CITIC Securities: Subsequent demand is gradually recovering, and the trend is clearly optimistic about bottom allocation opportunities in the liquor industry

The Zhitong Finance App learned that CITIC Securities released a research report saying that the year-on-year growth rate of A-share liquor listed companies in the first half of this year was -0.8%/-1.2% (-10.7%/-15.1% excluding Mao Wu Hou), and -4.9%/-7.5% in the second quarter (-18.2%/-27.7% excluding Mao Wu Hou), which was under significant pressure, mainly affected by a sharp decline in demand for liquor related to banquet-related liquor, which dragged down profitability.

Based on factors such as the recovery of the current consumption scenario, the pace of adjustments by leading wine companies, and the state of channel inventory prices, CITIC Securities expects the second half of the year or the stage where most wine companies' reporting performance has the greatest slope of decline. Considering that the liquor sector has seriously outperformed core indices such as HS300 since this year, and that sector valuations are also in the bottom range of 3 years or more, there is demand to make up the increase, and considering that the gradual recovery trend in subsequent demand is clear, CITIC Securities is optimistic about bottom allocation opportunities in the liquor industry.

CITIC Securities's main views are as follows:

Revenue side: The decline accelerated in Q2, and famous liquors in the base market began to come under pressure.

In the first half of 2025, A-share liquor listed companies achieved revenue of 241.5 billion yuan/-0.8% year over year, and -6.0%/-10.7% after excluding Maotai and Maowu, respectively. The pressure of banquet-related demand dragged down the performance of the liquor industry. The revenue of listed liquor companies in 2025Q2 was -4.9% year-on-year (-13.0%/-18.2% after excluding Maotai/Maowu, respectively). The industry declined at an accelerated pace in the second quarter. Only some companies showed positive revenue growth in the second quarter. In terms of price, 2025 H1/Q2 high-end wine revenue was +6%/+3%, respectively, with channel & product resilience declining cycle fluctuations; in 2025 H1/Q2, the revenue of famous wine in the base market was -11%/-21%, respectively. Demand in the second quarter was under significant pressure, and wine companies began to actively adjust; sub-high-end wine revenue was -20%/-23% year-on-year, continuing the deep adjustment. Also, judging from indicators such as contract liabilities and sales revenue, channel repayments are still under significant pressure. Considering factors such as the slow recovery of the current consumption scenario, the low sales rate, and the pace of product control and adjustment by various wine companies, we judge that the revenue side growth of listed liquor companies will continue to be pressured in the second half of this year.

Profit side: Downward product structure & increased cost ratio drag down profitability.

In the first half of 2025, listed liquor companies achieved net profit of 94.6 billion yuan/-1.2% year on year (-15.1% year on year after excluding Maowu); net profit margin to mother was 39.2%/-0.1 pct year on year (30.5%/-1.5 pcts year over year after excluding Maowu). Net profit of listed liquor companies in 2025Q2 was -7.5% year-on-year (-21.5%/-27.7% after excluding Maotai/Maowu, respectively), and the profitability of the industry declined at an accelerated pace in the second quarter. In the first half of this year, gross margins were under pressure due to a downward shift in the product structure, and the increase in cost ratios dragged down the profitability of listed liquor companies. In particular, the profitability of the industry also accelerated in the second quarter. Considering the influence of factors such as a certain decline in the overall price of famous wine in the second half of the year compared to last year, increased industry competition, and continued weakness in the scale effect, we judge that the profitability of wine companies will continue to be under pressure in the second half of this year.

It is expected that the second half of this year will be the stage where most wine companies report the biggest decline in performance. We are optimistic about the bottom allocation opportunities in the industry.

Looking at the sales side, liquor consumption scenarios such as restaurants and banquets have begun to be repaired sequentially since July, but currently they have not fully returned to normalization. Therefore, we expect that liquor sales may still be affected to a certain extent in the second half of this year. The third quarter of this year and the Mid-Autumn Festival National Day holiday will be a stage of the lowest sales trend at the bottom of this big cycle. On the price side, the current price of Maotai is around 1,850 yuan. It has been 47 months since the highest point in September 2021 (3,800), a drop of about 51%. We expect to have released most of the price risks and gradually return to the balance between demand and supply. Although there was downward pressure in the third quarter of this year, the overall price was limited. Also, considering that most wine companies have begun to make active adjustments, we think the second half of this year may be the stage where most wine companies' reporting performance has the greatest slope of decline.

There is demand to make up for the serious failure of the liquor sector. Although the valuation has been repaired, it is still in a low range.

Since the beginning of 2025 (2025/1/1 to 8/29), the CITIC Liquor Index has been +0.1%, outperforming the Shanghai and Shenzhen 300 Index by 14.2 pcts and outperforming Wandequan A by 22.9 pcts. Since this year, the liquor sector has seriously outperformed the market, and there is demand to make up the increase. Currently, the liquor sector's price-earnings ratio (TTM) is 20x, which is in the 13%/8%/16% quantile for 5 years/10 years/since launch, respectively. Although the overall valuation has been fixed to a certain extent, it is still in the low range for more than 3 years. Furthermore, since 2024, shareholder returns of leading liquor companies have been steadily increasing. The dividend rate of leading companies is generally above 65%, continuously increasing the investment safety margin.

Risk factors:

Macro consumer demand falls short of expectations; competition in the liquor industry intensifies; price market performance of core products in the liquor industry falls short of expectations; channel inventory risks in the liquor industry; food consumption recovery falls short of expectations; food safety issues, etc.

Investment Strategy:

The year-on-year growth rate of A-share liquor listed companies in the first half of this year was -0.8%/-1.2% (-10.7%/-15.1% excluding Maowu), and -4.9%/-7.5% in the second quarter (-18.2%/-27.7% excluding Maowu). The pressure was significant. It was mainly affected by a sharp decline in demand for liquor related to banquet-related liquor, which dragged down profitability. Based on factors such as the recovery of the current consumption scenario, the pace of adjustment of leading wine companies, and the status of channel inventory prices, we expect the second half of the year or the stage where most wine companies will report the biggest decline in performance. Considering that the liquor sector has seriously outperformed core indices such as HS300 since this year, and that sector valuations are also in the bottom range for 3 years or more, there is demand to make up the increase, and considering that the trend of gradual recovery is clear in the subsequent period, we are optimistic about the bottom allocation opportunities in the liquor industry.