According to the Zhixin Finance app, CITIC Securities released a research report stating that the Q2 light meal chain industry continues to exhibit weak demand, with pressure on store efficiency and expansion. Looking ahead for the full year, the bank believes that the future revenue performance of light meal chain enterprises depends on the recovery of the catering industry, with a focus on the inflection point of store efficiency for each enterprise. On the profit side, benefiting from the decline in costs such as duck by-products and beef, the bank judges that the gross profit of Q2 light meal chain enterprises has generally improved, but attention still needs to be paid to each enterprise's cost strategy in the background of intensified competition. Although the fundamentals of the food and beverage & liquor sector in 2024 Q2 are under pressure and the pace of recovery remains uncertain, the current pessimistic factors in the sector have been largely reflected and valuations have generally fallen to historically low levels, taking into account performance expectations and valuation levels.

1) Liquor: It is recommended to increase allocation to advantageous branded liquor companies after the valuation has fallen to a low level; at the same time, pay attention to economic changes and pricing trends, and dynamically allocate liquor companies with effective operation terminals and good sales performance.

2) Mass-market products: Three main lines: ① Independent growth line; ② High dividend yield; ③ Valuation with safety margin, but slightly pressured in the short term in terms of fundamentals.

The main points of the Citic Securities research report are as follows:

Baijiu: The overall Q2 market is weak, with a stable outlook for the Mid-Autumn Festival and National Day.

As a leading retail company in the baijiu market, Huazhi Liquor Chain Store reflects the characteristics of weak sales in the baijiu market, achieving revenue/net income of 1.81/0.01 billion yuan (-14.8%/-49.1%) in 2024 Q2. Amidst a challenging industry environment, the intensity of competition between price segments and regions has increased, putting more strain on the company's brand strength, organizational capacity, and product power. In the short term, the capital markets and the dealer side have stable expectations. According to today's JiuJia WeChat public account, on August 24, 2024, the prices of Maotai/Wuliangye/Qinghua 20 were 2425/960/375 yuan, which remained stable or slightly decreased compared to the previous week.

Beer: Q2 is the pressure point for the whole year, and the sector is expected to see a short-term turning point.

In 2024 H1, ABInBev China/China Resources Beer/Chongqing Brewery/Beijing Yanjing Brewery/Guangzhou Zhujiang Brewery achieved income growth of -13.0%/-0.5%/+4.2%/+5.5%/+7.7% (volume year-on-year -8.5%/-3.4%/+3.3%/+0.7%/+1.4%; price year-on-year -4.9%/+2.0%/+0.3%/+3.9%/+6.7%). Looking only at the second quarter, the bank believes that there are three reasons for the weak performance of the industry. ①Weather: Considering the abundant rainfall in the Yangtze River and areas south of the Yangtze River in the second quarter of China, overall sales performance was poor (industry production volume year-on-year -3.6% in 2024 Q2); ②Scenarios: Beer consumption in non-on-premise scenarios continued to grow, but there was significant pressure from the dining channel and night-time scenes, resulting in average product performance; ③Higher base from the same period in 2023 (industry production volume year-on-year +4.6% in 2023 Q2). Looking ahead to the second half of the year, the beer industry will gradually enter the low base range, coupled with the decline in raw material costs and improved weather conditions, there is a greater possibility of improvement.

Dairy Products: 2024 Q2 may be the low point of the year, with short-term weak terminal demand, but upstream capacity has been gradually exiting.

In 2024 Q2, under the pressure of reducing channel inventory, excessive supply of raw milk, weak terminal demand, and increased promotion efforts, we believe that the fundamentals of each dairy company are under significant pressure. Since H2, channel inventory has gradually returned to healthy levels, and since Q1 2024, upstream raw milk production capacity has continued to decrease. The fundamentals of dairy companies may improve quarter by quarter. Considering that downstream demand for dairy products is still under pressure, the bank believes that there will still be a gap in year-on-year revenue and profit for dairy companies in H2, but the gap may narrow on a quarter-on-quarter basis.

Seasonings: Short-term demand is weak & competition is intense, and cost improvement is driving profit improvement, grasp the differentiation logic of each enterprise.

In 2024 Q2, the downstream demand for seasonings is weak, with high pressure from previous channel inventory and intense competition. At the same time, in order to catch up with the annual target, each enterprise maintains a high level of investment in expenses, resulting in increased competition. Therefore, the bank believes that Q2 revenue growth of seasoning companies is generally under pressure. It is expected that zero-additive series of seasonings will still perform relatively well due to the trend of healthiness. The profit side will benefit from the decrease in prices of raw materials such as soybeans, and it is expected that the gross margin will improve. However, considering the significant differences in expense investment, the final improvement in profitability for each enterprise may vary.

Catering Supply Chain: Short-term demand is flat & cost improvement, leading enterprises actively respond, expecting improvement.

In 2024 Q2, due to weak consumption in the small B catering segment, small B clients have put pressure on supply chain companies for profitability, and most raw material prices such as poultry are at low levels, which is favorable for improving gross margins. With reference to the leading enterprise Anjoy Foods, its Q2 revenue increased by 2.3% year-on-year (main business increased by about 10%), and its net profit attributable to shareholders decreased by 2.5% year-on-year. It is expected that the performance of the sector in Q2 will be generally flat. Currently, leading enterprises are still actively seeking incremental growth and competing for market share through expanding products and channels, demonstrating resilience in performance.

Q2 demand for the light catering chain continues to be under pressure, focusing on the turning point of store efficiency.

In Q2, the light catering chain industry continued to experience weak demand, with pressure on store efficiency and expansion. Looking ahead for the whole year, the industry believes that the subsequent revenue performance of light catering chain companies will depend on the recovery of the catering industry, with a core focus on the turning point of store efficiency. In terms of profitability, benefiting from the cost reduction of duck by-products, beef, and others, it is believed that the gross margin of Q2 light catering chain companies has generally improved, but attention still needs to be paid to the cost investment strategies of various companies under the backdrop of intensified competition. Currently, the industry is in a weak state, and it is recommended to pay attention to Juewei Food Co., Ltd, which has a greater potential for short-term valuation correction.

Snacks: Growth is expected to slow down month-on-month, focusing on snack companies with major single products.

In Q2, snacks targeted for channel and cost dividends continue to maintain a growth trend, but the growth rate of revenue is slowing down. It is expected that in H2 and next year, snack companies benefiting from channel dividends will still maintain a growth trend, but the growth rate may gradually decline.

Beverages: The industry is under pressure in Q2, but sales have improved since July, and the overall cost situation is favorable. The focus is on industry competition.

Due to more rainfall in the Yangtze River and the southern region in Q2, sales of beverage companies have been negatively affected, especially in June when beverage companies generally had weak sales and accumulated inventory. Since July, with the improvement of weather conditions, industry growth is expected to accelerate. In terms of costs, PET and sugar prices have decreased compared to the same period last year, which benefits the net income growth of companies. However, with the improvement of weather conditions in July, beverage companies are focusing more on terminal resource acquisition and discount promotions. Currently, there is intense price competition in the bottled water, sugar-free tea, and other sectors. Therefore, it is necessary to pay special attention to the impact of industry competition on sales and cost investment of companies.

Investment strategy:

Declining consumer sentiment; sales of baijiu (Chinese liquor) not meeting expectations; policy introduction, execution progress, or effects not meeting expectations; slow recovery of the dining industry; less effective price increases; intensified industry competition; unexpected impact from emerging channels; continuous rise in raw material prices; food safety issues.