2025-09-17 01:51Summary of Conference Call on China Spirits Industry Industry Overview - The spirits industry in China is currently facing challenges due to the ongoing impact of the anti-extravagance policy, which has affected consumer demand and retail momentum. [1][2][11] - The third quarter of 2025 (3Q25) is expected to be the trough for the industry, with a projected sales decline of 5% to 27% across various brands, excluding Moutai and Jiugui. [1][2][21] Key Points and Arguments Demand and Sales Trends - Retail momentum is anticipated to remain weak, particularly during the peak season due to fewer holiday days compared to previous years. [1] - A significant decline in retail volume is expected, with estimates of a 30% drop in August and a 15-20% decline during the peak season. [11] - The wholesale pricing remains under pressure, with notable declines in prices for key brands like Feitian Moutai and Common Wuliangye. [19][27] Shipment and Inventory Management - Spirits companies are prioritizing channel health by implementing deeper destocking and tighter shipment controls to ease distributor financing burdens. [1][2] - The trend of controlling shipments is crucial for maintaining channel inventory and supporting wholesale prices, especially for high-end spirits. [18][27] Financial Forecasts and Revisions - Sales and net profit forecasts for super-premium and upper-mid-end spirits have been revised down by up to 6% and 17% respectively for 2025E-27E. [2][42] - Despite the cautious outlook, target multiples have been raised by 9-19% to reflect a more normalized valuation level amid market re-rating. [2] Product Strategy and Market Positioning - Companies are focusing on product strategy to navigate the current market challenges, including reinforcing mid-end and mass portfolios and innovating lower-degree liquor products for younger consumers. [11] - The emphasis on residential banquets and product mix shifts is seen as a potential catalyst for recovery. [11] Dividend and Shareholder Returns - There is potential for enhancement in shareholder returns, with increased dividend payout forecasts for companies like Wuliangye. [11][43] Additional Important Insights - The anti-extravagance policy's impact is expected to gradually normalize, potentially boosting sentiment during the 2026 Chinese New Year holiday season. [11] - The affordability of high-end spirits has improved, which may support residential demand as policy headwinds ease. [31] - The spirits sector has seen a rotation towards laggards, indicating a market sentiment shift towards recovery narratives. [12][42] Conclusion - The China spirits industry is navigating a challenging environment with significant policy impacts affecting demand and pricing. However, strategic adjustments in shipment control, product offerings, and potential improvements in affordability may provide pathways for recovery in the coming years. [1][2][11][12]