CITIC SEC released a research report stating that it judges the current catering industry is in a phase of resonance from multiple factors: "marginal improvement in fundamentals - continuous policy impetus - price mechanism repair - expectable valuation enhancement." At the operational level, since the second half of 2025, retail sales of catering and same-store performance in major catering segments have shown continuous recovery. Coupled with a slowdown in the pace of supply expansion and a marginal decline in industry competition intensity, this provides a more favorable external environment for business recovery and profit improvement for enterprises. At the policy level, the orientation towards service consumption continues to strengthen. Leveraging its characteristics of high frequency, strong scenario-based demand, and short decision-making chains, the catering sector has become one of the directions with the clearest beneficiary pathway within consumption stimulus policies. On the price front, against the backdrop of the national push for a reasonable rebound in prices, catering companies have successively begun price-pass-through behaviors. Historical experience shows that cost disruptions mostly manifest as periodic impacts, with medium- to long-term gross profit margins expected to recover and rise. Regarding valuation, benchmarking against international experience, improvements in inflation expectations often drive a rebound in the valuation center of the catering sector. Under the combined effect of these multiple factors—fundamentals, policy, price, and valuation—the catering industry is moving towards a more positive direction of recovery. CITIC SEC's main views are as follows: Industry: Clear Marginal Improvement, Leaders Recover First. Since the second half of 2025, the catering industry has shown a trend of marginal operational improvement. According to data from the National Bureau of Statistics, year-on-year growth in retail sales of catering for October, November, and December 2025 was +3.8%, +3.2%, and +2.2% respectively, significantly higher than the overall retail sales growth rate. On the supply side, data from Jiuqian indicates that the year-on-year growth rate of the total number of national food and beverage outlets in each month of the second half of 2025 was noticeably lower than in each month of the first half of 2025, reflecting a moderation in industry competition. This creates more favorable external conditions for same-store recovery and profit improvement for existing enterprises. Same-store sales in major catering segments generally showed a sequential upward trend, with fast food, tea beverages, coffee, and Western cuisine all returning to positive same-store growth. Leading companies with advantages in supply chain, brand power, and operational management capabilities demonstrated stronger operational resilience. Policy: Continuous Policy Support, Catering Clearly Benefits. Based on past policy practices, due to its characteristics of high frequency, daily necessity, low single-transaction value, and short decision chains, catering has been one of the key focuses and clear beneficiaries among various consumption stimulus policy tools, often represented by subsidies. In recent years, policy emphasis on boosting catering consumption has continued to strengthen, with relatively good practical implementation effects. The bank believes that if more consumption policies are introduced subsequently, catering will likely remain a high-probability beneficiary scenario, and the stimulus effects are expected to be directly reflected in the improvement of short-term operational data. Price: Goal to Promote Price Recovery, Catering Companies Gradually Adjusting Prices. Since the fourth quarter of 2025, the Consumer Price Index has shown signs of improvement. Looking ahead to 2026, the national level has clearly set "promoting a reasonable rebound in prices" as an important goal for macroeconomic regulation, suggesting prices may show a more positive recovery rhythm. Leading companies have already taken the lead in implementing price-pass-through through methods like menu structure optimization, price increases on core items, and reduction of discounts, verifying the resilience of end-demand and their own pricing power. Combined with historical experience, the impact of rising raw material prices on the gross profit margins of catering companies is more of a periodic disruption rather than long-term suppression. Leading enterprises often navigate an evolution path of "pressure - recovery - elevation" through price transmission, product structure adjustment, and supply chain efficiency improvements. Valuation: Benchmarking International Experience, Inflation Drives Center Higher. Synthesizing overseas experience from markets like Japan and the US, CPI is an important variable for the valuation of the catering sector. During phases of declining CPI or deflation, despite easing raw material cost pressures, intensified price competition, weak same-store growth, and subdued demand expectations often suppress the valuation center of catering companies. As CPI rebounds and inflation expectations improve, market expectations for companies' medium- to long-term development rise, pushing valuations into a recovery and expansion channel. Leading catering companies, possessing stronger supply chains, operational management capabilities, and pricing power, have the ability to weather cycles, and their valuation centers are expected to achieve systematic elevation during the price environment recovery process. Investment Strategy. Overall, the catering industry is gradually entering a recovery phase driven by multiple factors. Operationally, since the second half of 2025, retail catering sales and same-store performance of major catering formats have improved simultaneously, while the pace of new industry supply has slowed, and competitive intensity has marginally eased. Policy-wise, the importance of service consumption within the stable growth framework continues to increase. Due to its high-frequency consumption, strong scenario attributes, and short decision chains, catering is a beneficiary direction with the most direct transmission path and relatively clear effects in consumption stimulus policies. Further policy implementation is expected to contribute more industry-level drivers. On the price front, against the clear national goal of promoting reasonable price rebounds, catering companies are gradually engaging in price-pass-through and structural adjustments. Historical experience suggests that fluctuations in raw material costs primarily affect profits as periodic disturbances, with a basis for medium- to long-term gross profit margin recovery and even increase. Valuation-wise, benchmarking against international market development, improved inflation expectations often accompany a recovery in the catering sector's valuation center. In summary, the industry is transitioning to a recovery phase centered on fundamental improvement, with a positive medium-term outlook. The bank recommends the following investment themes: 1) Leading companies in growth segments with high quality-to-price positioning aligned with consumption trends, strong store expansion momentum and brand potential, and solid same-store support; 2) Industry leaders with steadily advancing core businesses, new brands possessing development potential, and providing high shareholder returns; 3) Companies in sub-segments that are actively transforming and seeing a bottoming-out recovery in operations. Risk factors: Consumer demand falling short of expectations; slower-than-expected implementation of service industry stimulus policies; intensification of industry competition; food safety issues.