Investment intelligence indicates that Huachuang Securities has released a research report suggesting that the bottoming signals in the baijiu sector are becoming increasingly clear, advocating for long-term positioning while seizing quarter-over-quarter improvement opportunities on the right side. The second quarter saw accelerated chip clearing within the sector, and with bottom signals now more discernible, the opportunity selection framework is twofold: first, from a one-to-two-year horizon, investors should begin "planting seeds" in high-quality blue-chip stocks whose fundamentals have already emerged from the downturn, even though their share prices are still enduring the chill; second, from a quarterly improvement perspective, focus on right-side opportunities as they materialize.

Specifically, during Q2, baijiu companies generally provided relief to their distribution channels, with further pressure on financial statements expected to be released. In the second half of the year, against a lower comparison base, more companies should see sales momentum and reported earnings turn positive. Looking at the full year, the industry narrative shifts from reactive management to proactive adjustment, with the key opportunity emerging once Moutai's wholesale prices stabilize, thereby solidifying expectations for a bottom. In terms of cyclical rhythm, the first half of 2026 should see proactive adjustments by companies with the first glimmers of dawn, while the second half of 2026 is poised to mark a clearer turning point with gradual sequential improvements. The top recommendation is the cycle-defying leader Kweichow Moutai (600519.SH), followed by Gujing Gongjiu (000596.SZ) and Jin Shiyuan (603369.SH), which are expected to see inventory bottoming at a relatively faster pace. Strategic attention should also be paid to Wuliangye Yibin (000858.SZ) and Shanxi Fenjiu (600809.SH) for their stable operational improvements, as well as Luzhou Laojiao (000568.SZ) as a higher-beta option given the low base.

Where the cycle stands now

The securities firm's primary perspective is that the baijiu sector is undergoing intensified balance-sheet clearing in Q2, with the decline narrowing in the second half of 2026 due to the low comparison base. In Q1 of the 2026 fiscal year, listed baijiu companies saw overall revenue and net profit attributable to shareholders decline by 0.7% and 1.7% year-on-year, respectively. For Q2, these figures dropped by 17.1% and 21.4%, respectively, a sequential acceleration in the decline. This was primarily driven by companies proactively and pragmatically easing collection and shipment requirements amidst weak off-season demand, thereby accelerating channel destocking. The supply side is clearing at a faster pace. Among them, high-end Kweichow Moutai remained relatively robust, with collections outpacing revenue. Leading players are reinforcing their value floor with high dividends and high yields. Although profitability is under pressure, the decline remains manageable. Excluding Moutai, the sector's cash flow remains weak overall, but the transition from reactive response to proactive adjustment signals the first dawn of recovery.

Price point breakdown

The decline in industry profits exceeds that of revenue, with high-end players outperforming other price segments. In the first half of 2026, listed baijiu companies generated revenue of RMB 197.85 billion, down 6.7% year-on-year, with net profit attributable to shareholders of RMB 73.12 billion, down 8.3%. The faster profit decline reflects a downward product mix shift compounded by rigid fee investment. In Q2 alone, revenue and profit fell by 17.0% and 21.4% year-on-year, respectively, with declines sequentially accelerating due to companies deliberately slowing collections and shipments amid soft off-season consumption to accelerate channel destocking. By price tier, high-end brands fared better with relatively contained declines, while sub-premium and low-to-mid-range segments underwent deeper clearing, with significant pressure on reported figures.

Volume-price dynamics

The industry is generally seeing simultaneous volume and price declines, with volume contractions more pronounced as the structural downshift continues. Demand was broadly weak in Q2, with volumes falling across the board and the product mix continuing its recent downward trend. Tonnage prices declined, though at a slower pace than volumes. In the high-end segment, Kweichow Moutai deliberately controlled shipment volumes in Q2, with moderate contraction in its series wines. Wuliangye's Pu Wu core product saw improving sell-through with a significant year-on-year increase in volume, while other products accelerated their clearing. Luzhou Laojiao controlled volumes to support prices, with volumes impacted by weak demand. In the sub-premium tier, performance diverged, with products in the RMB 100 mass-market price band performing relatively better.

Cash flow signals

Cash flow followed revenue contraction, appearing weak, with collection declines exceeding revenue. In Q2, most companies did not force channel collections, instead confirming historical collections and reducing historical notes. Consequently, industry-wide collections in H1 of fiscal 2026 totaled RMB 200.1 billion, down 22.5% year-on-year. Among high-end players, Kweichow Moutai grew collections by 3.5% year-on-year, outperforming its revenue, while Wuliangye saw a 63.3% decline and Luzhou Laojiao a 40.1% contraction due to proactive destocking and price support. Contract liabilities fell notably sequentially after revenue recognition. Net operating cash flow stood at RMB 80.8 billion, up 33.7% year-on-year, but Kweichow Moutai alone accounted for nearly 90% of this. Excluding Moutai, the industry's true cash flow remains relatively weak.

Profitability resilience

The downward product mix combined with rigid fee spending put overall pressure on net margins. In H1 of fiscal 2026, the industry's gross margin was 81.8%, down only 0.4 percentage points year-on-year, indicating that volume control measures to support prices have had some effect. The tax rate was 16.1%, down 1.3 percentage points year-on-year, mainly distorted by a one-off adjustment at Wuliangye; excluding this, most companies actually saw higher tax rates. The sales expense ratio rose to 11.4%, up 1.4 percentage points year-on-year, driven by rigid cost intensity amplifying as revenue declined. The net margin fell 0.6 percentage points year-on-year, with high-end liquor companies declining only 0.1 percentage points—showing that profitability pressure, while present, remains controlled.

Capital returns and valuation support

Leading baijiu companies are strengthening dividend policies, with high yields building a valuation safety cushion. Payout ratios among top players remain elevated, with most increasing. As of August 28, based on current dividend levels, dividend yields stand at 7.36% for Luzhou Laojiao, 7.21% for Wuliangye, 5.51% for Shanxi Fenjiu, 4.69% for Gujing Gongjiu, and 4.01% for Kweichow Moutai—levels that hold appeal for long-term capital. Combined with share buybacks and additional holdings, Wuliangye's total capital return for the year is estimated at over 10%, with high dividends providing substantial valuation support.

Key risks include persistently weak macroeconomic demand, intensifying industry competition, and rising costs that could pressure short-term profitability.