GTHT has released a research report noting that signs of a bottom in the consumer sector are emerging, with fundamental pessimistic expectations already fully priced in. The heavy positioning of Baijiu in funds has fallen to historical lows, and with style rebalancing and valuation recovery, structural opportunities are expected to emerge. Currently, the Baijiu industry is at a cyclical bottom, with financial statements undergoing continuous adjustments. Fund heavy positions have dropped to historical lows, valuation percentiles are low, and factors such as liquidity, policy, and volume-price dynamics (such as recent premium Baijiu price hikes) are all potential catalysts. The brokerage recommends focusing on stocks that are leading the inventory clearance process.

GTHT's main views are as follows: Earnings are clearing out, and the industry has reached a bottom. The Baijiu industry is currently at the bottom of this cycle, with financial statements already adjusting for multiple consecutive quarters. Based on disclosed semi-annual report earnings forecasts and survey data, the brokerage expects that by Q2 2026, the industry's financial statements will continue to show a clearing-out trend, with only a few individual stocks likely to achieve year-on-year stability or positive growth. Meanwhile, distilleries are becoming more rational, with absolute inventory levels in channels stabilizing and declining, and the sharp price drops have significantly eased. On the demand side, the Baijiu market was broadly weak in Q2, with the pre-holiday peak seasons around May Day and Dragon Boat Festival performing only moderately, and some consumption scenarios have yet to fully recover. The industry generally views 2026-2027 as a bottoming-out period, with the Mid-Autumn Festival and National Day in the second half of the year, as well as the 2027 market season kickoff, serving as key observation points. As Baijiu consumption demand normalizes, the industry is expected to see a turning point.

Fund holdings have fallen to historical lows, and micro-structure is improving. In Q2 2026, market style was quite extreme, with the heavy position of active equity funds in the food and beverage sector dropping to 1.49%, a decrease of 2.41 percentage points from Q1 2026, indicating a significant reduction in allocation for the food and beverage sector. Among this, the heavy position in Baijiu fell to just 0.97%, a decrease of 1.93 percentage points from Q1 2026, approaching the levels seen during the deep adjustment period of 2013-2015. Baijiu stock prices also performed weakly during this period. With the improvement in the sector's micro-structure, the brokerage has observed that during the market style rebalancing in July, Baijiu and other food and beverage stocks outperformed the broader market.

Valuation still has room, and premium Baijiu price hikes are catalyzing stock prices. In May and June, Baijiu saw significant pullbacks due to liquidity shocks, with the Shenwan Baijiu index falling below the low point of the "September 24" rally. Currently, the stock prices of most Baijiu companies are below their "September 24" levels. In terms of valuation, the PE TTM of the Shanghai Composite Index and the CSI 300 Index are currently at the 52% and 65% percentiles, respectively, since 2000. In contrast, the Shenwan Food and Beverage sector is valued at the 11th percentile, only higher than non-bank finance, and within that, Baijiu is at around the 21st percentile. The Baijiu sector is currently in a state of low expectations and low valuations, with opportunities for catalysts from liquidity, policy, and volume-price dynamics. In the short term, the brokerage sees that premium Baijiu price hikes have already been transmitted to stock prices. Considering the varying degrees of inventory clearance among Baijiu companies, the brokerage expects that those distilleries which adjusted earlier and have cleared inventory more thoroughly are likely to see valuation recovery first, presenting structural opportunities.

Risk warning: Deterioration in industry sentiment and sharp drops in wholesale prices.