Shenwan Hongyuan Group Co., Ltd. has released a research report stating that after a five-year adjustment period from 2021 to 2025, the firm is optimistic about a systemic recovery opportunity for the food and beverage industry in 2026. The key external indicator is the Consumer Price Index (CPI), with the core focus areas being pro-cyclical baijiu and the dining supply chain.
Judging by the fundamental performance and stock price movements year-to-date, the price of Moutai has stabilized and rebounded, validating that the baijiu sector's fundamentals have bottomed out. However, stock price performance has fallen short of expectations. In contrast, the mass-market food and dining supply chain segment has shown a clear recovery, with leading companies performing well, which supports this view.
Key Perspectives on Baijiu
Based on first-quarter fundamental performance, Feitian Moutai saw significant sales growth during the Spring Festival, with wholesale prices remaining robust post-holiday and direct price increases implemented. The industry as a whole is destocking, with prices finding a bottom, indicating clear bottoming characteristics.
Looking ahead to the second half of 2026, a reversal is anticipated in both sales and financial reporting by the third quarter of 2026. The direction of industry demand recovery is certain, but the strength and pace of the rebound remain uncertain. Recovery timing and magnitude will vary across brands, primarily depending on the pace of individual corporate adjustments, the extent of inventory clearance, and future alpha-generating capabilities.
The industry's future trend points towards consolidation amidst volume contraction, shifting from 'big fish eating small fish' to 'big fish eating big fish.' Significant differentiation among listed companies is inevitable. Despite an overall volume decline, leading firms that endure will still have room for growth. If fundamentals recover as expected, the industry is poised for a dual boost from valuation and earnings between late 2026 and early 2027. High-quality baijiu stocks are currently in a strategic allocation period.
Key recommendations include: Kweichow Moutai Co., Ltd., Luzhou Laojiao Co., Ltd., Shanxi Xinghuacun Fen Wine Factory Co., Ltd., Jinhuijiu Co., Ltd., Yingjia Distillery Co., Ltd., and Jinshiyuan Liquor Co., Ltd.
Key Perspectives on Mass-Market Food Products
Sub-sectors within the mass-market food industry are already showing structural improvement. Corporate competition is shifting from price to quality, industry supply and demand are gradually balancing, raw material cost pressures are being passed downstream, and food CPI is expected to improve quarter by quarter.
Companies with pro-cyclical attributes, currently at low valuations, and possessing medium to long-term growth potential are poised for recovery.
Looking towards the second half of the year, the food processing sector is expected to continue its trend of differentiated recovery, with leading companies outperforming. Continued optimism is held for pro-cyclical segments within the dining supply chain (such as seasonings and pre-processed foods), dairy products, and select high-growth snack stocks.
Key recommendations include: Anjoy Foods Group Co., Ltd. (A/H shares), Foshan Haitian Flavouring & Food Company Ltd. (H shares), Inner Mongolia Yili Industrial Group Co., Ltd., New Hope Dairy Co., Ltd., Yanjin Shop Food Co., Ltd., and Teway Food Group Co., Ltd. Companies to watch include: Youran Dairy Group Ltd., China Modern Dairy Holdings Ltd., Beijing Sanyuan Foods Co., Ltd., WH Group Limited, and Dongpeng Beverages Co., Ltd.
Risk warnings include: food safety incidents; economic downturn risks; and rising raw material costs.
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