Food and drink consumption toughness, long-term layout value is high

1. The resilience of food and drink consumption cannot be ignored, and the foundation for sustainable development is solid

1) In the recent food and drink consumption environment, although there are short-term fluctuations, we can see that the potential energy of gradual recovery is accumulating, and the strong resilience of China's consumer market cannot be ignored. 2) The food and beverage industry, as a must choose consumption, as a FMCG, its anti-inflation, anti-risk, the first to benefit from scientific and technological progress of the attributes can not be ignored. 3) Liquor, beer, leisure snacks, etc., as hobby products, their consumption stickiness can not be ignored. 4) Dairy, family food, fresh food, etc., as a daily must, its healthy and delicious properties can not be ignored.

1.1 Economic level: The food and beverage club has a leading growth rate

In the first three quarters of 2023, China's GDP (current price) increased by 4.91%. In 2022, China's GDP (current price) will be 121.02 trillion yuan, a year-on-year growth of 5.82%, and a year-on-year growth of 2.99% based on GDP constant price. In the first three quarters of 2023, China's GDP (current price) was 91.30 trillion yuan, a year-on-year growth of 4.91%, and a year-on-year growth of 5.20% in GDP constant price.

At the end of September 2023, China's M2 increased by 10.30%. At the end of 2022, China's M2 was 266.43 trillion yuan, an increase of 11.80% year-on-year, and the CAGR from 2017 to 2022 was 9.53%. At the end of September 2023, China's M2 was 289.67 trillion yuan, an increase of 10.30%.

Food and drink products grow steadily, through the cycle. In 2022, China's total social zero will be 43.97 trillion yuan, and the CAGR from 2017 to 2022 will be 4.90%, of which the retail sales of grain and oil, food, beverage, tobacco and alcohol will be 1.87, 0.30 and 0.50 trillion yuan, respectively. The CAGR from 2017 to 2022 is 9.96%, 11.70% and 8.56%, respectively, and the growth of food and beverage products is steady, which will continue to grow steadily through the cycle in 2020-2022, which is better than the zero growth rate of the whole society. In the first nine months of 2023, China's total retail sales increased by 6.80%, among which, the retail sales of grain and oil, food, beverage, tobacco and alcohol increased by 5.30%, 2.00% and 9.80% respectively, and the retail sales of tobacco and alcohol still maintained a rapid growth rate.

1.2 Fundamentals of the food and beverage industry: strong growth resilience

In the first three quarters of 2023, the revenue and performance of food and beverage listed companies increased by 9% and 15%. We use the SW Food and Beverage Index as a sample (the same below) to study the situation of various sectors of the food and beverage industry in the first three quarters of 2023. In the first three quarters of 2023, the total revenue of listed companies in the food and beverage sector was +8.61% year-on-year, and the net profit returned to the mother was +15.27% year-on-year. By quarter, the total revenue growth of listed companies in the food and beverage sector slowed down quarter by quarter (2023Q1-Q3 was +10.68%, +8.30%, +6.73%); The growth rate of net profit was higher than that of revenue (+18.23%, +9.94%, +16.06% in 2023Q1-Q3, respectively), and the reduction of raw material costs contributed greatly.

The profitability of the food and beverage industry has increased. In the first three quarters of 2023, the gross profit margin (overall method) of listed companies in the food and beverage sector was 49.56%, +1.45pct year-on-year, and the net profit margin was 21.21%, +1.00pct year-on-year. In the first three quarters of 2023, gross profit margin and net profit margin of listed companies in the food and beverage sector showed an overall trend of improvement (2023Q1-Q3, gross profit margin was +1.39, +2.01, +2.05pct year-on-year, and net profit margin was +1.33, -0.14, +1.59pct year-on-year, respectively).

1.3 Valuation level: Food and beverage PE (TTM) is 26 times, which is the lowest valuation in nearly three years

Food and beverage PE (TTM) is valued at 26 times, at the lowest valuation in nearly three years. As of October 31, 2023, the overall market value of the food and beverage industry was 5.495.2 billion yuan, and the PE (TTM, holistic method, excluding negative values) valuation was 26.39 times, which was 2% of the valuation range in the past 3 years.

Liquor, beer, dairy products, flavoring fermented products are at a low valuation. The valuation of PE (TTM) in the liquor sector is 26.53 times, which is 2% of the valuation range in the past 3 years. The PE (TTM)/nearly 3-year quartile level of beer plate was 28.66 times /2%, the PE (TTM)/nearly 3-year quartile level of dairy plate was 19.56 times /0%, and the PE (TTM)/nearly 3-year quartile level of seasoning and fermentation plate was 33.98 times /3%, respectively.

1.4 Fund heavy position: Layout of food and drink left opportunities, fund allocation ratio increased

Food and beverage industry fund heavy position accounted for 14.00%. As of the end of 23Q3, the total market value of the food and beverage industry fund heavy position was 415.386 billion yuan, accounting for 14.00% of the total fund heavy position, year-on-year -2.46pct, month-on-month +1.09pct; The overallocation ratio of the food and beverage industry fund was 7.48pct, which was -1.44pct year-on-year and +0.78pct month-on-month.

Liquor, seasoning and fermentation products, brine products, etc., the proportion of fund heavy warehouse improved. As of 23Q3, the food and beverage segment includes liquor (7.47pct, year-on-year -1.02pct, month-on-month +1.10pct), dairy (0.10pct, year-on-year -0.31pct, month-on-month -0.12pct), and pre-processed food (0.09pct, year-on-year). Year-on-year -0.05pct, month-on-month -0.05pct), beer (over 0.29pct, year-on-year -0.33pct, month-on-month -0.15pct), other alcohol (over 0.01pct, year-on-year +0.001pct, month-on-month -0.03pct) sectors were over-allocated by fund companies; Liquor, seasoning and fermentation products, brine products, soft drinks, baked goods fund excess ratio improved from the previous quarter.

2. Liquor: The overall steady growth, high-end wine and strong real estate wine toughness

1) In terms of liquor, channel inventory is under short-term pressure, and the performance of liquor enterprises continues to differentiate. In terms of high-end liquor, the approval price fell slightly, Guizhou Moutai increased the ex-factory price to enhance the certainty, Wuliangye Q3 growth rate improved quarter-on-quarter, and Luzhou Laojiao made more active payments. In terms of high-end liquor, under the background of gradual recovery of consumption, channel inventory has increased, and the approval price of some high-end single products has been adjusted back, which is a good opportunity for wine enterprises with core competitiveness to expand their share, and also a good opportunity for wine enterprises in economically strong regions to consolidate barriers. 2) The liquor sector as a whole, 2023Q1-3 total revenue/performance +15.9%/+18.9% year-on-year.

2.1 Liquor sector: leading the growth of food and beverage industry

White wine board led to the growth of the food and beverage industry. 2023Q1-3, the total revenue/performance of white wine board +15.91%/+18.92%, leading the growth of the food and beverage industry. Profitability continues to improve. In 2023Q1-3, the gross profit margin/net profit margin of the liquor sector was 80.39%/39.51%, with the same ratio of +0.62/+0.70pct.

2.2 High-end wine shows toughness, and the second-high-end wine continues to differentiate

The liquor industry is growing in squeeze mode, and the price increase is the main driving force of the industry growth. According to the data of the National Bureau of Statistics, in 2022, the revenue of China's liquor industry was 662.65 billion yuan, an increase of 9.6%, and the total profit was 220.17 billion yuan, an increase of 29.4%. The revenue growth was mainly from the price increase. In 2022, China's liquor production was 6.712 million liters. It was down 5.6 per cent from a year earlier. In the first three quarters of 2023, China's liquor production was 3.066 million liters, down 9.0% year-on-year.

The concentration of the liquor industry continues to increase, and the share and profit are concentrated in the head liquor enterprises. In 2022, the total revenue of A-share listed wine enterprises accounted for 53.78% of the revenue of liquor enterprises above designated size, an increase of 32.91pct compared with 2015; While the revenue accounted for more than 50%, the profit accounted for more than 80%, and the total profit of listed wine enterprises in 2022 accounted for 82.03% of the total profit of white wine enterprises above designated size, an increase of 19.59pct compared with 2015. The number of liquor enterprises above designated size continues to decrease, according to the data of the China Wine Association, there will be 963 in 2022, a decrease of 482 compared with 2018. High-end liquor prices are more resilient. 2017-2022, according to the National Development and Reform Commission on the 36 large and medium-sized cities consumer price statistics show that the average retail price of high-grade liquor, mass liquor showed an increasing trend. Since the end of 2022, affected by fluctuations in economic and consumption scenarios, the average price of high-end liquor and mass liquor has declined, while the price of high-end liquor is more resilient.

Since 23 years, the liquor industry has gradually entered a new round of adjustment period. According to the view of China Liquor Association, China's liquor industry and liquor market have entered a new round of adjustment period. In recent years, the industry has experienced rapid growth, but overcapacity and problems in sales channels have led to inventory pressure and price inversion, which have been exacerbated by the damage to the consumption scene in 20-22 years. Overall, the liquor industry has entered a new round of cyclical adjustment, and the consumption scene has been damaged to accelerate the market reshuffle. 23Q2, Q3 total amount of contractual liabilities of liquor sector -4.57%, -1.91% year-on-year; Liquor circulation represents the temporary pressure on the income of Huazhi wine line. This year, the banquet scene outperformed the business scene. In the past 23 years, with the recovery of the consumption scene, the liquor market has gradually recovered, but the channel pressure is still on, and the banquet scene is better than the business and group buying scene.

The performance of the second high-end wine enterprises is differentiated, and the profitability of the leading enterprises of Hui wine has improved significantly. According to the data of the Wine Association, the market performance of products in the price segment below 300 yuan is better, and this price segment is the focus of the layout of high-end and strong real estate wine enterprises. The channel pressure is transmitted to the production enterprises, some wine enterprises have a decline in contract liabilities, and the performance of listed liquor companies, especially the high-end and real estate wine enterprises, is further differentiated. Taking Gujing Gong Wine, Yingjia Gong wine as an example, benefiting from the economic vitality of Anhui Province and the company's own continuous promotion of high-end products, the company's profitability improved significantly, 23Q3-3, the growth rate of net profit of the mother reached 45.37%/37.57%, and the net profit rate of sales increased by 3.29/3.48pct compared with the same period last year.  Moutai raised the price ceiling for high-end wine and second-high-end wine. On the evening of October 31, Kweichow Moutai issued a major announcement and decided to raise the factory price of vol Feitian and five-star Moutai by 53% from November 1, with an average increase of about 20%, which does not involve the market guidance price. Calculated by 20% price increase, the factory price of Feitian Moutai will reach about 1169 yuan/bottle. Moutai as a representative of high-end wine, its ex-factory price is also a major vane of the industry, before the price increase, Feitian Moutai, Pufive (eight generations), national cellar 1573 ex-factory price gap is not large, the price increase in addition to Maotai fourth quarter and next year to improve the performance of the uncertainty, but also for high-end and high-end wine prices to open the price ceiling.

The importance of "accelerating the construction of an efficient and smooth alcohol circulation system" has been enhanced. In July 23, Wang Xinguo, president of the China Wine Circulation Association, made a study and judgment on the industry, believing that the wine industry has entered a period of transformation and adjustment, with insufficient market consumption power, maladjustment of manufacturer structure, extensive pressure on channels, and widespread price inversion. The concentration of upstream production enterprises continues to increase, and the advantages of national famous wine are obvious, but the concentration of alcohol distribution industry is still low, and the anti-risk ability of small and medium-sized dealers is weak. Comrade An Baojun, deputy director of the Department of Market Operation and Consumption Promotion of the Ministry of Commerce, proposed at the 19th China International Wine Expo that "accelerate the construction of an efficient and smooth wine circulation system, promote the docking of production and consumption, and expand domestic demand." Liquor online channel layout accelerated. According to the data of the wine industry, the scale of alcohol e-commerce is about 80-100 billion yuan, accounting for less than 10% of the overall scale of the liquor market, according to the data of the China Wine Association, the compound growth rate of online liquor turnover in 18-22 years is more than 25%. A number of listed wine companies have gradually increased their online channel layout, and the amount and proportion of online channel revenue have grown rapidly.

3. Dairy industry: Profit margin up period, low temperature fresh milk performance beautiful

1) With the decline of raw milk price (raw milk price 3.7 yuan /kg at the beginning of November, down nearly 10% from the beginning of the year), dairy profit margin can be increased quarter by quarter; Under the background of low milk prices, dairy enterprises increase discounts to benefit consumers, which is expected to promote the growth of terminal mobile sales. 2) Dairy sector, total revenue/performance in the first three quarters of 2023 +2.7%/+20.2%, 23Q3 +0.7%/+52.5%.

3.1 Dairy sector: Profit margin increased quarter by quarter

Profitability is improving quarter by quarter. In the first three quarters of 2023, the total revenue/performance of the dairy sector was +2.65%/+20.17%. By quarter, the revenue of 23Q1/Q2/Q3 was +5.74%/+1.52%/+0.74%, and the performance was +1.98%/+20.95%/+52.47%. The growth rate of revenue slowed down, but the profitability showed an increasing trend. In the first three quarters of 2023, the gross profit margin/net profit margin of the dairy sector was 29.28%/7.34%, +0.29/+1.04pct compared with the same period last year, and the decline of raw milk price contributed significantly to the improvement of gross profit margin. The increase in net profit margin was related to the increase in gross profit margin and the decrease in selling expense ratio (22Q1-3 and 23Q1-3 selling expense ratio of 16.92%/16.26%, respectively). By quarter, the dairy sector 23Q1/Q2/Q3 gross profit ratio is the same ratio of -0.45/+0.20/+1.10pct, and the net profit ratio is the same ratio of -0.28 /+1.03/+2.25pct.

3.2 Dairy market size of nearly 550 billion yuan, subdivided track long slope thick snow

The dairy market is worth nearly 550 billion yuan. According to Euromonitor data forecast, in 2023, China's dairy market size will be 544.8 billion yuan, with a CAGR of 0.70% from 2018 to 2023, of which, the growth rate of low-temperature fresh milk sector is leading.