Summary of China Consumer Staples 3Q25 Preview Industry Overview - The Consumer Staples sector in China is experiencing weak consumption trends in 3Q25, with easing policy headwinds but ongoing constraints on on-trade recovery [1][2] - Companies are prioritizing channel health and maintaining rational marketing investments due to weak demand, leading to volume weakness across sub-sectors [1][2] Key Insights - **Sales Growth Expectations**: An aggregated topline growth of +3%/+4% is anticipated for the Staples coverage (excluding Spirits), with beverages, pet foods, and snacks leading sales growth at 10-30% [2] - **Comparison to Previous Quarters**: This growth represents a deceleration from +5%/+7% in 2Q25, reflecting broader consumption weakness [2] - **Spirits Sector Outlook**: The spirits sector is expected to see a decline of -7%/-10% in sales/net profit, likely marking 3Q as the trough level due to stringent shipment controls [2] Company Performance - **Leaders Outperforming**: Companies like Eastroc, Nongfu, Haitian, CR Beer, Yankershop, and Weilong are expected to deliver resilient sales growth in 2H25 with higher margin visibility [2] - **Downgrade of Jonjee**: Jonjee has been downgraded to Sell from Neutral due to an 8-10% downward revision in earnings amid competitive pressure from Haitian [2] Market Trends - **September Sales Trends**: Beer and dairy sales trends improved sequentially ahead of Golden Week, while beverage and snacks showed wide divergence [2] - **Focus on Channel Health**: Companies are expected to focus on channel health and shipment control in preparation for a fresh start in 2026 [2] Future Outlook - **Investment Strategy for 2026**: Companies are expected to face diminishing cost benefits, necessitating a focus on competition and promotion strategies [8] - **Growth Drivers**: Selective snacks and beverage players are anticipated to drive topline growth through core SKU focus and POS expansion [8] - **Potential Recovery in Challenged Sectors**: Spirits valuations suggest a potential bottoming out, with recovery tied to gradual policy normalization expected in 2Q26 [8] Valuation and Shareholder Returns - **Valuation Outlook**: Investors are beginning to look into 2026/27E earnings, with pet food trading at an average of 28x/21x P/E compared to 38x for 2025 [8] - **Shareholder Return Support**: Companies like Tingyi and WH Group are noted for their attractive yields of 7-8% for 2025E/2026E [1] Conclusion - The Consumer Staples sector in China is navigating a challenging environment with weak demand and competitive pressures, but certain leaders are positioned to outperform. The focus on channel health and strategic investments will be crucial as the sector prepares for 2026.

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the China Consumer Staples sector, specifically analyzing cost trends in various sub-sectors including beer, condiments, dairy, beverages, prepared food, and pet food [1][2][3]. Core Insights and Arguments - **Cost Trends**: Most staples players are expected to experience cost tailwinds in 2025, albeit at smaller magnitudes compared to 2024. Key raw materials such as SPI, bean pulp, vegetables, and pork have seen price reductions ranging from 3% to 27% year-over-year [2][3]. - **Raw Material Costs**: - Barley prices decreased by 0.8% month-over-month (MoM) and are down 4% year-over-year (YoY). Most players have locked in barley prices with benefits ranging from mid-single digits to high-single digits percentage [3]. - Molasses prices fell by 8% MoM, indicating a 14% YoY decline, which is beneficial for yeast producers [4]. - Soybean prices increased slightly by 0.7% MoM, while bean pulp prices declined by 1.8% MoM [3]. - **Sector-Specific Cost Index Changes**: - The Frozen Bakery cost index decreased by 1.6% MoM, while the Beverage cost index fell by 1.1% MoM due to lower costs of milk powder, sugar, and cocoa [4]. - The Compound Condiments cost index increased by 0.7% MoM, primarily due to higher soybean prices [5]. - The Prepared Meal cost index rose by 0.4% MoM, driven by higher prices for beef, shrimp, and raw milk [8]. Additional Important Insights - **Cost Impact Analysis for 2025**: - The theoretical cost impact analysis ranks pet food, soy sauce, and food & beverages as having the most significant cost benefits on average. The expected gross profit margin (GPM) expansion is highest for soy sauce, followed by beer and frozen food [43]. - **Raw Milk Pricing**: Domestic raw milk prices have stabilized at approximately Rmb3.02/kg, offering a significant price advantage over imported dry powder prices, which is a reversal from previous trends [33][34]. - **Imported Milk Products**: The volume of imported milk powder grew by 13% YoY, while imported dry milk products increased by 3% YoY [37][41]. Conclusion - The China Consumer Staples sector is experiencing a mixed landscape of cost pressures and benefits, with significant variations across different sub-sectors. The analysis indicates potential opportunities for cost savings and margin improvements, particularly in pet food and soy sauce, while also highlighting the challenges posed by rising prices in certain categories like compound condiments and prepared meals [2][43].

Summary of Conference Call on China Consumer Staples Industry Overview - The consumer staples sector in China is experiencing weak demand trends from Q2 to Q3, influenced by policy and weather factors, leading to a wider divergence between market leaders and laggards [1][2] - The spirits sector has seen a valuation increase of 24% in Q3 to date, compared to a 16% increase in the A-share Liquor index and a 13% increase in the MSCI China Index, driven by improved market sentiment and expectations of stimulus policies [1] Key Insights Demand Trends - Overall demand remains weak, particularly in gifting categories as noted by dairy and spirits companies [1] - Beer, spirits, and liquid milk are under pressure, while beverages, snacks, and pet foods show mixed performance with some companies experiencing growth due to strong product cycles and omnichannel strategies [2] Pricing and Market Dynamics - Pricing remains muted across the sector, with spirits and beer companies focusing on sub-premium segments [2] - The August Foods Consumer Price Index (CPI) decreased by 4.3% year-over-year, indicating potential challenges in pricing strategies [1] Company Performance and Strategies - Companies like Haitian and Nongfu are gaining market share, while others like Jonjee are struggling [9] - CR Beer reported growth in premium and sub-premium volumes, while maintaining a disciplined approach to pricing and promotions [47] - The spirits sector is seeing a shift towards mid-end and mass-market products to counteract upper-mid-end softness [43] Future Outlook - The sector is expected to see a gradual recovery in retail demand, particularly in traditional categories like beer and dairy, with potential for value stock rotation in early 2026 [8] - Companies are expected to enhance shareholder returns and maintain dividend payouts, with a focus on operational efficiency and cost management [8] Sector Preferences - Preference remains for beverages due to secular growth, followed by pet foods and dairy, with a positive outlook for beer in the medium term [13] - Stock recommendations include Eastroc, Gambol, and China Pet Foods for strong product cycles, and CR Beer and Tsingtao for their dividend yields and valuations [13] Additional Observations - The competitive landscape is evolving, with top players consolidating market share amid weak demand, leading to a valuation premium for leading brands [9] - The pet food sector is benefiting from a shift towards higher-value segments, with companies focusing on premiumization and operational efficiencies [48] - Snacks are seeing a channel shift towards discounters and mom-pop stores, with a focus on large SKU strategies and product mix upgrades [49] Key Watch Factors - Policy directions post the Fourth Plenum and local catering incentives are critical to monitor, especially their impact on banquet traffic [11] - The performance of mid-end and mass SKUs in spirits and the overall margin discipline across the sector will be crucial as cost pressures moderate [12]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Greater China Consumer Sector - **Period Covered**: H125/Q225 results and H2 outlook - **Key Findings**: - Weighted average revenue and net profit grew by 11% and 12% YoY in H125, respectively, compared to 7% and 16% YoY in Q125, indicating a deceleration in net profit over Q2 [2][3] - 37 companies had positive EPS revisions while 36 had negative revisions, with the percentage of companies with positive revisions declining from 60% in Q125 to 51% in H125, although this still marks a YoY improvement from 41% in H124 [2][3] Earnings Performance - **New Consumer Names**: Companies like Younghui Superstores, Laopu, Pop Mart, Guming, and Arashi Vision are leading positive EPS revisions, with Yonghui Superstores showing the largest EPS revision for the next 12 months due to a potential turnaround in 2026 [2][3] - **Consumer Staples and Home Appliances**: Most companies in these sectors underperformed due to slowing demand recovery, intensifying competition, and phasing-out subsidies. However, established leaders like Nongfu, CR Beer, and Weilong showed positive EPS revisions [2][3] Market Performance - **MSCI China**: Delivered a 30% return YTD, with the Consumer Discretionary sector posting a 22% return, supported by resilient demand among new consumer names. The Consumer Staples sector lagged with a 19% return due to soft overall demand [2][3] Economic Indicators - **Retail Sales Growth**: China's retail sales grew by 4.0% YoY in July 2025, up from 2.7% YoY in July 2024. Restaurant sales rose by 1.1% YoY, down from 3.0% YoY a year ago, reflecting the impact of delivery subsidies [3][4] - **Government Policies**: Supportive policies introduced by the Chinese government, including childcare subsidies and interest subsidies on personal consumption loans, are expected to boost consumption in H2 [3][4] Stock Recommendations - **Preferred Stocks**: - Stocks benefiting from domestic consumption policies (e.g., Yum China, DPC Dash) - Value plays with decent shareholder returns (e.g., WH Group) - Structural growth opportunities (e.g., Pop Mart, China Pet Food) - Home appliance makers with overseas earnings potential (e.g., Roborock, Midea) [4][5] Sector-Specific Insights - **Agriculture**: Hog prices stable YoY in H125, with Muyuan increasing its dividend payout ratio to 47.5% [7] - **Baijiu Sector**: Notable revenue and NP declines in Q225, with Kweichow Moutai showing resilience [8] - **Beer Sector**: Yanjing Brewery and CR Beer reported revenue/NP growth, attributed to premium product growth [9] - **Beverages**: Freshly-made beverage chains reported strong revenue growth, driven by store expansion [10] - **Condiments and Frozen Food**: Sluggish sales in Q225, with Yihai expected to accelerate growth in H225 [11] - **Dairy**: Liquid milk sales under pressure, while infant milk formula showed recovery signs [12] - **Pet Food**: Strong domestic growth, with both China Pet Foods and Gambol reporting 40% YoY growth [14] - **Next-Generation Tobacco**: RLX and Smoore saw strong revenue growth, with RLX benefiting from regulatory tailwinds [15] Conclusion - The Greater China consumer sector is experiencing a mixed performance with notable divergences among companies. While some new consumer names are thriving, traditional sectors like consumer staples and home appliances are facing challenges. Government policies aimed at boosting consumption may provide a tailwind for the sector in the second half of the year.

Summary of Foshan Haitian Flavouring & Food (603288.SS, 3288.HK) Conference Call Company Overview - **Company**: Foshan Haitian Flavouring & Food - **Ticker**: 603288.SS (A-share), 3288.HK (H-share) Key Financial Highlights - **1H25 Results**: Reported sales of Rmb15.2 billion, net profit of Rmb3.9 billion, representing growth of 7.6% and 13.3% year-over-year respectively [1] - **2Q25 Performance**: Sales and net profit reached Rmb6.9 billion and Rmb1.7 billion, growing 7.0% and 11.6% year-over-year [1] - **Net Profit Margin**: Improved to 24.8%, up 1 percentage point year-over-year, driven by better gross profit margin (GPM) expansion [1] - **GPM Expansion**: Increased by 3.9 percentage points year-over-year, attributed to cost tailwinds and efficiency gains [1] Product Performance - **Condiments Sales**: Grew by 10.5% in 1H25 and 10.6% in 2Q25 [1] - **Soy Sauce Sales**: Increased by 10.3% in 2Q25, contributing to overall condiment growth of 9.6% for other sauces, 9.8% for oyster sauce, and 12.7% for other condiments [2] - **Online Sales Growth**: Achieved 35% year-over-year growth in 2Q25, totaling Rmb425 million, while offline sales grew by 9% to Rmb6.155 billion [5] Geographic and Channel Performance - **Geographic Sales Growth**: North, South, East, Central, and West regions grew by 10.8%, 11.3%, 12.8%, 10.5%, and 6.0% respectively [5] - **Sales Contribution from Online**: Increased to 6.5% in 2Q25 compared to 5.3% in 2Q24 [5] Dividend and Future Outlook - **Interim Dividend**: Announced for the first time with a cash payout of Rmb1.5 billion, representing a payout ratio of approximately 39% [1] - **2025 ESOP KPI**: Net profit target set at no less than 10.8% year-over-year growth [1] - **Sustainability Concerns**: Monitoring the sustainability of performance amid policy impacts starting from late May, with catering retail sales slowing down [1] Risks and Considerations - **Downside Risks**: Include slower-than-expected recovery in catering sales, increased industry competition, fluctuations in raw material costs, and potential food quality issues [10] - **Upside Risks**: Faster-than-expected business reforms, stronger growth in B2B sales, and benefits from cost deflation [10] Investment Recommendation - **Rating**: Reiterated Buy rating on H-share, trading at 23x 2026 P/E, approximately 22% discount to A-share [1]

Group 1 - Tianjin will organize government and enterprise groups to participate in the first China International Consumer Products Expo, showcasing 19 brands including "Guifaxiang," "Tianli," and "Yumeijing" [1] - Guifaxiang Eighteen Street Mahua Food Co., Ltd. specializes in traditional and other leisure food development, production, and sales, with over 100 products including its signature Eighteen Street Mahua, recognized as a national intangible cultural heritage [1] - Tianli Duliu Vinegar Co., Ltd., a time-honored brand, has an annual production capacity of 100,000 tons and is one of the largest condiment brewing companies in China, offering nearly 100 varieties across seven series, including health vinegar approved as health food by the Ministry of Health [1] Group 2 - Tianjin Seagull Watch Group Co., Ltd., established in 1955, ended China's history of only repairing watches and has manufacturing bases in multiple cities, with sales outlets across major urban areas [2] - Yumeijing Group Co., Ltd. is a large modern enterprise group known for its cosmetic products, with over 200 products across more than 20 series, including brands like "Yumeijing" and "Yuyingfang" [2]

Summary of Conference Call on China Consumer Staples and Global Condiment Market Industry Overview - The focus is on the **China Consumer Staples** industry, particularly the **condiments** sector, with an emphasis on **Southeast Asia (SEA)** as a key growth market [1][2][11]. Key Insights - **Overseas Market Importance**: Chinese condiment companies are increasingly looking to expand overseas due to a soft domestic macroeconomic environment and growth deceleration in China. The SEA market is particularly attractive due to its proximity, similar dietary habits, favorable demographics, and rising incomes [1][2]. - **Growth Projections**: The SEA condiment market is expected to see **3-5% volume growth** and **3-4% retail selling price (RSP) growth** from 2024 to 2029. Indonesia is highlighted as having the brightest growth outlook with a **10% CAGR** during the same period [1][11]. - **Soy Sauce as a Key Category**: Soy sauce is identified as a critical category for Chinese condiment companies in SEA, representing **20% of SEA** and **33% of Indonesia's** condiment consumption by value, with strong growth potential [1][11]. Competitive Landscape - **Successful Global Strategies**: The analysis of global condiment companies like Kikkoman, Ajinomoto, and Unilever reveals that soy sauce has the highest growth potential. Key success factors for a 'go global' strategy include localization, alignment of product portfolios with regional purchasing power, and operational scalability [2][8]. - **Distribution Strategies**: Effective distribution strategies are crucial for success in SEA. Chinese companies can leverage their domestic channel management expertise to penetrate SEA markets, where traditional trade and small retailers are significant [8][11]. Company-Specific Insights - **Haitian**: Expected to gain domestic market share and expand into overseas markets. Scenario analysis suggests potential incremental sales growth of **8% by 2029** and **16% by 2035**. The company is initiating a **Buy rating** [9]. - **Yihai**: Currently rated **Neutral** due to volatility from related party sales and domestic pricing competition. However, it has seen initial success in overseas markets, with overseas sales contributing **5% of total sales in 2024**, growing at **20% in 2025 YTD** [9]. - **Angel Yeast**: Noted for its overseas revenue, which accounted for **38% in 2024**, with a balanced regional exposure and maintaining **20% growth in 2025 YTD** [9]. Market Size and Growth - **Global Market Size**: The global condiment market is projected to grow at a **CAGR of 7-8%** from 2024 to 2029, with the USA, Europe, and China being the largest markets. The SEA market, currently valued at **US$9 billion**, shows potential for significant growth driven by increased per capita consumption and rising average selling prices [11][13]. - **Market Concentration**: The USA, SEA, and Latin America markets are more concentrated compared to China, which has a fragmented retail condiment market. Leading players in the USA and EU are primarily local, while SEA has a significant presence of international players [14][26]. Additional Insights - **E-commerce Growth**: The USA and China lead in online retail penetration, with over **10% of retail sales** occurring online. Other regions are at lower penetration rates [28][29]. - **Catering Market Growth**: Chinese restaurant catering sales in the US and SEA are significant, with projections of **5% CAGR** growth from 2024 to 2027, closely matching China's domestic catering sector growth [65][66]. Conclusion - The Chinese condiment industry is poised for growth through overseas expansion, particularly in SEA, with soy sauce as a key driver. Companies like Haitian and Yihai are strategically positioning themselves to capitalize on these opportunities, leveraging their domestic expertise and adapting to local market needs.