Soochow: The main expectation is still the consolidation of the Baijiu industry, with a focus from top to bottom on the earlier entry into the turning point and leading liquor enterprises with growth elasticity.

Soochow released a research report stating that the expectation of consolidation in the liquor industry is still the main focus. The main contradiction of consolidation and the visibility of future performance repair should be grasped, and priority should be given to the liquor companies that have entered the turning point earlier and have leading growth elasticity. Referring to the stock price performance from 2013 to 2016, the liquor cycle from bottoming out to upward recovery is not simply replicating the rotation sequence of high-end mid-range premium liquor in the liquor market. It is more about prioritizing leading performance targets from the bottom up. The bank expects the sales of high-end and mid-range products in this round to achieve a new equilibrium in terms of volume and price, but it will still take some time. It is recommended to focus more on individual stocks that have the potential to increase market share in aromatic liquor, expand nationally, or attract new product merchants. Soochow's main points are as follows: The impact of the Q2 scene intensifies, and sales test becomes more real In the first half of 25H1, the total operating income of the liquor sector decreased by 0.3% year-on-year, and the net profit attributable to the parent company decreased by 0.9% year-on-year. In the second quarter of 25Q2, the total operating income of the liquor sector decreased by 4.7% year-on-year, and the net profit attributable to the parent company decreased by 7.3% year-on-year. The pressure on commercial scenes in Q2 of 25 is significant, and personal dining and banquet scenes are also affected, leading to a decline in demand for high-end and mid-range liquor. The growth rates of social retail and catering in Q2 of 25 both fell compared to Q1, especially since May, the impact on consumption scenes intensified: first, the commercial scenes shrunk significantly, putting pressure on the trend of demand for high-end and mid-range liquor; second, the residential dining and banquet scenes caused secondary impacts, leading to a temporary suppression of consumption of mid-range liquor. The pressure on sales and distribution channels has expanded from high-end and mid-range to mid-range and low-end, and products with weak sales and distribution foundations continue to face pressures on payments. At the enterprise level, the growth rate of the sector's performance turned negative in Q2 of 25, and liquor companies increased their efforts to turn around, marginally relaxed payment and delivery requirements, prioritized clearing inventory and channels to maintain channel order stability, and consolidate the foundation for long-term development. In the sales channels, the wholesale prices of high-end and mid-range liquor in Q2 of 25 generally decreased, but a few products such as Guo Jiao, and Qing 20 managed to control price fluctuations relatively well through precise control of profit margins and inventory management. High-end liquor orderly slows down, mid-range continues to clear, real estate liquor speeds up relief In the first half of 25, the operating income of the liquor sector fell by 0.35% year-on-year, and the net profit attributable to the parent company fell by 0.9% year-on-year. The slowdown in Q2 compared to Q1 is significant. Firstly, demand is under significant pressure. Secondly, the channels have contracted to a certain extent. Thirdly, liquor companies are increasing efforts to regulate for the long term. The pre-receivables balance of liquor companies in 25H1 is generally at a low level in the past two years. Most high-end and mid-range liquor companies have a lower apparent growth rate of payments received than income, indicating continued pressure on channel payments; regional liquor leaders have a slightly better apparent growth rate of payments received than income, showing more proactive adjustment of financial statements. On the sales side, most companies' income growth rates are accelerating as the apparent growth rate of payments received speeds up, and the pre-receivables balance falls to cyclically low levels. On the cash collection side, with the tightening of channel credit support, the speed of cash collection for leading liquor companies is generally not significantly different from the apparent growth rate of payments received. Looking at different segments, second-tier mid-range liquor companies have strengthened delivery control since Q2 of 24, and along with a lower base, the year-on-year decline in revenue in Q2 of 25 has narrowed; high-end and regional liquor leaders have generally begun to accelerate the release of financial pressure starting from Q2 of 25, with regional liquor companies showing a relatively greater effort to clear inventory. Product structure under pressure, net profit margin continues to decline In terms of gross profit margin, in 25H1, high-end liquor, mid-range liquor, and regional liquor companies saw year-on-year changes in gross profit margins of -0.5%, -0.4%, and -0.3% respectively, with product structure and discounts dragging down gross profit margins. In terms of expenses, in 25H1, most liquor companies saw an increase in sales expenses compared to the previous year; the improvement in sales expenses for companies like Laobaigan Liquor in Hebei Hengshui, Shanxi Fenjiu, and Luzhou Laojiao is related to the refined control of expenses. With weakening income realization in 25H1, most liquor companies saw a slight increase in management expenses. In terms of profit growth, in 25H1, high-end (5.49%)> mid-range (-3.22%)> real estate liquor (-24.90%), with a decline in product structure and sluggish sales conversion, liquor companies with greater sales difference faced downward pressure, and the scale negative effect also had an impact. Risk Warning: Risks of insufficient consolidation and slower-than-expected consumption recovery, as well as intensified industry competition.