Zhixun Finance and Economics App learned that China Merchants Securities issued a research report stating that it maintains a "recommended" rating for the food and beverage industry, given the continuous policy stimulus and enterprise supply-side adjustments, the future sector improvement potential is higher than the current performance. The bank stated that baijiu sales still declined year-on-year after the double festivals, high-end liquor prices have dropped slightly, leading brands are pushing down to gain market share, real estate liquor strong companies completed full-year receipts, but channel inventory has significantly increased. Looking ahead to the 2025 Spring Festival, baijiu dealers' expectations are generally low, with a year-on-year decline expected to be in the single to double digits. Food sector focuses on the winter and the upcoming Spring Festival, changes in the dining supply chain demand, mainstream manufacturers made rational shipments in the third quarter, channel inventory maintained healthy operation, burden is relatively light, but price competition continues.

The main points of China Merchants Securities are as follows:

Weak expectations for incremental demand in the industry, Sugar & Liquor Expo commercial functions are weakened. The overall atmosphere of the Autumn Sugar Expo is quiet, with significantly fewer hotel booth setups and attendees than in previous years. The majority of liquor enterprise leaders and dealers did not attend, reflecting a pessimistic outlook on incremental demand from manufacturers and dealers weakening the functions of the Sugar & Liquor Expo.

Baijiu Sector: Sales did not significantly improve after the double festivals, meeting earlier expectations, with channels not expecting high sales for the Spring Festival.

Feedback from dealers' surveys shows that overall market sales post-double festivals are still declining year-on-year with no signs of improvement. High-end liquor prices continue to decline, commercial demand is relatively weak, leading brands are expanding downwards to gain market share, squeezing out the mid-tier brands, especially in the 500-800 yuan price range. The 300-500 yuan price range is relatively less affected, with some popular products such as Jiannanchun, Fen 20, and Tian Niang No. 8, still maintaining stable or slightly decreasing sales volume while keeping prices relatively stable. Strong real estate alcohol companies like Gujing and Jiangsu King's Luck have relatively smooth receipts but inventory levels have noticeably increased, especially some terminal stores are currently at historically high inventory levels. Looking towards year-end and the opening of the 2025 Spring Festival season, dealers generally believe that the situation will not significantly improve from the current state, with an expected year-on-year decline in Spring Festival sales in 2024 in the single to double digits.

Food Sector: Rational shipments from manufacturers, relatively healthy channel inventory for food products, but price competition continues.

Overall demand in the channel feedback is weak, but there are still structural opportunities in sub-sectors such as snacks and beverages regarding channels and categories. Approaching the winter season and the peak season of the Spring Festival, combined with the recent dining coupon stimulus, attention is focused on the changes in demand in the dining supply chain for condiments, frozen food, and others. From the supply side, food shipments in the third quarter are generally rational, basically consistent with actual sales, with relatively light channel inventory burdens to welcome the peak season of the Spring Festival. Haitian inventory remains stable, with expectations of further decline by the end of the year; pickled vegetable inventory is less than 1.5 months, and the core single product inventory of beverages (except for bottled water) and liquid milk are also at healthy levels. However, price competition remains severe, with basic condiment costs increasing in the dining and residential channels this year, and no significant easing seen in the packaged water price war. Core single products of liquid milk such as Golden Farmers and Telunsu still face downward pressure.

Investment recommendation: Improvement potential is more significant than the present, and policy stimulus continues to drive reversal.

This week's Sugar and Liquor Expo feedback was relatively flat, with no significant improvement in sales, industry expectations remaining low. However, with continued policy stimulus and adjustments on the supply side of enterprises, the sector's potential for improvement exceeds current performance. The bank continues to be bullish on three main themes:

1) There are expectations for improvement in high-end consumption, with high-end liquor prices such as Moutai expected to stabilize and rise.

2) Business consumption is expected to recover, driving improvements in the dining supply chain demand on a month-on-month basis.

3) Possible population policies to support the stabilization of birth rates, leading to upward revisions in mid-term profit forecasts for industries such as infant formula.

Specifically, recommend high-end baijiu (Guizhou Moutai, Wuliangye Yibin, Luzhou Laojiao), as well as mid to high-end upgrade baijiu (Shanxi Xinghuacun Fen Wine Factory, Anhui Gujing Distillery, Jiangsu King's Luck Brewery Joint-Stock, Sichuan Swellfun). For the food sector, continue to recommend leading infant formula company China Feihe, operations in the dining supply chain Jonjee Hi-Tech Industrial and Commercial Holding, Tsingtao Brew, as well as growth targets Sirio Pharma, Jinzai Food Group, and Ganyuan Foods. Keep an eye on the valuation decline of the beverage leader Nongfu Spring in the Hong Kong stock market, and the dairy leader Mengniu Dairy.

Risk Warning: Economic environment disturbances, lower-than-expected demand, rising costs, increased competition.