CITIC Securities has released a research report stating that the baijiu sector is currently in the late stage of cyclical bottoming and the tail end of clearing, with bottom signals already appearing in prices, inventory, and expectations.
Looking ahead to 2027, the brokerage judges that supply and demand in the baijiu industry are expected to achieve a new equilibrium 鈥?demand is expected to see a weak recovery supported by macroeconomic catalysts and a low base, while supply is expected to contract further but competition will intensify.
Over the long term, the industry is expected to steadily enter a phase of healthy recovery. Although there is still some pressure on the domestic demand side at present, the current valuation has already reflected considerable pessimistic expectations for the industry's medium-to-long-term development. Considering that the baijiu sector now possesses strong dividend value and the potential expectation gap from a future shift in demand expectations, the brokerage recommends increasing allocation to leading liquor companies at the industry bottom.
The main views of CITIC Securities (ASX: 600030) are as follows:
Baijiu is in the late stage of cyclical bottoming and the tail end of clearing. From the beginning of 2026 to date (2026/10/20), the baijiu index (CITIC) fell 12.3%, underperforming the CSI 300 Index by 2.0 percentage points and the Wind All A Index by 3.0 percentage points. Yingjia Gongjiu (+5.8%) was the only baijiu company to record a positive return. The baijiu sector suffered deep mispricing in the first half of the year and significantly underperformed, before recovering somewhat in the third quarter due to liquidity effects.
This round of adjustment in the baijiu industry has lasted more than five years since the peak of prosperity in 2021, and the industry has successively gone through four stages: weakening demand, declining wholesale prices, channel inventory accumulation, and financial statement clearing. From 2026 to date, the baijiu industry has completed the vast majority of clearing across multiple dimensions including prices, inventory, channels, and performance. It is currently in the late stage of bottoming and the tail end of clearing, with bottom signals already appearing in premium liquor wholesale prices, channel inventory, and market expectations.
2027 outlook: Supply and demand are expected to achieve a "new equilibrium." Industry demand is expected to achieve a weak recovery supported by macroeconomic catalysts and a low base: 1) At the macro level, a rebound in production is opening the channel for business recovery, and a policy shift constitutes the largest option; 2) At the industry level, the decline in demand is narrowing quarter by quarter, and the supply-demand mismatch is being digested; 3) At the low base effect level, the financial statement base after consecutive years of clearing has fallen to its lowest in recent years.
Industry supply is expected to contract further but competition will intensify: 1) Leading liquor companies are proactively contracting shipments: shifting from pursuing scale to healthy growth, shipment volumes are expected to remain restrained in 2027; 2) Market share is accelerating toward the top players: industry competition in 2027 will become even more intense.
Dividend floor first, recovery option later. The baijiu sector currently possesses strong dividend value. As of October 20, the dividend yield (TTM) of the baijiu sector is 4.6%, with a spread of +2.97 percentage points over the 10-year government bond yield, at the highest level in history. Leading liquor companies are continuously increasing shareholder returns, which is expected to gradually enhance the investment safety margin of the baijiu sector.
From a relative valuation perspective, the price-to-earnings ratio (TTM) of the CITIC Baijiu Index is 20.1x, having fallen back to the mid-to-long-term bottom range. The current valuation has already reflected considerable pessimistic expectations for the industry's medium-to-long-term prospects, and has gradually priced in the most conservative assumptions of long-term demand shrinkage and a downward shift in the earnings center of liquor companies. However, if domestic demand shows signs of recovery in the future, baijiu, as a consumer asset with prominent pro-cyclical attributes, will see demand elasticity far exceeding the assumption of essentially no growth implied by the current valuation. The sector is expected to have a significant expectation gap and room for recovery.
Beer is experiencing sales volume and cost pressures; it is recommended to appropriately lower expectations. The 2026 peak season for beer has passed. The beer industry maintained a good start in the first quarter, supported by the Chinese New Year timing shift and a temporary stabilization in dining. In the second quarter, affected by the macroeconomic environment, overall performance was relatively weak, with monthly year-on-year growth turning from positive to negative. In the third quarter, under the influence of excessive rainfall, the decline further widened to mid-to-high single digits.
The brokerage expects full-year industry sales volume to decline somewhat, while tonnage prices are expected to remain stable with slight increases overall, driven by leading companies' premiumization strategies. On the profitability side, affected by the decline in production scale, companies are expected to face some pressure on profits. Looking ahead to 2027, the brokerage judges that the industry will remain in a stage of "stable volume, stable prices, and earnings under pressure," and recommends appropriately lowering expectations for the sector while noting the pressure from rising raw material costs such as aluminum and barley.
For excess returns in the industry, two aspects are recommended for attention: first, regional leaders with internal management efficiency improvements, driven by blockbuster products, and rising tonnage prices; second, high-market-share leading companies with sufficient cost lock-in, strict expense discipline, and a low profit base.
Risk factors: Macro consumption demand falling short of expectations; intensified competition in the baijiu and beer industries; market performance of core baijiu products falling short of expectations; risk of high channel inventory; recovery in dining consumption falling short of expectations; food safety issues, etc.
Investment strategy: The baijiu sector is currently in the late stage of cyclical bottoming and the tail end of clearing, with bottom signals already appearing in prices, inventory, and expectations. Looking ahead to 2027, the brokerage judges that supply and demand in the baijiu industry are expected to achieve a new equilibrium 鈥?demand is expected to see a weak recovery supported by macroeconomic catalysts and a low base, while supply is expected to contract further but competition will intensify. Over the long term, the industry is expected to steadily enter a phase of healthy recovery. Although there is still some pressure on the domestic demand side at present, the current valuation has already reflected considerable pessimistic expectations for the industry's medium-to-long-term development. Considering that the baijiu sector now possesses strong dividend value and the potential expectation gap from a future shift in demand expectations, the brokerage recommends increasing allocation to leading liquor companies at the industry bottom. Beer excess returns should mainly seek regional leaders with potential for market share gains and high-market-share leaders. For new alcoholic beverages, attention should be paid to market style and the pace of companies' new product distribution.
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