Caitong: Performance differentiation in the food and beverage industry continues but is stabilizing. Optimistic about three main themes.

Caitong released a research report stating that the fundamentals of the food and beverage industry have entered the bottoming-out phase, with first-quarter reports showing differentiation trends under high base numbers. Due to different business rhythms, there have been varying performances, but overall, inventory levels remain low and trends are showing marginal stabilization. The firm is optimistic about three main themes: 1) cyclical upturn, 2) channel transformation, and 3) fundamentals. 1) Cyclical upturn: Fundamentals are bottoming out and expected to gradually improve, recommending liquor and restaurant chains, with a focus on opportunities in beer. 2) Channel logic: Still the firm's most favored direction, unaffected by macroeconomic expectations and possessing strong alpha. 3) Fundamental logic: Forward-looking rankings for 1Q2025, beverages snacks > beer > basic seasonings > dairy products > liquor > instant foods. Caitong's main viewpoints are as follows: Food and Beverage: Differentiation in the first quarter, but overall showing marginal stabilization From the research conducted at the Sugar and Wine Fair, channel feedback indicates that overall demand has not deteriorated further, and some scenarios such as banquets are showing signs of improvement, leading to a more optimistic outlook for the recovery of the catering industry. The firm believes that the industry fundamentals have entered the bottoming-out phase, with first-quarter reports showing differentiation trends under high base numbers. Due to different business rhythms, there have been varying performances, but overall, inventory levels remain low and trends are showing marginal stabilization. Liquor Sector: Weak demand stabilization and cautious operation are key Weak demand stabilization and slight recovery in the first quarter, with some bright spots after the holidays. Overall, there is a mild recovery trend in post-Chinese New Year sales, with the off-peak season turning as expected after the holidays, but with some highlights: 1) Business scenarios showing signs of improvement, with loose policies potentially in place; 2) Mass banquets generally rebounding, with positive feedback from lower-tier channels; 3) Inventory returning to benign levels, with stable prices, and increased willingness for post-holiday channel replenishment. Quality over quantity is the consensus, and alcohol companies are operating more calmly. In the adjustment period of 2024, alcohol companies are mostly in an exploratory and trial-and-error stage; entering 2025, definitive strategic adjustments/transformation schemes are gradually being introduced, with industry leaders like Wuliangye Yibin leading in systematic marketing reform. In summary: 1) Practical and rational consensus forming around single-digit growth targets in 2025, focusing on quality over quantity in the long-term; 2) Continued quality control and quantity management, with personalized strategies taking precedence over formulaic market management. Overall assessment, the liquor sector may generally slow down in 1Q2025, but could see marginal improvement compared to the second half of 2024. Adjustments in liquor supply are gradually being made, with destocking nearing completion, demand focusing on stability, with little room for further decline. Mass Market Sector: Inventory at low levels expected to rise, beer, beverages, and snacks relatively advantageous 1) Beer: The industry entered a destocking phase last year, overall operating lightly, with individual product and management improvement logics still present, and the peak season showing noticeable catalysis. 2) Snacks: Significant fluctuations in base numbers due to Chinese New Year, with bulk snack channels continuing to be core contributors to growth, focusing on category logics such as konjac, oats, etc. 3) Restaurant Chains: Overall subdued performance in the first quarter, but the recovery of catering and channel transformation is expected to bring new growth. The performance of B-end in the first quarter was outstanding. 4) Milk Drinks: Eastroc Beverage may sustain high growth, while gifting-related sales may come under pressure, focusing on new product logics such as health water, tea drinks, and whiskey. Risk warning: Consumer purchasing power recovery not as expected, food safety risks, intense industry competition, etc.