According to the Securities Times app, Huachuang Securities released a research report stating that the overall bottom of the food and beverage industry is firmly established, with the direction of marginal improvement already clear. With the significant decline in valuations in the first three quarters of this year, the sector has established its bottom. Looking ahead to next year at the current point in time, listed companies in the condiment, dairy, beer, baijiu, and other sectors are expected to gradually clear inventory and financial risks starting in 2024, with each sub-industry likely to move from inventory clearance to replenishment in 2025, driven by economies of scale to enter a period of profit forecast upgrades. In addition, B-end supply chain companies related to dining may directly benefit from macro stimulus policies such as dining consumption vouchers, with these companies expected to see a turnaround from low expectations after significant adjustments.

Huachuang Securities' main views are as follows:

Baijiu: Valuations expected to bottom out in 2024 and rise, with industry expectations bottoming out in 2025.

In terms of industry cycle stages, it is determined that the first half of 2025 is still in the liquidation phase, with the industry expected to reach a bottom in the mid-year, with two key indicators being Maotai ex-factory price expectations and top liquor companies' profit expectations. From the ex-factory price perspective, the industry will still be in a destocking phase next year, with the Maotai ex-factory price expected to continue to decline towards the bottom, but considering Maotai's diversified channels and improved management capabilities and quantifying from the bottom of the ex-factory price in the previous cycle fitting with M2, per capita disposable income, and other indicators over a ten-year compound calculation, it is determined that this round of Maotai ex-factory price bottom should be around 2000 yuan, with the rhythm expected to stabilize and fluctuate after the Q2 off-season following the Spring Festival, while also recommending a focus on Maotai's old liquor ex-factory price, which may stabilize and rise first due to its lower inventory, becoming an early observation indicator.

On the aspect of liquor company profit expectations, the industry pressure in 2024 has been transmitted from off-balance sheet to on-balance sheet, unburdening is the premise of moving towards new paths, and the decline in the profit statement marks the later stage of the baijiu cycle adjustment, with baijiu companies in 2025 expected to target a more practical slowdown, and with the transmission and gradual effectiveness of macro policies, it is expected that after a clear downward revision in profit expectations in the first half of 2025, the deterioration will no longer occur, ushering in a profit expectation bottom.

Combining experiences from the previous baijiu cycles, valuations bottomed out in mid-2014, industry expectations bottomed out in mid-2015, and fundamentals (ex-factory prices and performance) accelerated in 2016. In terms of industry structure, strong dominance remains in various price segments and regions, with high confidence in profit targets, including Maotai, Wuliangye, and other well-established brands, while other liquor companies are brewing new opportunities amidst adjustments, with strong management capabilities like Luzhou Laojiao and strong brand power like Fenjiu potentially leading the adjustment charge.

Mainstream products: dairy, condiments, and yeast have reached the right side, with beer clearing at the bottom.

The three stages of mainstream product dilemma reversal: the first stage is inventory clearance, financial report pressure relief, although demand is still under pressure, but profit margins have improved; the second stage awaits demand recovery, accelerating revenue growth; the third stage optimistically anticipates strong demand driving supply shortages, upstream costs rising, catalyzing downstream price increases.

Industry structure determines the speed of clearance. The leading condiment giant, Foshan Haitian, and Angel Yeast have already cleared in the first half of the year, leading the cycle upwards. The dairy industry with a duopoly structure accelerated clearance in the second quarter, with a clear improvement trend from the third quarter onwards. Meanwhile, the beer industry leader in an oligopoly structure also increased investment and accelerated inventory digestion in the second half of the year, poised to enter 2025 with low inventory and a low base.

Furthermore, B-end supply chain companies related to dining are not affected by inventory cycles, with demand recovery quickly transmitted. Companies in frozen foods, seasonings, etc., are expected to experience a reversal elasticity from a low base. Also, focus on Bairun whisky's new products.

Investment advice

Treasure the certainty window for leading companies and select high-elasticity products for the dilemma reversal. At present, investing in food and beverage is similar to configuring 'call options': dividend yield provides sufficient safety margin, macro stability consolidates the bottom, the return space comes from the valuation increase in a loose liquidity environment, and policy transmission to demand recovery. Leading companies with outstanding long-term business attributes and competitive strength are in a rare certainty window for configuration. Looking at the market's incremental fund structure, ETF inflows will directly benefit baijiu (Chinese liquor) - Kweichow Moutai, Wuliangye Yibin, Luzhou Laojiao, as well as Yili, Haitian and other heavyweight stocks.

Regarding specific symbols selection

Baijiu: Configuring certainty with Moutai, Wuliangye, and Luzhou, selecting Luzhou Laojiao for the reversal elasticity.

From the perspective of determining profit targets, the top choice at the bottom are kweichow moutai (600519.SH) and wuliangye yibin (000858.SZ), as well as anhui gujing distillery (000596.SZ) expected to maintain double-digit growth next year. From a rebound perspective, luzhou laojiao (000568.SZ), shanxi xinghuacun fen wine factory (600809.SH), and jiangsu king's luck brewery joint-stock (603369.SH) are preferred, with attention to zjld (06979).

Mainstream Brands: Embrace the dairy industry, beer and yeast, closely monitor the reversal and Bai Run's new product elasticity in the catering supply sector.

Combining the mid-term inventory cycle and the micro-operational cycle, the dairy industry is packaged and configured with the leading players inner mongolia yili industrial group (600887.SH) and mengniu dairy (02319), with a focus on new hope dairy (002946.SZ); at the bottom of the beer sector, Qingdao Beer (600600.SH) and China Resources Beer (00291) are strongly recommended; leading yeast company angel yeast co.,ltd. (600298.SH) will bid farewell to the consolidation peak, usher in a period of cost decline, with a clear trend improvement expected in the next 1-2 years. In addition, in the B-side catering supply sector with elastic opportunities, Bao Li Food (603170.SH) is preferred, focusing on Ligao Food (300973.SZ), Juewei Food Co., Ltd. (603517.SH), and paying close attention to Shanghai Bairun Investment Holding Group (002568.SZ) and the market feedback for the new whisky product.

Continuously strategically recommend Dongpeng Beverage (605499.SH), Nongfu Spring (09633), foshan haitian flavouring and food (603288.SH), and anjoy foods group (603345.SH), with a focus on Jonjee Hi-Tech Industrial and Commercial Holding (600872.SH) and Sirio Pharma (300791.SZ).

Risk Warning: Macroeconomic policy implementation falling short of expectations, terminal demand falling short of expectations, intensifying industry competition, etc.