Investment Rating - The report downgrades four stocks: Fen Wine, Luzhou Laojiao, ZJLD to Neutral from Buy, and Anhui Gujing to Sell from Neutral, while maintaining Buy on Kweichow Moutai and Wuliangye [9][36]. Core Insights - The current cycle for the spirits industry is likely prolonged due to the impact of the new austerity policy, with uncertainties on when the cycle will bottom out [1][14]. - The report anticipates policy headwinds to persist from 2Q25 to 2Q26, followed by a modest impact in 2H26 as improper dining restrictions for civil servants normalize [2][14]. - The spirits industry is expected to see a decline in total addressable market (TAM) by 10% to 14% in 2025-27E, with a forecasted decline of over 6% in 2025 and a -2% decline in 2026 [2][14]. Summary by Sections Risk Profiling - A policy impact ranking analysis indicates that upper mid-end and commercial banquet-focused products will face greater pressure, while Moutai is expected to remain resilient due to its gifting demand and limited exposure to government-related banquet consumption [2][12]. Earnings and Valuation Analysis - The report projects +1%/+5% aggregated topline growth for 2025/26E, down from previous estimates of +6%/+9%, with high-end spirits expected to grow by +5%/+5% and upper-mid-high end spirits facing declines of -10%/+2% [2][14]. - A bear case analysis suggests potential earnings downside risks of 6% to 18% for most spirits names compared to the base case [2][14]. Industry Growth Forecast - The spirits industry growth forecast has been revised down to a greater than 6% decline in 2025 and a -2% decline in 2026, compared to prior forecasts of +4%/+3% growth [2][14]. - The report highlights that the spirits industry has been consolidating, with leading players gaining market share, particularly in the super premium segment [2][25]. Company-Specific Insights - Moutai's wholesale price stability is supported by various measures, and the report suggests that a price below RMB 1,800 could hurt distributor profits, leading to market volatility [8][14]. - The report revises down sales and net profit estimates for various companies, including a 1% to 19% reduction for most names, reflecting the impact of the new policy [36][37].

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