Next year's demand is expected to continue recovering driven by policies, with companies completing adjustments at the channel end in advance to alleviate pressure, and a stable trend on the cost side, resulting in further improvement in the performance of consumer goods.
Zhituo Finance APP has reported that China Merchants published a research report stating that the CSI SWS Food & Beverage index has recently welcomed a round of overall valuation repair. With the gradual arrival of performance turning points, sentiment can be more optimistic next year. It is recommended to pay more attention to symbols with low current valuations that have a certain safety cushion and are expected to increase dividends, as there is greater rebound potential in the valuation repair of the sector. Demand for consumer goods next year is expected to continue recovering driven by policies, with companies completing adjustments at the channel end in advance to alleviate pressure, and a stable trend on the cost side allowing performance to improve further. From a valuation perspective, the consumer goods sector has seen a rapid short-term recovery, but is still generally at a low range for nearly a decade. With trends of performance improvement and enhanced shareholder returns, there is room for valuations to continue recovering upwards.
The main points of China Merchants Securities are as follows:
The sector has recently welcomed a round of overall valuation repair, and with the gradual arrival of performance turning points, sentiment can be more optimistic next year.
Looking at the Baijiu sector, the white liquor channel is currently transitioning from a leveraging phase to a de-leveraging phase, with channel inventory expected to gradually clear. At a point where leading companies have low valuations, expectations have been downgraded, and cash dividend returns are attractive, stock prices are likely to lead earnings to bottom out. In 2025, attention should be paid to the recovery of business demand stimulated by policies, with high-end Baijiu expected to benefit first and achieve simultaneous increases in volume and price, while mid-range Baijiu is more resilient.
The consumer goods sector completed destocking ahead of schedule this year, laying the groundwork for growth in the next year, with the Dairy Product, Condiment, and other sectors entering an improvement cycle. Leading companies stabilized first, driving performance recovery and profit upgrades, while sub-sectors such as beverages, snacks, health products, and the Dining supply chain still have ample growth momentum.
It is recommended to pay more attention to symbols with low current valuations that have a certain safety cushion and are expected to increase dividends, as there is greater rebound potential in the valuation repair of the sector.
Baijiu (Chinese Liquor) Sector: Clearing channel burdens may lead the stock price turnaround ahead of the performance turnaround.
The continuous decline in Dealer profitability has led to a lack of reinvestment willingness. From the data on corporate accounts receivable (financing support repayments), a turning point appeared in 24Q3, with channels entering a deleveraging phase. It is expected that by 2025, the discrepancy between actual sales and reported figures will converge, and the industry will enter a genuine sales-driven inventory destocking phase. Reviewing the last round of Baijiu adjustment from 2012 to 2014, stock prices typically lead performance lows by 2-3 quarters and usually perform reasonably well during channel deleveraging.
In this round of cycle, the inventory ratio peak is only half of the last round cycle, and the distilleries have stronger control over channels, suggesting that the intensity of this adjustment will be lower. From the supply side in 2025, distilleries have expressed a cautious attitude, and contraction will be the main theme for 2025.
On the demand side, the rebound in business demand driven by policy will be a core investment point for 2025, with high-end liquor expected to lead. Currently, the valuation of the Baijiu sector is at the 13th percentile of the past decade, with leading companies offering dividend yields above 3% and 4%, providing a sufficient margin of safety. The institutional holdings of leading Baijiu stocks have also dropped to the lowest level in nearly three years, and with low expectations and low attention, the expected difference is likely to manifest.
Consumer Goods Sector: Performance recovery, shifting from defense to offense.
From an industrial trend perspective, demand differentiation exists at different market levels, with some high-end consumption demands in top-tier cities being rigid and showing a concentration trend. It is advisable to embrace demand-led leaders, while mass consumption in top-tier cities needs to find incremental tracks; in lower-tier markets, the impact on total consumption remains limited, and the trend towards branding persists. Consumers are willing to pay for sufficiently differentiated products, thus capturing the phase of quality supply sinking and the expansion phase corresponding to supply chain transformation.
Next year, demand is expected to continue recovering driven by policy, with enterprises completing adjustments in channels in advance to alleviate pressure. Cost trends remain stable, and consumer goods performance is expected to improve further. In terms of valuation, the consumer goods sector is experiencing a rapid short-term recovery but remains at low percentiles over the past decade. Holdings are also low, and with trends in performance enhancement and shareholder return improvement, there is still room for valuation to continue upward repair.
Investment recommendation:
1) Baijiu Sector: In terms of investment rhythm, the sector valuation is anchored by Kweichow Moutai. In the first half of the year, during the Spring Festival peak season, focus on brands with strong sales and stable prices. Recommend Wuliangye Yibin (000858.SZ) in the strong sales segment priced at around 1,000 yuan, as it is the first peak season after policy stimulus verification during the two holidays. Recommendations include Luzhou Laojiao (000568.SZ), which has sufficient adjustments to expectations and greater potential for improvement after a rebound in business demand. Also recommended is Shanxi Xinghuacun Fen Wine Factory (600809.SH), which has eased pressure on main products and approaches a healthier channel, alongside Jiangsu King's Luck Brewery Joint-Stock (603369.SH), which is still in an expansion cycle, and the steadily improving operational efficiency and solid competitive position of Laobai Gan (600559.SH).
2) Consumer Goods Sector: Avoid the industry where price competition will remain intense in the coming years. Select individual stocks, recommending leading NONGFU SPRING (09633) with hopes for an improved competitive landscape, CHINA FEIHE (06186) which has exited the cycle early and achieved performance improvement, as well as Chongqing Fuling Zhacai Group (002507.SZ), Ganyuan Foods (002991.SZ), and Jinzai Food Group (003000.SZ). Additionally, recommend Jonjee Hi-Tech Industrial And Commercial Holding (600872.SH) and Tsingtao Brewery (600600.SH) where dining demand is expected to improve.
Risk Warning: Demand recovery may be worse than expected, competition in the industry may intensify, costs may rise, and there may be discrepancies between channel research and actual conditions.
