Huatai Securities: Liquor sector undergoes deep correction; mass consumer goods kick off with a strong start

Huatai Securities Research Report states that after 25 years of deep pressure release, the Baijiu sector has built momentum and bottomed out, with Q1 2026 revenue/profit growth rate decline significantly narrowing month-on-month. The frozen food sector shows a bottoming rebound, with strong demand during the peak seasons of 2025/2026, industry competition clearly easing year-on-year, and the net profit margin excluding non-recurring gains and losses attributable to the parent increasing year-on-year in Q1 2026; dairy products performed well during the Spring Festival, with a positive outlook on milk prices stabilizing amid ongoing supply clearing and weak demand recovery; some beverage categories were impacted by takeout price wars in 2025, but profits remained stable after offsetting cost benefits and competitive pressures; beer was under pressure from policies/weather impacts and volume-price constraints in 2025, but is expected to recover during the peak season with a low base; condiment fundamentals stabilized in 2025, with a positive outlook on leading companies gaining market share and reform results materializing; leisure food faced pressure in 2025 due to proactive adjustments by leading companies and the timing mismatch of the Spring Festival, but benefited from the peak season in Q1 2026, achieving a good start.

The full text is as follows

Huatai | Consumer Staples: Deep Adjustment in Baijiu, Mass Market Brands Show Promising Start

Key Points

In 2025 and Q1 2026, sector performance continued to diverge: after 25 years of deep pressure release, the Baijiu sector has built momentum and bottomed out, with Q1 2026 revenue/profit growth rate decline significantly narrowing month-on-month. The frozen food sector shows a bottoming rebound, with strong demand during the peak seasons of 2025/2026, industry competition clearly easing year-on-year, and the net profit margin excluding non-recurring gains and losses attributable to the parent increasing in Q1 2026; dairy products performed well during the Spring Festival, with a positive outlook on milk prices stabilizing amid ongoing supply clearing and weak demand recovery; some beverage categories were impacted by takeout price wars in 2025, but profits remained stable after offsetting cost benefits and competitive pressures; beer was under pressure from policies/weather impacts and volume-price constraints in 2025, but is expected to recover during the peak season with a low base; condiment fundamentals stabilized in 2025, with a positive outlook on leading companies gaining market share and reform results materializing; leisure food faced pressure in 2025 due to proactive adjustments by leading companies and the timing mismatch of the Spring Festival, but benefited from the peak season in Q1 2026, achieving a good start.

Baijiu: Deep pressure release, sector bottoming and building momentum

CS Baijiu sector revenue/attributable net profit/adjusted net profit in 2025 declined by 18.1%/24.1%/24.3%, respectively; in Q4 2025, declines were 29.6%/45.9%/46.8%; in Q1 2026, declines narrowed to 0.7%/1.7%/1.9%. Although the industry continues to adjust, the declines in revenue and profits are much smaller than in 2025. During the Spring Festival 2026, liquor companies focused more on refined channel operations, effectively alleviating inventory backlog and price pressure. The industry is currently in the stage of inventory clearing and bottoming out, awaiting gentle demand recovery.

Frozen Food: Peak season industry competition eases, leading companies’ fundamentals strongly recover

CS frozen food sector revenue/attributable net profit/adjusted net profit in 2025 increased by 1.8%/-9.5%/-11.5%; in Q4 2025, increases were 7.4%/-12.0%/-4.7%; in Q1 2026, increases were 21.9%/+41.0%/+44.5%. Demand during the Spring Festival saw a phased recovery. Industry competition during the peak seasons of 2025/2026 clearly eased, with reduced discount promotions driving strong fundamental recovery for leading companies.

Dairy Products: Good performance during the Spring Festival, profit margins improved in Q1

CS dairy sector revenue/attributable net profit/adjusted net profit in 2025 declined by 0.1%/+26.4%/+77.0%; in Q4 2025, declines were 2.4%, with narrowing losses; in Q1 2026, increases were 4.7%/+10.5%/+11.8%. Revenue during the Spring Festival performed well, mainly due to improved product pricing; on the profit side, continued benefits from raw milk costs and industry competition pressures, with leading dairy companies strictly controlling expenses, resulted in improved profitability in Q1 2026.

Beverages: Resilience in revenue in 2025, profits stable after offsetting cost benefits and competitive pressures

CS soft drink sector revenue/attributable net profit/adjusted net profit in 2025 increased by 11.1%/6.5%/9.4%; in Q4 2025, increases were 2.8%/-25.1%/-17.7%; in Q1 2026, increases were 22.3%/29.9%/31.6%. Soft drinks showed strong revenue resilience in 2025, with profits remaining stable after offsetting cost benefits and competitive pressures. The timing mismatch of the Spring Festival impacted Q4 2025 and Q1 2026 performance for some companies. Expectations are high for the 2026 peak season, with attention to new product performance, cost pressures, and industry competition.

Beer: Weak demand in 2025, optimistic about low-base recovery in peak season 2026

CS beer sector revenue/attributable net profit/adjusted net profit in 2025 increased by 2.0%/16.7%/9.4%; in Q4 2025, increases were 2.1%, with losses reduced; in Q1 2026, increases were 1.0%/6.1%/8.2%. In 2025, beer demand was weak due to sluggish catering sales, with volume-price pressure on leading brands, but cost benefits helped margins improve. In Q1 2026, stable revenue and cost efficiencies drove net profit margin improvements. The low base in 2026’s peak season is expected to boost demand and volume-price growth.

Condiments: Fundamentals stabilized in 2025, leading companies expected to gain market share and benefit from reforms in 2026

CS condiment sector revenue/attributable net profit/adjusted net profit in 2025 increased by 2.7%/3.7%/7.4%; in Q4 2025, increases were 2.4%/-0.3%/12.8%; in Q1 2026, increases were 12.9%/18.3%/17.1%. In 2025, demand on the B-side (business side) was weak due to slow recovery in catering, but leading companies performed better amid stock competition, benefiting from cost advantages and rising profit margins. In Q1 2026, improved catering demand during the Spring Festival, along with the continued positive effects of prior adjustments by leading firms, significantly improved sector operations.

Leisure Food: Channel adjustments in 2025 caused pressure, but category/channel leaders expected to benefit in 2026

CS leisure food sector revenue/adjusted net profit in 2025 declined by 4.8%/48.3%; in Q4 2025, declines were 10.4%/78.7%; in Q1 2026, increases were 9.1%/31.2%. In 2025, due to timing mismatches of the Spring Festival and adjustments by leading companies, revenue was under pressure. Changes in channel structure, rising costs of sunflower seeds, and weakened scale effects led to profit margin declines.

Risk tips: macroeconomic growth falling short of expectations, intensified industry competition, food safety issues.

(Source: First Financial)