Shenwan Hongyuan released a research report stating that since Q2 2025, the liquor industry has faced significant pressure on demand due to structural external disruptions, leading to a sharp decline in consumption scenarios. Top brands have begun clearing inventory in their financial statements, with the process accelerating in Q3 2025, signaling a bottoming-out phase.

In terms of sales, against the low base in Q3 2024, industry-wide sales in Q3 2025 are expected to decline by 20%-30% year-on-year. Meanwhile, premium liquor prices have continued to fall recently as the market seeks a balance between volume and pricing. Looking ahead, sales in Q1 2026 are projected to face double-digit year-on-year declines, with financial statements continuing to reflect pressure. Stabilization is expected by Q2 2026, followed by a potential fundamental turnaround in Q3 2026.

**Key Views from Shenwan Hongyuan:**

**Fundamental Analysis:** The liquor sector accelerated its inventory clearance in Q3 2025, with a fundamental inflection point anticipated in Q3 2026. While some companies began declining in Q4 2024, top brands still achieved growth in Q1 2025 due to resilient sales. However, from Q2 2025 onward, demand weakened significantly, with industry-wide sales dropping 30%-50% year-on-year. Against the low base in Q3 2024, Q3 2025 sales are estimated to fall 20%-30% year-on-year, marking a 50% decline compared to Q3 2023.

**Valuation Analysis:** As of October 31, 2025, the liquor sector’s absolute PE ratio stands at 18.7x, below the historical average of 27.6x since 2011. Its relative PE (vs. the Shanghai Composite) is 1.14x, also below the long-term average of 2.01x. Dividend payouts are expected to rise, with leading companies disclosing three-year dividend plans. Most liquor firms currently offer dividend yields above 3%, presenting mid-to-long-term investment value.

**Holdings Analysis:** In Q3 2025, the liquor sector’s weighting in fund portfolios fell to 5.52%, down 1.26 percentage points quarter-on-quarter, nearing levels last seen in Q2 2017.

**Investment Recommendation:** Strategically bullish on liquor, Shenwan Hongyuan notes that stock price inflection points historically precede fundamental recoveries. If fundamentals rebound as expected in Q3 2026, valuation and earnings could see dual growth by late 2026-2027. Long-term investors may now consider strategic allocations to high-quality companies. However, patience is advised as corporate adjustments will vary, and stock performance may diverge.

**Top Picks:** Luzhou Laojiao (000568.SZ), Shanxi Xinghuacun Fen Wine (600809.SH), Kweichow Moutai (600519.SH), Wuliangye (000858.SZ), with additional focus on Yingjia Gongjiu (603198.SH), Jinhuijiu (603919.SH), Gujing Gongjiu (000596.SZ), Jinshiyuan (603369.SH), and Yanghe Brewery (002304.SZ).

**Risks:** Economic slowdown impacting liquor demand; food safety incidents.