China Merchants Securities: Liquor adjustments can be moderately optimistic as certainty increases in the middle and late stages

The Zhitong Finance App learned that China Merchants Securities released a research report saying that the uncertainty about liquor is gradually dissipating, and the bottom is moderately optimistic, focusing on individual stocks that have come out of adjustment. Looking ahead to 26H2 to 2027, as inventory is digested and channel pressure is reduced, prices are expected to bottom up, the superposition reporting base declines, the decline in revenue and profit narrows, and the probability of even resuming growth will gradually increase. However, at present, actual sales have not fully recovered; fundamentals are still on the left; the sector does not yet have the conditions for comprehensive restoration. Investment opportunities depend more on the pace of individual stock adjustments. Stock selection returns to the business cycle, and focuses on observing the resonance of the three indicators of terminal sales, channel inventory, and reporting base — sales decide to improve quality, inventory determines the slope of recovery, and the base determines when performance is corrected; sales and inventory have not improved simultaneously by relying on a low base to correct; it is only a phased restoration at the digital level.

The main views of China Merchants Securities are as follows:

26Q2 industry revenue/profit/cash flow was -17%/-21%/-28%, respectively. Deep adjustments have continued for four quarters. Industrial adjustments have entered the middle and late stages, and the pressure on the base has eased markedly since Q3

The 26H1 liquor sector's operating revenue/net profit/cash repayment was 1979.1/730.7/2001.6 billion yuan, respectively, -6.8%/-8.3%/-22.5%; single 26Q2 was 652.7/210.5/75.71 billion yuan, respectively, -17.0%/-21.3%/-28.0% year-on-year. The decline in revenue and profit increased again compared to Q1, and the decline in repayments was close to the poor phase of this round. Excluding Kweichow Moutai, the 26H1 sector had revenue of 105.63 billion yuan, -12.8%; the 26Q2 revenue alone was 27.70 billion yuan, or -29.0% over the same period. Non-Maotai companies were under greater pressure. Shanxi Fenjiu and Luzhou Laojiao took the initiative to step up adjustments in Q2, indicating that the adjustments have spread to major wine companies. Looking ahead to 26Q3-Q4, the industry's performance may still decline year over year, but the decline is expected to gradually narrow as product control, inventory removal, and financial pressure on dealers is released; entering the middle and late stages of the industry is not equivalent to the bottom of the confirmation statement, and it is still necessary to observe whether repayments, contract liabilities, and inventory removal improve simultaneously.

Branch business performance

Only Kweichow Moutai was relatively stable for high-end wines, but the Q2 revenue profit also declined; Wuliangye's apparent high increase was mainly affected by the low base after correction of accounting errors. The net interest rate for a single Q2 was only 12.4%; the decline in Luzhou Laojiao's revenue, profit, and repayments all increased significantly. Under pressure from the entire high-end market, Shanxi Fenjiu took the initiative to increase market adjustments between Bofen and the province, with a single Q2 revenue/profit ratio of -17.7%/-43.1%; regional liquor took the lead in differentiating, welcoming positive revenue and profit growth with Gongjiu and Jinshiyuan Q2, while most companies such as Gujing Gongjiu, Yanghe Co., Ltd., Kouzijiao, and Laobaijijiu are still making deep adjustments. Currently, only Maotai and some regional liquors have taken the lead in stabilizing, and most wine companies are still in the process of bottoming out.

Channel deleveraging continues to deepen, contract debt and repayments weaken at the same time, and channel health continues to improve

At the end of 26Q2, sector contract debt was 32.02 billion yuan, -13.6% year-on-year and -22.1% month-on-month. Dealers' willingness to take the initiative to pay declined, and wine companies also took the initiative to relax payment and task requirements, releasing financial pressure on the channel. Bills receivable and accounts receivable financing amounted to 15.28 billion yuan, +19.7% year-on-year and -53.8% month-on-month. The year-on-year increase was mainly contributed by Wuliangye; most companies such as Kweichow Moutai, Luzhou Laojiao, and Shanxi Fenjiu declined year-on-year. The more accurate judgment is that the industry is gradually reducing financial leverage support for channels. Most wine companies have not set clear quantitative growth targets in 2026. The focus of operations shifts from completing large-scale tasks to channel health, sales improvement, and inventory removal. It should be defined as a year of in-depth industry adjustments and channel clean-up.

Liquor companies control goods to promote sales. Gross sales spreads and net interest rates are generally under pressure, and phased profitability is distorted

The gross sales gap of most 26H1 wine companies was under pressure, and the gross margin of 26Q2 alone improved year-on-year. In terms of gross sales shortfalls, companies that take the initiative to remove inventory need to increase investment in terminal promotion, channel maintenance, and marketing. Companies that take the initiative to remove inventory need to increase investment in terminal promotion and channel maintenance, but current confirmation of related expenses may not be simultaneously converted into revenue. In addition to the fact that current world relationships and Yingjiagong wine are relatively stable in 26Q2, the profitability of the industry is generally under pressure. The year-on-year improvement in Wuliangye's net interest rate mainly comes from a low base after retroactive accounting adjustments. The Q2 net interest rate alone is only 12.4%, and the absolute level is still low.

Risk warning: The economic environment is disrupted, demand falls short of expectations, competition is intensifying, and channels are falling short of expectations.