Summary of the White Liquor Industry Conference Call Industry Overview - The white liquor industry is transitioning from a price-driven logic to a market share-driven logic, moving from growth assets to dividend assets, indicating that companies need to enhance market share for growth rather than relying on price increases [1][3][5] - The current market is characterized by a bottoming out of channel profits while performance has not yet reached its bottom, presenting left-side investment opportunities [1][6] Key Points and Arguments - **Demand-Side Factors**: The industry is influenced by demand-side factors such as credit expansion and per capita income, with performance fluctuations categorized into channel bottom, performance bottom, and inventory bottom [1][4] - **Investment Focus**: Investors should focus on channel bottom and performance bottom, as inventory bottom tends to lag [4] - **Policy Impact**: High-end consumption restrictions have led to a decline in channel profits since 2022, with expectations that by mid-2026, sales and revenue will align, potentially marking the performance and inventory bottom [1][9] - **Market Characteristics**: The current cycle shows price clearing and a trend towards larger brands, with top brands like Moutai demonstrating stronger risk resistance and better inventory cycles [1][11] - **Long-Term Trends**: The industry's logic is evolving due to economic deleveraging and demographic changes, leading to a shift from high-end to affordable consumption, necessitating companies to adapt to this trend [5][13] Valuation and Investment Strategy - The valuation framework for the white liquor industry may shift from PE and PEG to PBR, with investment returns increasingly derived from stable performance increments and dividends, indicating a transition towards bond-like assets [2][15] - **Investment Opportunities**: Current market conditions suggest a focus on high-frequency signals, such as Moutai's transaction prices, which reflect supply and demand dynamics [10] - **Short-Term Outlook**: The white liquor sector is seen as having absolute return potential, although it is more of a short-term rebound opportunity rather than a long-term trend [16] Changes in Underlying Logic - The underlying logic of the white liquor industry has changed, with a reduced emphasis on investment and luxury attributes and a strengthened focus on fast-moving consumer goods attributes [1][13] - The shift from price logic to market share logic means that companies that can increase market share will achieve higher valuations [14] Key Conditions for Transition - For the industry to transition from deep-cycle growth stocks to bond-like assets, it must achieve stability in growth expectations, free cash flow, and maintain high ROE [19] Conclusion - The white liquor industry is at a critical juncture, with significant changes in market dynamics and investment logic. Investors should remain vigilant about policy impacts, demand-side factors, and the evolving valuation framework to identify potential opportunities and risks in the sector [1][2][3][5][15]

Core Viewpoint - The policy variables are accelerating the clearing of the liquor industry, with the industry moving towards performance bottoms, and stock prices are expected to turn before demand-side recovery [1][3][18] Mid-Cycle Analysis - The core contradiction in the liquor industry remains on the demand side, with the adjustment process involving channel bottoms, performance bottoms, and inventory bottoms in that order [3][7] - Currently, the industry is at the channel profit bottom and is accelerating towards the performance bottom, which is expected to be reached by mid-2026 [7][18] - The liquor sector is transitioning from a growth stock to a "quasi-debt asset" as the growth logic shifts from volume-price to market share [2][43] Structural Changes - The high-end consumption attribute of liquor is weakening while its fast-moving consumer goods (FMCG) attribute is strengthening, leading to a shift from volume-price logic to market share logic [44][60] - The industry is experiencing a structural change where the pricing mechanism is being redefined, with a focus on stable returns and dividends [2][72] Demand Side Dynamics - The demand pressure on liquor is easing as the real estate and debt cycles pass their steepest decline phases, which is expected to positively influence consumer spending [21][24] - The liquor industry is currently at the channel profit bottom and is moving towards the performance bottom, with expectations that the performance bottom will precede the demand bottom [24][26] Investment Logic Transformation - The investment logic for liquor is being restructured, with a focus on maintaining stable return on equity (ROE) and the ability to provide dividends and share buybacks [75][72] - The transition from a growth stock to a quasi-debt asset requires the industry to undergo a complete inventory cycle and establish stable growth expectations [75][72] Market Share Focus - Future growth in the liquor industry will be driven by market share rather than total volume expansion, emphasizing the importance of brand influence and product line positioning [60][61] - Companies that can enhance their market share must have strong brand recognition, effective customer acquisition strategies, and sufficient production capacity [61][75]

Core Viewpoint - The article suggests that policy variables are accelerating the clearing of the liquor industry, with the industry moving towards performance bottoms, and stock prices are expected to turn before demand-side indicators [1] Investment Recommendations - The industry is currently experiencing three bottoms: channel bottom, performance bottom, and inventory bottom, in that order. The performance bottom is expected to be reached by mid-2026, with stock prices likely to show a trend reversal before demand-side indicators [2] - The changing economic structure and demographic characteristics in China are leading to a shift in liquor's consumption attributes from high-end to fast-moving consumer goods, indicating that companies with a focus on market share will have a competitive advantage [2] Long-term Perspective - The investment logic for liquor is being reshaped from "cyclical growth" to "quasi-debt assets." As the product attributes change, the focus will shift from volume-price logic to market share logic, with stable return on equity (ROE) becoming increasingly important for pricing [3] - The industry will require a significant amount of time to complete this pricing transition, necessitating a reconstruction of stable growth expectations and consistent dividend and buyback policies [3]

Core Viewpoint - The report from Guotai Junan Securities indicates that policy variables are accelerating the clearing process in the liquor industry, with expectations of reaching performance bottoms by mid-2026, and that liquor stock prices may show a trend reversal ahead of demand-side recovery [1][2] Group 1: Industry Dynamics - The core contradiction in the liquor industry remains on the demand side, with the adjustment process focusing on three bottoms: channel bottom, performance bottom, and inventory bottom, in that order [2] - The current phase is at the channel profit bottom, moving towards the performance bottom, which is expected to be reached by mid-2026 [2] - Liquor stocks are anticipated to show a trend-level turning point before the demand side does, based on high-frequency signals such as batch prices [2] Group 2: Transformation of Liquor Attributes - The economic structure and demographic characteristics in China are leading to a shift in liquor's commodity attributes, with high-end consumption properties weakening and fast-moving consumer goods attributes strengthening [2] - The growth logic for liquor companies is evolving from a volume-price logic to a share logic, where companies with share logic will demonstrate sustained competitive advantages [2] Group 3: Long-term Investment Logic - The investment logic for liquor is being redefined from "cyclical growth" to "quasi-debt assets," with most liquor stocks expected to see weakened growth potential [3] - A few companies with competitive advantages may internalize their strengths into "quasi-debt assets," making stable ROE increasingly important for liquor pricing [3] - The industry will require a significant amount of time to complete this pricing transition, necessitating a reconstruction of stable growth expectations and consistent dividend and buyback plans [3]

Investment Rating - The report assigns an "Overweight" rating for the liquor industry, consistent with the previous rating [4][8]. Core Viewpoints - The essence of the 2025 liquor strategy is to focus on market share logic, indicating a shift from price concentration to volume concentration, with individual stock excess returns stemming from the ability to gain market share [2][10]. - Short-term stock price movements have largely reflected market pessimism, and with a recovery in policy expectations, the valuation of the liquor sector is expected to continue to recover [6][8]. Summary by Sections Investment Recommendations - The report suggests an "Overweight" position, highlighting companies that have demonstrated strong market share logic, such as Shanxi Fenjiu, Jiuziyuan, and Yingjia Gongjiu. It also identifies leading companies with potential for market share growth, including Wuliangye, Kweichow Moutai, Luzhou Laojiao, and Gujing Gongjiu, among others [6][8]. Individual Stock Performance - The excess returns of liquor stocks are fundamentally driven by market share logic, with companies achieving sustained share increases in their respective regions and price segments [10][12]. - Specific observations include: - Su liquor brands like Jiuziyuan have shown significant market share increases in regions such as Jiangsu and Anhui [11]. - Anhui liquor brands like Yingjia and Gujing are entering a phase of market share competition, with notable performance in key markets [12]. - Shanxi Fenjiu has demonstrated significant national market share growth, particularly in the Shandong and Henan markets [12]. Market Share Logic - Companies that exhibit strong market share logic typically share common traits, such as having products in the early stages of their lifecycle and benefiting from scale effects [13]. - The differences in market share logic among individual stocks are influenced by channel dynamics and brand strength, with some brands still in the process of channel development [13][14]. Industry Dynamics - The liquor industry is currently transitioning through three phases: total expansion, structural growth, and now a focus on volume concentration following a period of inventory adjustment [14]. - The report emphasizes that leading companies can achieve higher performance certainty through increased concentration, as evidenced by Moutai's successful strategy of trading price for volume [14].

Investment Rating - The report maintains an "Accumulate" rating with a target price of 217.97 CNY, unchanged from the previous forecast [2][16]. Core Views - The report emphasizes that the company is experiencing a significant increase in market share within the province, supported by strong channel advantages. The performance outlook is positive due to the strengthening of market share and channel push [3][19]. - The white liquor industry is currently in its third growth phase, transitioning from a price bubble phase to a focus on volume. This shift indicates a weakening growth potential for the sector, but leading companies can still achieve performance certainty through increased market concentration [18][19]. Financial Summary - The company’s revenue is projected to grow from 20,254 million CNY in 2023 to 27,444 million CNY in 2026, reflecting a compound annual growth rate (CAGR) of approximately 8.3% [16]. - Net profit attributable to the parent company is expected to rise from 4,589 million CNY in 2023 to 7,088 million CNY in 2026, with a CAGR of about 13.1% [16]. - Earnings per share (EPS) forecasts for 2024, 2025, and 2026 are 10.66 CNY, 12.06 CNY, and 13.41 CNY, respectively [16][18]. Market Position and Strategy - The company is effectively leveraging its strong channel push to enhance its market share in mid-tier price segments, with notable growth in established markets like Hefei [19]. - The report highlights that the company’s core advantage lies in its channel efficiency, with strong cooperation from distributors and a sustained market share increase in mature markets [19].