Zhong Tong Finance APP learned from Debon Securities' research report that Kweichow Moutai (600519.SH) released its interim results this week, with revenue of RMB 36.155 billion in Q2 2024, an YoY increase of 17.31%, and net income attributable to shareholders of RMB 17.63 billion, an YoY increase of 16.10%, better than previously expected. The company plans to increase its dividend payout ratio to 75% from 2024 to 2026. The dividend will be paid twice a year in principle, which is conducive to stabilizing dividend expectations. In addition, the long-term logic of various mass-market sectors remains unchanged, and it is recommended to focus on stocks that exceed performance expectations.

Baijiu: Promoting consumption policies and interim results catalyze each other, bullish on the value rebound of food and beverage. This week, Kweichow Moutai released its interim results, with revenue of RMB 36.155 billion in Q2 2024, an YoY increase of 17.31%, and net income attribution to shareholders of RMB 17.63 billion, an YoY increase of 16.10%, better than previously expected. The company plans to raise the dividend payout ratio of Kweichow Moutai to 75% from 2024 to 2026. The dividend will be paid twice a year in principle, which is conducive to stabilizing dividend expectations. With the implementation of the consumption promotion policy and the continued disclosure of interim reports, the valuation is expected to rise periodically. It is recommended to focus on Wuliangye, Kweichow Moutai, Laobaigan liquor, etc.

Beer: High certainty of cost improvement, upgrading of the structure remains the main theme. In June 2024, the output of beer in enterprises above designated size in China decreased by 1.7% YoY to 4.11 million kiloliters. The cumulative output from January to June increased by 0.1% YoY. The hot weather came relatively early this summer in China and it occurred frequently across the country. Meanwhile, benefiting from large sports events and other consumption scenarios, beer sales are expected to usher in the peak season, and the main theme of upgrading and improving the efficiency of the industry as a whole remains unchanged this year. Meanwhile, the continuous recovery of consumption scenarios such as catering and nightlife is expected to accelerate the development of high-end. In terms of costs, the termination of the policy of imposing tariffs on Australian malt is expected to ease the cost pressure on various beer companies. The benefit of the current downward trend of barley prices has not been fully reflected in the financial reports, and it is expected that there is still room for cost improvement in 2024. The direction of the industry's high-end development is clear. It is expected that the high-end and large single products of major beer companies will drive steady growth in ton price, and it is recommended to focus on high-quality leading stocks supported by fundamentals.

Condiments: Reform continues, and attention is paid to the improvement. In 2023 the performance of condiments was under overall pressure. One is due to the slow recovery of terminal demand, and the other is due to changes in demand structure. High cost performance has become the main demand line, and fragmented channels are seizing market share. In response to changes in the macro-environment, leading companies have embarked on reforms from different perspectives: a) Haitian Flavouring and Food is accelerating reforms in areas such as products, channels, supply chains, and internal management. It has entered the 三五 Plan in 2024, and the company's operating performance is expected to improve; b) Within Jonjee Hi-Tech Industrial and Commercial Holding, internal management has significantly improved, senior executives of China Resources Holdings were introduced, business processes were sorted and reformed, performance management of the supply chain was optimized to accelerate the company's market-oriented management reform; c) Qianhe Condiment and Food accurately position themselves in the zero-addition subdivision track, and enjoy the dividends of market expansion; d) Sichuan Teway Food Group acquired Food Surprise, filled the gaps of online small B channels, expanded the small B product matrix, and opened the second growth curve. Since the beginning of the year, the trend of the recovery of terminal demand has continued. Looking forward to the whole year, the low base number advantage may be released, and the revenue of condiments is expected to improve. It is recommended to focus on Jonjee Hi-Tech and Haitian Flavouring and Food which have improvement logic.

Dairy products: The consumption scenario continues to recover, and the trend of high-end and diversification in the medium and long term remains unchanged. In 2023, the dairy product industry benefited from the decline in milk prices, and the elasticity of profit was higher than that of income. With the gradual recovery of consumer confidence and the deepening of national health awareness, the trend of high-end and diversification in the medium and long term remains unchanged. Looking at new categories: (1) The cheese market continues to grow, and the snack cheese category tends to be rich. The penetration rate of the cheese for seasoning food continues to increase. At the same time, as the consumption scenarios gradually recover, the industry ecology is expected to improve in the long term. (2) In the post-epidemic era, the upgrading demand for nutrition among the masses has become prominent. The concept of fresh and nutritious low-temperature dairy products has been accepted, and the penetration rate has increased. Meanwhile, the competition has become more diversified, and the development space of the market is large. Recommended stocks to focus on are Inner Mongolia Yili Industrial Group, New Hope Dairy and Guangdong Yantang Dairy.

Catering supply chain: the policy on promotion fee is implemented, and both the fund and policy aspects have significantly improved since H2 2023. Starting from H2 2023, catering supply chain stock targets began to gradually come under pressure due to relatively weak demand for end-store recovery under the trend of cost-effectiveness consumption. As a result, downstream end-stores began to focus on the improvement of single store efficiency and slow down the pace of opening stores, which also put forward higher requirements for the management ability and efficiency of midstream supply chain enterprises. Recently, the country has issued relevant documents promoting the development of high-quality service consumption, from a valuation perspective, most company valuations have fallen to historical lows with sufficient safety margin. Therefore, along with the improvement of fund and policy aspects, it is recommended to focus on relatively stable leading enterprises and targets with elastic performance improvement after downstream demand improvement, such as Anjing Foods, Ligao Foods, Baoli Foods, Qianwei Kitchen, etc.

Snack food: Q2 is traditionally a slack season, paying attention to the opportunity of Q3 base consolidation and Q4 stocking. In Q2, snacks entered the traditional off-season, so some leisure food targets showed volatility in stock prices after disclosing 24H1 performance forecast. However, Debang Securities believes that the performance basically meets expectations. Although there may be a possibility of intensified industry competition in the follow-up, the long-term growth logic and trend of the industry remain unchanged. That is, on the one hand, the three manufacturing targets of Ganyuan Foods, Jinzai Food and Yanker Shop Food still have sustainable growth in performance with the help of channel and self-change dividends. On the other hand, with the continuous impact of the layered downstream demand and intensified offline store competition, targets such as Bestore Co.,Ltd. and Chacha Food positively reformed and are expected to achieve a turnaround. In terms of the whole year, cost-effectiveness is still the main line, and the volume purchase channel dividend of Douyin continues. In the short term, the catalyst for stock price is mainly 1) beta brought by incremental funds and liquidity improvement; 2) the overall attention of the snack sector brought by the low base in the third quarter and the year-end holiday season in the fourth quarter. From a long-term perspective, it is recommended to focus on 1) dividend extension targets such as Yanker Shop Food, Jinzai Food and Ganyuan Foods; 2) targets that are expected to achieve a turnaround from the predicament, such as Three Squirrels, Chacha Food and Bestore Co.,Ltd.

Food additives: demand gradually warms up, and the development trend is good. The downstream industries such as food, catering, health care products, cosmetics, etc., have driven the upstream demand for additives to rebound after the post epidemic recovery, especially health care products have exploded in demand under the trend of health awareness, and the overall volume growth of the healthy food additives industry is optimistic. It is recommended to pay attention to the recovery of additive demand related to beverages, such as dietary fiber, sweeteners, probiotics, prebiotics, etc. Another suggestion is to pay attention to health care product additives such as lutein, prebiotics, dietary fiber, etc. It is recommended to pay attention to Bailong Chuangyuan and Chenguang Biotech Group.

Sectoral index performance:

The food and beverage sector outperformed the CSI 300 index by 4.65 pct this week. From August 5 to August 9, the CSI 300 fell by 1.56% in the trading days of this week, while the food and beverage sector rose by 3.10%, ranking second in the first-level industry of Shenwan (2021).

Most sub-sectors of the food and beverage sub-industry showed an upward trend this week. Among them, the pre-processed food (+4.34%) sub-sector had the largest increase, followed by the liquor (+4.01%), baking food (+2.32%), other alcoholic beverages (+2.32%), seasoning and fermentation products (+2.23%), beer (+1.83%), soft drinks (+1.70%), snacks (+1.48%), and meat products (+0.85%) sub-sectors, which were all on the rise. In addition, the dairy products (-0.59%) and health care products (-1.77%) sub-sectors showed a downward trend.

Individual stock performance:

In the beverage sector this week, Shanghai Guijiu (+32.14%) had the biggest increase, followed by Huangtai Wine-Marketing Industry (+15.79%), Shanxi Xinghuacun Fen Wine Factory (+9.32%), Hebei Hengshui Laobaigan Liquor (+7.67%), and Anhui Gujing Distillery (+7.07%). Lanzhou Huanghe Enterprise (-2.45%), Tibet Development (-0.84%), Wei Long Grape Wine (-0.50%), Kuaijishan Shaoxing Rice Wine (-0.39%), and Shanghai Jinfeng Wine (0.00%) were relatively lagging behind in terms of the decline in stock prices.

In the food sector this week, Jiangxi Huangshanghuang Group Food (+11.39%) had the biggest increase, followed by Royal Group Co.,Ltd. (+8.36%), Anjoy Foods Group (+6.39%), Sirio Pharma (+5.90%), and Xiwang Foodstuffs (+5.86%). By-Health Co., Ltd. (-10.88%), Zhejiang Huatong Meat Products (-8.52%), Ganyuan Foods (-7.04%), Star Lake Bioscience (-5.86%), and Beijing Scitop Bio-Tech (-2.61%) were relatively lagging behind in terms of the decline in stock prices.

Valuation situation:

As of August 9th, the overall valuation of the csi sws food & beverage sector is 19.22x, ranking 16th in the first-level industry, far higher than the overall valuation of the csi 300 index (11.36x). Looking at the sub-industry, the valuations of each sub-sector have fallen to historically low levels. The valuation of other alcoholic beverages (36.20x), soft drinks (25.89x), and beer (25.56x) are relatively high, while the valuations of dairy products (13.02x), pre-processed foods (18.17x), and health products (18.39x) are relatively low.

Fund trend:

This week, the three most active northbound funds are Kweichow Moutai, Wuliangye Yibin, and Henan Shuanghui Investment & Development, with changes in holding amount of +0.722/-0.249/-0.097 billion yuan respectively. Among the northbound funds holding shares, Inner Mongolia Yili Industrial Group (9.89%), Anjoy Foods Group (9.10%), Chacha Food (7.96%), Jonjee Hi-Tech Industrial And Commercial Holding (7.52%), and Kweichow Moutai (6.56%) rank high in terms of shareholding. Among the northbound funds increasing or decreasing holdings in the food & beverage sector this week, Jonjee Hi-tech Industrial and Commercial Holding (+0.55pct) had the largest increase, while Royal Group Co.,Ltd. (-0.65pct) had the largest shareholding reduction.