Is the baijiu industry recovering? Sales during the double festivals may drop by over 20%. Institutions claim the 'bottom of the holding cycle' has already appeared in this round.

Cailian News, September 28 (Edited by Zhai Zhehao): Over the weekend, the market received another significant positive development as economic data improved and industrial enterprises’ profits rose sharply.

On September 27, the National Bureau of Statistics released data showing that from January to August, large-scale industrial enterprises nationwide achieved a total profit of 4,692.97 billion yuan, representing a year-on-year increase of 0.9%. In August, profits of large-scale industrial enterprises turned from a year-on-year decrease of 1.5% in the previous month to an increase of 20.4%.

Shenwan Hongyuan Macro Zhao Wei’s team noted in their interpretation of economic data that the profit recovery in individual industries had a significant impact on this month’s overall profits. In August, the profit growth rate of the alcohol and beverage sector surged significantly (+234.8pct to 226.8%), with a single industry’s profit contributing to a 7.8pct increase in industrial enterprises' profits, reaching 7.6%.

As the “Mid-Autumn Festival-National Day” double holiday approached, alcohol companies and distributors made arrangements for product sales in August. Some distributors reported a noticeable improvement in product shipments in August this year. Similarly, Kweichow Maotai, the leading company, has been sending out signals of recovery: at the company’s half-year earnings briefing held on September 12, Director Wang Li stated that terminal sales improved in August compared to June and July, and since the end of August, there has been a significant month-on-month increase in terminal sales, indicating a potentially more favorable market outlook; on September 25, Kweichow Maotai published an article on its WeChat official account stating that terminal sales of Maotai products doubled month-on-month in September, with a year-on-year increase of 20%.

Although there have been consecutive signs of recovery, the industry believes that the liquor sector still needs to find its bottom.

Distributors from five provinces—Anhui, Jiangsu, Shanxi, Sichuan, and Zhejiang—reported expectations of a decline in sales during the Mid-Autumn Festival and National Day holidays within the range of 20%-30%+. The reason behind Maotai’s 20% year-on-year increase in September sales volume may be due to a significant drop in the price of Feitian Maotai: on September 21, the wholesale price of single bottles of Feitian Maotai fell below earlier support levels to 1,755 yuan, confirming further that peak season demand was weak. The continued decline in wholesale prices reflects weaker-than-expected recovery in actual terminal demand.

A Minsheng Securities research report pointed out that current sales are gradually moving away from the worst point, but have yet to return to previous levels. It is expected that there will still be a double-digit decline during this year’s Mid-Autumn Festival and National Day peak season, and the market has already formed certain expectations regarding this.

The Guotai Haitong Zi Meng team stated that the overall sales of liquor during the Mid-Autumn Festival and National Day holidays in 2025 could decline by over 20%, and considering the year-on-year decline in wholesale prices, the drop in sales revenue is expected to exceed the decline in sales volume.

Analysts widely believe that it is now clear that this year's liquor sales during the “double festival” season will not meet expectations for a strong peak season. Market attention has shifted to whether Q3 financial results can fully reflect performance, thereby providing a clearer valuation bottom for the sector.

When the bottom of the liquor sector will come and how it will perform after reaching the bottom have become the most pressing questions for investors.

Reviewing previous cycles of the liquor industry, it becomes evident that the core driver for the sector to emerge from adjustments has always been a policy shift coupled with economic recovery. In November 2008, the RMB 4 trillion stimulus package led to a simultaneous market and industry bottom; in 2015, monetary compensation for urban housing renovation spurred economic recovery, which was followed by improvement in the liquor sales dynamics; in October 2018, a policy-driven bottom emerged, with credit and consumption rebounding quickly in the first quarter of the following year, while liquor stock prices also bounced back ahead of time. This demonstrates that baijiu is a typical pro-cyclical product—fundamentals recover only when the economy improves, but stock prices often bottom out before earnings do.

A research report from Zhejiang Securities highlights a strong correlation between the liquor index and the Producer Price Index (PPI). It emphasizes the significance of the turning point signaled by the end of eight consecutive months of PPI decline in August, predicting that Q3 2025 may see a dual bottom in earnings expectations and Maotai wholesale prices, offering a window for strategic allocation. Guohai Securities believes that although a certain period of time will be needed to repair the impact of the alcohol ban reversal, the worst phase for the industry’s fundamentals has passed. This year’s financial statements continue to reflect a clearing-out trend, drawing attention to configuration opportunities arising from a sector bottom recovery.

The Huachuang Food & Beverage team points out that the current market position in the liquor sector has dropped to 2016 levels, indicating that a “positioning bottom” has already appeared. Additionally, after leading liquor companies increased dividends and implemented share buybacks, shareholder returns have become attractive to insurance funds. Moreover, ETF inflows have provided support to index-weighted stocks. Both the “valuation bottom” and “positioning bottom” of this cycle have now materialized.