China Securities Co., Ltd. has released a research report stating that viewing the volume and pricing strategies of premium liquor companies from a counter-cyclical perspective suggests a fundamental inflection point is approaching, presenting a potential bottom-fishing opportunity within a ten-year cycle. The liquor industry's "five-bottom phase" (policy bottom, inventory bottom, sell-through bottom, wholesale price bottom, production and sales bottom) is resonating with the capital market's "three lows and one high" (low expectations, low valuations, low mutual fund holdings, high dividends). Combined with the recent implementation of market strategies and the approaching Spring Festival peak season, the firm believes the inflection point of the current liquor adjustment cycle is near, with capital market expectations leading the way, offering a cyclical bottom allocation opportunity for the liquor sector. The main views of China Securities Co., Ltd. are as follows:
Reviewing 2012-2015: This period was a stress test for premium liquor volumes and prices under the backdrop of the "Three Public Consumptions" ban, with price competition among leaders solidifying the premium brand landscape. Following the introduction of the central government's "Eight Provisions" at the end of 2012, government-related liquor consumption demand plummeted, plunging the entire industry into an adjustment phase. The price war among premium brands and key pricing strategy shifts at the onset of the adjustment period tested brand value resilience, with their impact influencing the volume and pricing strategies of liquor companies throughout the downturn.
Reviewing 2016-2021: This era witnessed the rise of mass consumption and accelerated consumption upgrades, leading to simultaneous volume and price increases for premium liquor. Factors such as the new real estate boom driven by "shantytown renovation monetization" starting late 2015, and abundant liquidity from 2020-2021, boosted household wealth effects and improved corporate profitability. This propelled the liquor industry onto a path of premiumization and consolidation, where renowned brands achieved both volume and price growth driven by the "drink less, but drink better" ethos.
Reviewing 2022-2025: The liquor industry gradually transitioned from a存量 (stock) to a缩量 (contraction) phase. Leading liquor companies achieved performance growth through meticulous market operations, while prices came under pressure from sell-through challenges. Since 2022, macroeconomic indicators like retail sales, CPI, PPI, and real estate investment have gradually weakened. Against the backdrop of shifting economic drivers, liquor demand entered a存量 (stock) phase, further impacted by the new alcohol restrictions implemented in 2025. From 2022-2024, leading companies achieved revenue growth through market expansion and inventory building, before facing a comprehensive slowdown in performance growth by 2025. During this period, the upward price trajectory for premium liquor was blocked, with weak pass-through of price hikes.
Investment Recommendation: The liquor industry's "five-bottom phase" is approaching, making a cyclical inflection point foreseeable. Short-term, unreasonable consumption restriction policies are gradually being relaxed, showing clear marginal improvement. The most pessimistic period for liquor sell-through is likely over, and with PPI showing marginal recovery and domestic demand stimulus measures being implemented, sell-through is expected to bottom out around mid-year. Liquor companies are currently in a phase of performance clearing and channel destocking, generally holding cautious expectations for the Spring Festival and 2026. Coupled with the Spring Festival's "siphon effect," this may accelerate inventory digestion and improve channel health. Medium to long-term, recent adjustments to Moutai's product strategy are hastening the emergence of an industry-wide wholesale price bottom. With i-Moutai acting as a direct sales engine and driving channel marketing transformation, even if Feitian Moutai volumes increase and wholesale prices soften, the deviation from the 1499 yuan price point is expected to be relatively controllable, suggesting the industry's wholesale price bottom is near. Regarding market concerns about future consumer demand, the exit of smaller players, and leading companies pausing capacity expansion, the firm anticipates the industry bottom will be signaled by liquor production falling below 4 million kiloliters in 2025. On the demand side, liquor remains indispensable in specific domestic social contexts. As marketing strategies evolve to better align with "Z Generation" preferences, the fundamental consumer base for liquor remains relatively stable.
The liquor sector exhibits "three lows and one high," highlighting its allocation value. Capital market expectations for the sector have continued to weaken, with negative annualized returns since 2021. Valuations and mutual fund holdings are at low levels, while leading companies are enhancing dividend payouts and market value management, making the sector highly cost-effective for allocation. It stands as one of the few sectors in the market combining low valuations with a nearing inflection point. The sector's current historical valuation percentile is below 15%, indicating valuation bottom support. From a liquidity perspective, the proportion of mutual fund holdings has been consistently declining, with the liquor sector's weighting in mutual fund heavy portfolios at just 5.52% by the end of Q3 2025. Excluding passive funds, active funds' holdings entered an underweight position by Q2 2025, suggesting relatively "clean" sector positioning. Furthermore, listed liquor companies are responding to policy calls, with leading firms committing to dividend ratios and amounts, emphasizing investor returns, and actively participating in market buybacks and major shareholder purchases to stabilize stock prices and market expectations.
Premium liquor serves as a barometer for the industry cycle, and the firm is optimistic about its potential to rebound ahead of the broader sector. Reviewing stock performance during the 2013-2015 adjustment period shows that leading companies were the core indicators of the cycle's bottom, being the first to experience fundamental stabilization and stock price recovery. Looking at the 2026 liquor cycle, recent significant adjustments to operational and product volume/price strategies, alongside cautious New Year expectations, position premium liquor stocks to potentially outperform the industry amid the resonance of the industry's "five-bottom phase" and the capital market's "three lows and one high."
Risk Warning: Demand recovery may fall short of expectations. Recent macroeconomic factors have slowed economic growth and impacted national income; the pace of recovery in household income and consumer purchasing power in the near-to-medium term might be slower than anticipated. Liquor inventory destocking may also lag expectations. The sector is currently in a destocking phase, with companies accepting performance declines to improve channel health. If sell-through recovery is weaker than expected, the timing of the inventory bottom will be delayed, prolonging the industry's cyclical inflection point. Persistent weakness in premium demand will continue to pressure high-end prices. Food safety risks remain a key consumer concern. Although industry players continuously improve quality control, the lengthy supply chain involving numerous entities still poses potential food quality and safety risks.
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