance supported by herd downsizing, although demand remains lackluster [2] - The company is focusing on channel inventory discipline and targeted marketing to sustain performance [8] 2. **Haitian**: - Noted a sequential acceleration in Q4 and sees potential for consumption upgrading in chained restaurants [2] 3. **Anjoy**: - Resumed double-digit sales growth since September, driven by enhanced execution and channel strategies [8] 4. **CR Beer**: - Expects no incremental SG&A investment impact in 2026, focusing on maintaining margins amid cost pressures [8] Market Dynamics 1. **Expense Outlook**: - The expense outlook remains cautious, with a focus on margin expansion for beer, dairy, and food & beverage sectors amid diminishing cost benefits [8] 2. **Channel Health**: - Companies are making efforts to sustain channel health throughout 2025, which is expected to underpin recovery in 2026 [8] 3. **New Product Cycles**: - A sequentially improving outlook for both Yili and Mengniu is anticipated, supporting volume and margin accretion [8] Investment Preferences 1. **Preferred Sectors**: - Beverage, pet foods, and condiments/prepared foods are highlighted as sectors with potential for growth [9] 2. **Key Stock Ideas**: - Recommendations include Eastroc, Nongfu, Weilong for visible growth, and Haitian H-shares/Anjoy as early beneficiaries of on-trade recovery [9] Additional Insights 1. **Snacks Performance**: - Weilong sustained strong sales growth in December, with vegetable snacks up over 30% year-over-year [1] 2. **Pet Foods**: - China Pet Foods led in year-over-year growth in December, while other covered names weakened compared to previous months [32] This summary encapsulates the key points from the conference call records, providing insights into the current state and future outlook of the China consumer staples industry.

Summary of Key Points from the Conference Call Industry Overview - The report discusses the performance of the MXCN and CSI300 indices, which lost 1.6% and 0.3% respectively during the week. [1] - Economic data for November broadly missed expectations, particularly in retail sales, which grew by only 1.3% year-over-year. [1] - Fixed Asset Investment (FAI) showed a significant contraction of 10.7% year-over-year. [1] Core Insights and Arguments - President Xi emphasized the importance of expanding domestic demand as a strategic move for economic growth. [1] - The Hainan Free Trade Port has launched island-wide customs clearance operations, increasing the number of duty-free items to over 6000. [1] - The National Development and Reform Commission (NDRC) noted a slowing investment trend since 2025 and called for targeted measures to boost effective investment. [1] - The State Administration for Market Regulation (SAMR) highlighted the need for a unified national market to enhance fair competition and improve antitrust compliance among platform companies. [1] Economic Indicators - The report indicates a double-digit year-over-year contraction in FAI, which is concerning for future economic growth. [1] - Retail sales growth of 1.3% year-over-year is significantly below market expectations, indicating weak consumer demand. [1] Additional Important Information - The report mentions that the China Kickstart publication will resume in the new year, wishing readers a happy holiday season. [1] - The report also includes insights into the performance of various sectors, with materials and financials showing positive performance, while real estate and IT sectors lagged. [9] - The forward price-to-earnings ratios for MXCN and CSI300 are noted to be 12.5x and 14.1x respectively, with expected EPS growth of 4% and 13% for 2025 and 2026. [10] - The report suggests that widespread AI adoption could boost corporate earnings in China by 3% annually over the next decade. [20] Conclusion - The overall economic outlook appears cautious, with significant challenges in consumer spending and investment. The emphasis on domestic demand and regulatory improvements indicates a strategic pivot towards stabilizing and stimulating the economy.

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Consumer Sector - **Focus**: Raw Materials Price Trends and Stock Implications for Hong Kong/China Consumer Stocks Key Raw Material Price Trends - **Milk Powder Prices**: Declined by 2.2% MoM in October 2025, with a YTD increase of 18% YoY. The average price was US$3,503 per MT as of November 4, 2025 [18][19] - **Corn Prices**: Decreased by 5.3% MoM in October 2025 [28] - **Hog/Pork Prices**: - Hog prices fell to Rmb12.8/kg, down 8.8% MoM in October 2025 [19] - Pork retail prices decreased by 3.8% MoM [19] - **Metal Prices**: Copper prices increased by 5.9% MoM, with a YTD rise of 11.1% [22] Stock Implications - **Yili (600887.SS)**: - Overweight rating; raw milk prices have declined steadily YTD, expected to stabilize towards the end of the year [2] - **Mengniu (2319.HK)**: - Overweight rating; similar trends in raw milk prices as Yili [2] - **Angel Yeast (600298.SS)**: - Overweight rating; molasses prices down by ~20%, which may positively impact earnings if ASP is maintained [3] - **Hengan (1044.HK)**: - Equal-weight rating; pulp prices have fluctuated, potentially easing margin pressure on tissue business [3] - **Tingyi (0322.HK) and Uni-President China (0220.HK)**: - Equal-weight rating; lower PET and sugar prices should benefit beverage margins, but palm oil price spikes may negatively impact noodle margins [4] - **Want Want (0151.HK)**: - Equal-weight rating; facing raw material cost headwinds, plans to offset costs through substitution and efficiency improvements [5] - **Beer Companies**: - Continued benefits from lower barley costs, but diminishing tailwinds from aluminum prices [6] Additional Insights - **Competitive Dynamics**: The beverage industry's competitive landscape will significantly influence margin trends in the second half of 2025 [4] - **Raw Milk Supply**: Expected to stabilize with more balanced supply-demand dynamics as upstream supply declines [2] - **Cost Management Strategies**: Companies are adopting various strategies to manage cost pressures, including substituting raw materials and improving operational efficiencies [5] Conclusion The conference call highlighted significant trends in raw material prices affecting the China consumer sector, with implications for various companies. The overall sentiment suggests cautious optimism as companies adapt to changing market conditions and raw material costs.

Summary of Southbound Trading Tracking for China/Hong Kong Consumer Sector Industry Overview - The report focuses on the China/Hong Kong consumer sector, specifically tracking Southbound trading activities in major Hong Kong-listed consumer stocks [1][7]. Key Trends and Data - **September Inflows**: In September 2025, there was an increase in inflows to the 36 major HK-listed consumer stocks covered in the Shanghai/Shenzhen-Hong Kong Stock Connect. The average Southbound holdings as a percentage of free float rose by 0.9 percentage points month-over-month for the 73 major HK-listed consumer stocks eligible for Connect trading [1][2]. - **Year-to-Date Performance**: For the year-to-date (YTD) 2025, the average net flows from Southbound trading increased by 6.1% compared to the end of 2024. A total of 51 stocks have shown inflows, while 22 have recorded outflows [2][3]. Stock Performance - **Top Stocks with Inflows**: - Youran Dairy: +7.5 percentage points - Mengniu: +7.5 percentage points - Xiaocaiyuan: +6.0 percentage points - China Foods: +5.8 percentage points - MXBC: +5.5 percentage points [10]. - **Top Stocks with Outflows**: - Tianli Education: -5.2 percentage points - Jiumaojiu: -4.8 percentage points - Yuhua Education: -3.2 percentage points - H&H: -2.4 percentage points - ZHY: -2.0 percentage points [10]. Category Performance - **Categories with Average Inflows**: The report indicates that most categories, except for Apparel & Sportswear, Tobacco, Home Improvement, Toys, Education, Luggage, and Duty Free, recorded average inflows during September [10]. - **Categories with Average Outflows**: Alcoholic Beverages, Apparel & Sportswear, Home Improvement, Education, and Luggage recorded outflows YTD 2025, while other categories had average inflows [10]. Additional Insights - The report highlights the importance of monitoring Southbound trading as a key indicator of investor sentiment and market dynamics within the consumer sector [8]. - The data presented can serve as a valuable resource for investors looking to identify potential investment opportunities and risks in the China/Hong Kong consumer market [8][9]. Conclusion - The Southbound trading trends indicate a positive sentiment towards certain consumer stocks, while others are experiencing outflows. This information is crucial for investors to make informed decisions in the evolving market landscape [2][3][10].

Core Viewpoint - Mengniu reported a 16.4% year-on-year (YoY) net profit decrease alongside a 6.9% YoY revenue drop in 1H25, which was below expectations. However, the core operating profit margin (OPM) expanded by 1.5 percentage points YoY, attributed to lower raw milk costs and strict expense control. For FY25, management has revised down revenue guidance to a mid-single-digit (MSD%) or high-single-digit (HSD%) YoY decline, with core OPM expected to remain flat YoY [1][2][4]. Financial Performance - In 1H25, Mengniu's total revenue was RMB41.6 billion, down 6.9% YoY, and net profit was RMB2,046 million, down 16.4% YoY, both missing expectations. The core OPM increased to 8.5%, exceeding expectations due to gross profit margin (GPM) expansion from lower raw milk costs and disciplined expense management. Cash flow improved significantly, with cash flow from operations (CFO) at RMB2.8 billion, up from RMB1.9 billion in 1H24, aided by better working capital management and a 40% YoY reduction in capital expenditures (capex) to RMB1.0 billion [2][3]. Product Category Performance - Liquid milk sales fell by 11% YoY in 1H25, indicating weak dairy consumption demand. However, the YoY sales decline narrowed in Q2 compared to Q1. Other product categories, such as ice cream, milk formula, and cheese, showed resilient growth with YoY increases of 15%, 2%, and 12%, respectively [3]. Management Changes - A change in the CFO position was announced, with Mr. Ping Zhang retiring and Mr. Xinwen Shen appointed as the new CFO effective September 1, 2025. Mr. Shen has extensive experience, having served in various roles within COFCO Corporation Group for around 30 years [3]. Future Guidance - Management anticipates a revenue decrease of MSD% or HSD% YoY for 2025, with core OPM expected to stabilize at over 8%, indicating a half-on-half (HoH) decrease. The long-term OPM expansion target remains intact at +30-50 basis points each year, supported by potential mix upgrades and efficiency gains. Mengniu plans to renew its share repurchase program, potentially valuing up to HK$1 billion over the next 12 months, alongside a steady dividend payout ratio of over 45% based on adjusted net profit [4].

Investment Rating - The report maintains a consistent sector preference, favoring sports brands, diversified retailers, dairy, beverages, and restaurants, while being less favorable towards apparel/footwear OEM, furniture, projectors, discretionary small kitchen appliances, jewelry, and non-super-premium spirits [11]. Core Insights - Consumption in China has shown signs of recovery, with retail sales growth improving to +4.6% year-over-year in 1Q25, and companies in the coverage reporting an average growth of 14% compared to 12% in 4Q24 [1]. - Despite the positive growth, companies remain cautious about the outlook due to ongoing volatility and external factors such as US-China tariff developments impacting consumer confidence [2][1]. - Margin performance in 1Q25 was mixed, with some companies benefiting from favorable raw material prices and cost control, while others faced risks from marketing investments and competition [1]. - Companies are generally maintaining disciplined pricing strategies and healthier inventory levels, although some categories like spirits and sportswear are experiencing challenges due to demand pressures [1]. - The impact of tariffs on earnings and consumer sentiment is significant, with companies cautious about the second half of 2025 amid uncertainties [2]. Summary by Sections Key Findings from 1Q25 Results - Retail sales growth improved to +4.6% year-over-year, with coverage companies reporting an average growth of 14% [1]. - Labor Day consumption growth accelerated, indicating a potential rebound in consumer spending [1]. Expectations for 2Q25 - Companies are cautious about the outlook for 2H25 due to tariff uncertainties, although those with market share gain opportunities may be more resilient [2]. Sector/Stock Preferences - Preferred sectors include sports brands, diversified retailers, dairy, beverages, and restaurants, while least preferred sectors include apparel/footwear OEM and furniture [11]. Macro Data Points - The report notes that macroeconomic data points are solid, but ongoing tariff developments and policy support need to be monitored [11]. Valuation Methodology - The report emphasizes the importance of understanding the valuation methodology and the potential risks associated with it [11].

Core Insights - The food and beverage industry is facing significant challenges including supply chain disruptions, rising costs, and changing consumer preferences, making sustainable growth increasingly difficult [1] - The FBIF2025 event aims to address these challenges by focusing on innovation, strategic positioning, and global market expansion for food and beverage brands [2][3] Event Overview - FBIF2025 will take place from May 8-10, 2025, at the National Convention and Exhibition Centre in Shanghai, featuring over 200 speakers, 7400+ industry guests, and 600+ exhibitors [3][4] - The event will cover various topics through plenary sessions and sub-forums, including Dairy Talks, Snack & Baking Talks, Drink Talks, and Functional Ingredient Talks [4][6] Industry Trends - The food and beverage industry is entering a critical phase where innovation and steady progress must coexist, with a focus on AI empowerment, product value chain restructuring, and global market expansion [27][28] - The global functional food market is projected to reach $275.77 billion by 2025, with a CAGR of 7.9%, indicating a growing trend towards health-conscious products [188] Innovation Focus - The FBIF2025 Forum will explore new approaches for product development, emphasizing the importance of consumer demand insights and overcoming challenges in the concept-to-implementation chain [350] - The event will feature discussions on effective marketing practices, including leveraging social media for brand growth and consumer engagement [269][270] Global Expansion - Chinese food and beverage brands are accelerating their global expansion, with a strategic focus on capturing opportunities in international markets such as the Middle East and Southeast Asia [2][234] - The FBIF2025 Channel Talks will facilitate matchmaking sessions between brands and global retail channels to enhance market reach [236][370] Awards and Recognition - The FBIF Wow Food Awards will recognize outstanding innovation in the food and beverage sector, with a focus on product, packaging, and marketing [353][355] - The awards ceremony will integrate with the event's forums, showcasing winning entries and promoting multi-dimensional storytelling [355] Networking Opportunities - FBIF2025 will host gala dinners to foster networking among senior representatives from leading channels and brands, enhancing collaboration within the industry [433][434]

Investment Rating - The report upgrades diversified retailers, dairy, and restaurants from neutral to a more favorable rating, while maintaining a cautious stance on apparel/footwear OEMs, furniture, projectors, discretionary small kitchen appliances, jewelry, and non-super-premium spirits [10]. Core Insights - Signs of bottoming out in the consumer sector were observed in 4Q24, with reported sales growth averaging 14% compared to 7% in 3Q24, aided by an easier base and better-than-expected post-Chinese New Year consumption [1][14]. - The outlook for 2025 is generally prudent, with expectations for gradual recovery supported by government initiatives to boost consumption, although growth is anticipated to be back-end loaded for most categories [2]. - Online retail sales have consistently outperformed total retail sales, indicating a shift in consumer purchasing behavior [20][21]. Summary by Sections Key Findings from 4Q Results - Retail sales growth improved to 4% year-on-year in January-February, up from 3.0% and 3.7% in November and December respectively, with online channels continuing to outperform [14][17]. - Margin trends were mixed; some companies reported better-than-expected margins due to favorable commodity prices and cost control, while others faced margin pressure from increased marketing and business expansion investments [15]. Expectations for 1H25 - Companies are generally optimistic about long-term growth, with some planning to increase investments despite a cautious short-term outlook [2]. - The impact of US tariffs remains a significant concern, particularly for companies with substantial exposure to the US market [2]. Sector and Stock Preferences - Preferred sectors include sports brands and diversified retailers, with specific stock recommendations such as Anta, Moutai, and Midea highlighted for their potential [11]. - The report emphasizes the importance of monitoring policy execution and tariff impacts on consumption and company performance [2][10].