China Galaxy Securities has released a research report stating that the shareholding ratio of A-share social services sector remained at historically low levels in the first half of the year. Concurrently, valuations for new consumer companies listed in Hong Kong have seen a significant pullback compared to 2025 due to base effects and a slowdown in consumer spending power, making their valuations increasingly attractive. Based on data performance from provinces with spring holidays, the firm anticipates that the benefits from holiday system reforms will have a more pronounced positive impact on overall consumption in the second half of 2026. The core logic is that more provinces will begin implementing spring and autumn holiday policies, and later-adopting provinces will benefit from the learning effects of early adopters. Furthermore, the report suggests that while external shocks (high oil prices and intensified food delivery competition) may pressure demand in the short term, they will also accelerate the exit of inefficient service sector capacity from a supply perspective. This dynamic will allow companies capable of providing high-quality products and services to once again demonstrate their growth potential. Key views from China Galaxy Securities are outlined below.

H1 2026 Review: Holiday Policy Tailwinds Offset by High Oil Prices, Market Sentiment Remains Subdued

2026 marks the beginning of a renewed push for holiday system reform in China. Driven by an increase in Golden Week holidays, optimized leave scheduling, and the nationwide promotion of spring and autumn holidays for primary and secondary school students, growth in travel numbers has supported service consumption, which has outperformed goods consumption. However, rising oil prices due to geopolitical volatility have increased travel costs, and since the second quarter, this has begun to significantly influence household consumption decisions. This has led to concerns about stagflation spreading from the broader economy to the service consumption sector. Affected by this, the shareholding ratio of the A-share social services sector continued to hover at its historical low. Meanwhile, valuations for Hong Kong-listed new consumer companies have seen a notable pullback compared to 2025, influenced by base effects and slowing consumer spending power, making their value proposition more prominent.

H2 2026 Outlook: Sustained Policy Benefits and Supply-Side Optimization to Create Long-Term Space

Based on data from provinces with spring holidays, the firm expects the dividends from holiday system reform to have a more significant positive effect on overall volume in the second half of 2026. The core rationale is that more provinces will start implementing spring and autumn holiday policies, and later-implementing provinces will benefit from the learning effects of earlier adopters. Additionally, the report posits that while external shocks (high oil prices and intense food delivery competition) may suppress demand in the short term, they will also hasten the exit of outdated service capacity from a supply-side perspective. This will enable companies that can deliver superior products and services to once again release their growth attributes.

Catering: Focus on Companies with Resilience Across Cycles

The recovery in the broader catering market is expected to continue in the second half of 2026. This is driven by an increase in dining-out occasions due to holiday system optimizations on one hand. On the other, the low base effect from the Q3 2025 alcohol ban coupled with massive subsidies from food delivery platforms, which is now reversing as the alcohol ban is optimized and platform subsidies are withdrawn, is expected to drive a rebound in dine-in demand. As the "volume-for-price" strategy nears its end, the unit economic models of leading catering brands are poised for optimization.

Pro-Cyclical Sectors: High-End Consumption Recovery Narrative Continues, Structural Hotel Optimizations Support Leader Recovery

The global economy exhibits a significant K-shaped trend, primarily reflected in the high prosperity of capital-intensive industries and corresponding growth in property income, ensuring robust demand growth among high-net-worth individuals remains intact. On the supply side, the growth rate of new hotel supply continues to slow, gradually moving the supply-demand balance towards equilibrium, providing a foundation for resilient room rates. While business travel recovery on the demand side remains relatively weak, leisure travel demand from residents maintains high resilience, supported by consumption-stimulus policies and the spring/autumn holiday system. This continues to underpin a steady recovery in hotel RevPAR. Leading hotel groups, leveraging refined operations and capabilities in upgrading existing assets, are well-positioned to benefit from the structural dividends of industry supply rationalization and rising leisure accommodation demand.

Tourism: Diverging Logics Across Segments, Opportunities in Both Transformation and Incremental Growth

In the second half of the year, the accelerated implementation of spring and autumn holidays across multiple provinces will continue to unlock demand for short-haul and family/educational travel. A shift in tourist spending focus towards experiential, high-quality products is driving expansion in the performing arts and premium cruise segments. Disruptions to air travel from rising oil prices can be mitigated by substitution with high-speed rail. The OTA (Online Travel Agency) industry is undergoing antitrust compliance rectification. However, measures such as canceling special licenses and delisting price adjustment tools are unlikely to significantly undermine platform user bases or supply chain barriers. Industry commission rates, anchored to service value and compared internationally, remain low, meaning the core operational logic and commercial value of platforms have not fundamentally changed. Resource-based scenic spots, constrained by ticket price caps and physical carrying capacity, exhibit the characteristic of strong visitor flow but weak profitability. The key investment theme for this sub-sector is breaking through previous operational ceilings by relying on upgrades like cable car capacity and the construction of new distinctive projects to introduce superior new supply.

Risk Factors: Macroeconomic Downturn Risks; Industry Policy Volatility Risks; Risks Associated with New Business Expansion Falling Short of Expectations.