Investment Rating - The report maintains a strategic bullish outlook on the liquor industry, particularly on high-quality companies, indicating that it has entered a strategic allocation period [1]. Core Views - The liquor sector is expected to experience a fundamental turning point in Q3 2026, with a potential dual impact on valuation and performance by the end of 2026 and into 2027 if the fundamentals recover as anticipated [1][3]. - The report emphasizes the need for patience regarding the fundamentals and acknowledges that the performance of individual stocks will vary during this phase [1]. - Key recommended stocks include Luzhou Laojiao, Shanxi Fenjiu, Kweichow Moutai, and Wuliangye, with additional attention on Yingjia Gongjiu, Jinhui Jiu, Gujing Gongjiu, Jianshiyuan, and Yanghe Distillery [1]. Summary by Sections Fundamental Analysis - The liquor sector has accelerated its clearing process in Q3 2025, with expectations for a fundamental turning point in Q3 2026. The industry faced significant pressure in demand due to external structural disturbances, leading to a projected 20%-30% year-on-year decline in overall sales volume in Q3 2025, which is approximately 50% lower than Q3 2023 [3]. - High-end liquor prices have continued to decline as the market seeks a balance between volume and price [3]. Valuation Analysis - As of October 31, 2025, the liquor sector's absolute PE level stands at 18.7x, below the historical average of 27.6x since 2011. The relative PE ratio compared to the Shanghai Composite Index is 1.14x, also below the historical average of 2.01x [3]. - The report anticipates an increase in dividend rates for liquor companies, with many leading firms disclosing three-year dividend return plans, and most companies currently offering a dividend yield of over 3%, indicating long-term investment value [3]. Holdings Analysis - In Q3 2025, the liquor sector's holding proportion fell to 5.52%, reverting to levels seen in Q2 2017. This represents a decrease of 1.26 percentage points from the previous quarter, which is below the average since 2009 [3].

Investment Rating - The report maintains a "Positive" outlook on the liquor industry, indicating that it is entering a strategic allocation period as it approaches a bottom phase [2]. Core Insights - The liquor sector is expected to experience a fundamental turning point in Q3 2026, with a potential dual impact on valuation and performance by the end of 2026 and into 2027. This is based on historical performance patterns observed from 2012 to 2015, where stock price turning points preceded fundamental turning points [2]. - The report emphasizes the need for patience regarding the fundamental recovery and notes that individual company adjustments will vary, leading to differentiated stock performances during this period. It anticipates that the main contribution to stock price returns will come from valuation adjustments rather than earnings growth in the near term [2]. Summary by Sections Fundamental Analysis - The liquor sector has been experiencing a significant downturn since Q4 2024, with Q3 2025 showing accelerated declines. The industry is projected to face a 20%-30% year-on-year decline in sales volume in Q3 2025, with a 50% drop compared to Q3 2024. High-end liquor prices are also declining as the market seeks a balance between volume and price [4]. - Looking ahead, Q1 2026 is expected to continue facing double-digit sales volume declines, but stabilization is anticipated in Q2 2026, with a potential recovery in demand and pricing by Q3 2026 [4]. Valuation Analysis - As of October 31, 2025, the liquor sector's absolute PE ratio stands at 18.7x, significantly below the historical average of 27.6x since 2011. The relative PE ratio compared to the Shanghai Composite Index is 1.14x, also below the historical average of 2.01x. The report suggests that leading companies are expected to increase their dividend payout ratios, with most currently offering dividend yields above 3%, indicating long-term investment value [4]. Holdings Analysis - In Q3 2025, the liquor sector's holdings accounted for 5.52% of total fund investments, a decrease of 1.26 percentage points from previous quarters, returning to levels seen in Q2 2017. This indicates a significant reduction in fund exposure to the liquor sector compared to historical averages [4].