Guotai Haitong Securities Co., Ltd. has released a research report indicating that the baijiu industry accelerated its bottoming-out process starting in the third quarter of 2025, with financial statements undergoing deep adjustments for multiple consecutive quarters. In the short term, the industry continues to search for a bottom, and companies that clear their inventory faster are expected to experience greater resilience. Over the medium to long term, the preferred picks are companies with established brand equity, strong management capabilities, and the ability to execute regional expansion.

The report notes that 2024 marked the beginning of a deep correction for baijiu, with 2025 introducing new dynamics. Building on previous analysis, the firm is now examining the "bottoming-out and recovery" phase of the current cycle, concluding that structural opportunities remain, with top-tier brands across various price segments being the preferred choices.

Key perspectives from the research report include the following points. Regarding the inflection point for baijiu, the interplay between sell-through rates, financial statements, inventory levels, and wholesale prices, combined with policy catalysts, is expected to shape the recovery. The firm believes the worst period for sell-through has already passed, and while financial statements are still in deep adjustment, the industry is projected to enter a substantive inventory destocking phase after the "sell-through versus financial statement" trends intersect. As these conditions unfold sequentially, wholesale prices across different price tiers are also expected to confirm a bottom and begin recovering, further supporting fundamentals and share price gains. Additionally, considering that baijiu valuations are relatively low compared to the broader market and that market microstructure has improved significantly, coupled with the potential for more proactive macroeconomic policies, an inflection point in market expectations for the sector may be on the horizon.

Breaking down volume, pricing, and industry structure reveals the potential space for baijiu. While sell-through and inventory metrics primarily gauge short-term changes, a medium-to-long-term outlook focuses on three key dimensions. In terms of volume, after an initial shock, a return to a gradual downward trend is anticipated. In terms of pricing, the consumption and asset attributes that support prices are stabilizing and are likely to resume an upward trajectory in the future. In terms of structure, demand is consolidating toward individual consumers while supply is concentrating among leading distilleries. Based on this analysis, incremental opportunities remain in certain sub-segments of the industry.

To identify excess returns, the report emphasizes that strong brands and strong capabilities are the foundation for baijiu "growth stocks." Historical reviews show that long-term share price drivers for baijiu remain tied to fundamentals, with steady growth often generating outperformance. Drawing parallels to the previous cyclical reversal, the firm believes this cycle will similarly favor growth, but the definition of growth has evolved. A moderate or smaller brand size no longer implies a higher ceiling or greater growth potential. Instead, companies with strong brand foundations, robust management capabilities, and the ability to expand regionally will achieve more sustainable growth. Brand equity determines the height of national expansion, while management capability determines its success rate, and these characteristics are mostly found in leaders or larger-scale companies. Furthermore, as shareholder returns in the baijiu sector continue to strengthen, dividend yield is also becoming a key factor in investment decisions.

Risks to watch include the re-tightening of consumption policies, sharp declines in wholesale prices, and food safety concerns.