The market is currently in a critical phase of style rebalancing, with some capital shifting from high-valued tech stocks to undervalued large-cap consumer sectors. How should investors view the opportunities in the consumer industry? Leading analysts from the consumer goods team, including Zi Meng (Food & Beverage/Beauty & Personal Care), Liu Yue Nan (Social Services/Retail), Cai Wen Juan (Home Appliances), Liu Jia Kun (Light Manufacturing), Sheng Kai (Textiles & Apparel), and Lin Yi Dan (Agriculture), have convened a conference call to provide their insights.

Baijiu: Moutai has released its first half-year report. The report shows that in Q2 2026, total revenue and net profit attributable to shareholders fell by 5.2% and 6.9% year-on-year, respectively. Considering that Q2 is typically an off-season for baijiu, and despite price increases and advance shipments, the company's sales were relatively restrained, leading to the performance decline. Notably, in Q2 2026, revenue from Moutai's direct sales and wholesale agency channels grew by 34% and fell by 35% year-on-year, respectively, with a ratio of approximately 6:4. The iMoutai platform continued its high growth, contributing over 50% of total revenue. Given that the company raised prices for Feitian Moutai and some non-standard products in March, May, July, and August, profits are expected to be released in H2 2026, supporting stable performance. Based on Moutai's half-year report and previous performance forecasts from other baijiu companies, the baijiu industry is expected to continue its cleanup phase in Q2 2026, with only a few companies likely to achieve flat or positive year-on-year growth. At this point, the industry is at a bottom in terms of fundamentals, holdings, and valuation. Factors such as liquidity, volume and price performance, and policies could serve as catalysts (e.g., recent price increases for high-end baijiu), making early-recovery candidates a recommended focus.

Mass Consumer Goods: The recovery trend remains unchanged, and value at the bottom is evident. After a short-term decline in high-frequency consumption data in April and May, mass consumer goods began to stabilize in June, and it is expected that Q3 will see a further moderate improvement, with a clear recovery trend for the full year. The penetration of health-focused foods continues to rise with sustained growth. The catering supply chain and condiments are benefiting from improvements in both supply and demand, with leading companies expected to maintain steady growth even in the off-season Q2, remaining a key theme throughout the year. Some beverage and beer leaders are outperforming their respective sub-sectors, and after expectations have been revised down, their valuations offer good value. The two leading snack chain stores continued their rapid store expansion in Q2, and the growth of the snack channel remains highly certain and resilient. In the catering supply chain, driven by new products and new channels, the long-term growth of leading companies is still viewed positively. For example, Sanquan Food has launched an employee stock ownership plan, targeting a 10% CAGR in revenue over three years from 2026 to 2028, demonstrating confidence in future development. As half-year reports for 2026 are being released, focus should be on opportunities that exceed expectations. Among these, Weilong Delicious, which we previously highlighted, has enhanced its shareholder returns alongside its half-year report, making its dividend yield quite attractive. Meanwhile, Angel Yeast continued its rapid revenue growth in Q2, but profits were temporarily impacted by ocean freight costs, raw material costs, and exchange rate losses.

Beauty & Personal Care: The recovery of high-end luxury beauty is continuing, and the sector's potential for rebound is expected to emerge. The overall beauty market maintained steady growth, with cosmetics and hair care performing particularly well. According to the National Bureau of Statistics, in H1 2026, the retail sales of cosmetics above a designated size grew by 6% year-on-year, outperforming total social retail sales by 5 percentage points. Benefiting from promotions and a low base, cosmetics retail sales in June grew by 13% year-on-year, highlighting the industry's growth potential. Data from Pinguan shows that in H1 2026, GMV on major e-commerce platforms for beauty products was 270.9 billion yuan, a 5.5% year-on-year increase, indicating stable performance. By platform, Douyin and Tmall saw beauty GMV growth of 14% and 5% respectively in H1 2026, with Douyin maintaining rapid but converging growth. By category, GMV for skincare, cosmetics, and hair care on major e-commerce platforms grew by 1%, 13%, and 17% year-on-year respectively in H1 2026, with cosmetics and hair care showing strong performance while mass-market skincare faced notable pressure. The recovery of high-end luxury beauty is continuing, with many high-end foreign beauty brands achieving high growth in H1 2026. According to Pinguan data, high-end foreign beauty brands recovered significantly in H1 2026, with brands like Estée Lauder, Lancôme, La Mer, SK-II, Helena Rubinstein, YSL, and SkinCeuticals achieving double-digit growth in online GMV. The recovery was particularly pronounced in the high-end skincare category, while both high-end and affordable brands performed well in cosmetics and hair care. This is attributed to: 1) The recovery of high-end consumption. Looking at luxury group financial reports, in Q2 2026, Hermès, LVMH, and Kering saw comparable revenue growth of 3%, 2%, and -1% respectively in Asia Pacific (excluding Japan), continuing the marginal improvement trend from H2 2025. L'Oréal China's high-end division achieved double-digit growth in H1 2026. 2) Continued platform subsidies. In the mid-to-late stages of channel development, high-ticket items and strong brand power are relatively beneficial. Foreign high-end brands have a stable customer base and have achieved marginal improvements after years of decline through channel and product structure adjustments. The beauty sector's holdings and valuations are at a bottom, suggesting potential for a rebound. Since the beginning of the year, the beauty sector has experienced significant pullbacks due to market sentiment and weak online data from some leading brands. By July 2026, the Shenwan Beauty & Personal Care Index had fallen 18% year-to-date. The current 2026E valuations for leading stocks have generally fallen to 15-25x, and Q2 institutional holdings were less than 0.1%, with both valuations and holdings at low levels. The beauty sector offers many bottom-up high-growth opportunities due to frequent product innovation and the overall rise of domestic brands. With leading companies' valuations at historical lows, and as high-end luxury beauty data stabilizes and improves alongside market rebalancing, the sector is expected to show rebound potential.

Social Services / Retail: Reiterating the importance of domestic demand, the service industry is poised for accelerated development. Service consumption has become a key policy priority. The 2026 Government Work Report includes many incremental statements and target changes regarding domestic demand, consumption, services, travel, and people's livelihoods. As policy paths mature, service consumption will benefit from innovations in scenarios, increased leisure time, and improved disposable income. Sub-sectors such as the travel chain, local life services, and education/sports are all expected to benefit. The importance of domestic demand is reiterated, and the policy path for promoting consumption is becoming increasingly mature. The report first reiterates the importance of domestic demand but also emphasizes the need to combine residents' endogenous motivation with policies to promote consumption. This change indicates a shift from simple demand-side stimulus to stimulating endogenous motivation, meaning improving income and boosting expectations simultaneously, reflecting a mature policy approach. An incremental change in income distribution: For the first time, increasing residents' property income is mentioned, acknowledging that property income is an important supplement to residents' income. The report also mentions salary and social security systems as important paths to reduce precautionary savings. The report mentions "adjusting and optimizing the scope and rates of the consumption tax, and moving the collection point for some items backward." This indicates that moving the consumption tax collection point backward has become a clear work plan. Service consumption receives key emphasis, with the integration of the cultural, tourism, and sports industries being a major trend. The report contains many statements about service consumption and the service industry, with a relatively clear policy direction: innovating consumption scenarios and providing more leisure time. Innovation in consumption scenarios covers cultural tourism, events, and health & wellness. Leisure time includes spring and autumn breaks for primary and secondary school students and staggered paid leave. The demand elasticity of service consumption is more sensitive to leisure time. The report dedicates significant space to the development of the cultural, tourism, and sports industries, stating: "High-quality development of the cultural tourism industry, enriching the integration of cultural, tourism, sports, and business formats. Actively develop the event economy, ice and snow economy, and outdoor sports. Build and make good use of sports venues and facilities near the people, cultivating more distinctive mass sports events." Benefiting from the success of the 2025 "Su Chao" (a regional football league), sports event operations are mentioned multiple times. China's sports industry is still in its early stages, with significant potential for integration with the tourism and cultural industries. The direction is towards inclusive, people-centered public services. Under the context of anti-involution, platform regulation is tightening. The report maintains its emphasis on improving inclusive, people-centered public services in areas like employment, income, education, healthcare, and health. It highlights the importance of flexible employment personnel participating in insurance policies, which is essentially a protective measure to reduce precautionary savings. In the platform economy dimension, the report reiterates the need to strengthen platform review, placing it under the unified deployment of anti-involution. It explicitly states: "Optimize the ecosystem for platforms, operators, and workers." These priorities are expected to significantly promote the demand for service consumption, optimize the service industry ecosystem, and reduce residents' precautionary savings while increasing their disposable income.

Home Appliances: Segway-Ninebot's half-year report exceeded expectations, and the decline in air conditioner production plans and retail sales has narrowed. Segway-Ninebot's half-year report surpassed expectations. In Q2 2026, the company reported revenue of 8.488 billion yuan, a 28.03% year-on-year increase; net profit attributable to shareholders was 805 million yuan, up 2.5% year-on-year; and non-GAAP net profit attributable to shareholders was 795 million yuan, down 9.3% year-on-year. In Q2, the electric two-wheeler business was affected by the new national standard, while the robot lawnmower and scooter segments continued their high growth during the peak season. Q2 electric two-wheeler revenue was 4.112 billion yuan (up 4% year-on-year), with sales volume of 1.6164 million units (up 16% year-on-year) and an average selling price of 2,544 yuan (down 11% year-on-year). Revenue from self-branded retail scooters was 1.176 billion yuan (up 27% year-on-year). All-terrain vehicle revenue was 424 million yuan (up 31% year-on-year). B2B sales revenue was 693 million yuan (up 60% year-on-year). Revenue from accessories and other items (including robot lawnmowers and e-bikes) totaled 2.083 billion yuan (up 112% year-on-year). Looking ahead, the temporary impact of the new national standard has largely been absorbed. As the product matrix for electric bicycles is gradually filled with blockbuster products and pricing strategies are optimized to offset cost increases, the average selling price and profitability in H2 are expected to improve. The decline in air conditioner production plans and retail sales has narrowed, sending a positive signal. In August, China's air conditioner industry entered a new 2026 cooling year cycle, gradually emerging from the industry trough. AVC PSI monitoring data shows that in September 2026, domestic air conditioner production plans decreased by 6.5% year-on-year, a narrower decline compared to August. Export production plans fell by 7.1% year-on-year. Although the European heatwave has driven some demand, channel inventory for split air conditioners remains relatively high, making strong growth difficult to sustain in the short term. Retail sales continue to face pressure, but the decline is narrowing. AVC's estimated data shows that in July 2026, the overall air conditioner sales volume decreased by 9.8% year-on-year, and sales value decreased by 17.8% year-on-year. Roborock has launched two new drum-type products. On August 14, Roborock officially released two new flagship drum-type robot vacuum and mop models, the G30S Ultra and P30 Pro. These products feature ultra-thin bodies, comprehensive cleaning, and intelligent self-cleaning, aiming to comprehensively upgrade the home cleaning experience. These two new products are expected to fill out the drum product matrix, further strengthen Roborock's technological moat, and solidify its leading position.

Light Manufacturing: The investment opportunity in leading paper companies against the backdrop of a stabilizing PPI is viewed favorably, with high odds of reward at the current juncture. Pulp is a globally priced US dollar commodity, with upstream wood and wood chips, showing co-movement with commodities like oil. The industry cycle is on the right side, with pulp prices rising nearly 30% from July-August 2025 to March 2026. The papermaking segment is more mid-stream, priced by domestic supply and demand, and is currently on the left side of the cycle but in a gradual recovery. After the Spring Festival, containerboard and corrugated medium paper companies have successively raised prices, with the price increases for corrugated medium being well implemented. White cardboard, cultural paper, and tissue paper grades have also been issuing price hike letters since March 2026. On the supply side, new capacity additions in 2026 have decreased significantly, and new capacity additions in 2027-2028 are limited. On the demand side, the future can be seen as an upward call option. Sector valuations are at historically low levels, making this the most core investment theme for 2026. Key recommendations include high-beta stocks like Nine Dragons Paper and Bohui Paper, and value stocks like Sun Paper and Huawang Technology. During the traditional "Golden March and Silver April" season in the real estate market, the new home and secondary market activity in cities like Shanghai and Shenzhen has been relatively strong, with micro-level surveys showing positive industry changes. Real estate-linked home furnishing companies have high dividend yields and attractive valuations, but the core driver for upward stock prices requires fundamental marginal changes. From Q4 2025 to January-February 2026, some companies have shown differentiated growth trends in orders. Kuka Home is the top pick, as it has advantages in fundamentals, annual strategy, and valuation safety margin. While market expectations are divided on the transmission from PPI to CPI, companies in the essential consumer goods space, which have the ability to pass on prices and stable volumes, deserve attention, especially those listed in Hong Kong.

Textiles & Apparel: U.S. clothing store retail sales accelerated month-on-month in July, and most Taiwanese manufacturing companies saw a sequential improvement in revenue growth in July. U.S. clothing store retail sales in July grew by 5.0% year-on-year, accelerating from June's 4.3% growth. Cumulative retail sales for the first seven months of the year increased by 5.9% year-on-year. In terms of inventory-to-sales ratio, the U.S. clothing store retail inventory-to-sales ratio for June was 2.14 months, down 0.06 months year-on-year but up 0.03 months month-on-month. In July, most Taiwanese manufacturers saw a sequential improvement in revenue growth. Revenue for Yue Yuen (manufacturing), Feng Tay, Yue Qi, Zhi Qiang, Lai Yi, and Ru Hong changed by -9.7%, +1.0%, +30.9%, -3.0%, +8.1%, and +23.3% year-on-year, respectively. Growth rates for Yue Yuen, Feng Tay, Yue Qi, Lai Yi, and Ru Hong improved month-on-month, while Zhi Qiang slowed down. For the first seven months of the year, the year-on-year revenue changes were -3.2%, -3.0%, +5.1%, -3.4%, -12.0%, and +5.9%, respectively. Asics H1 2026 results exceeded expectations, while Tapestry provided cautious guidance for the upcoming fiscal year, and On Holding revised down its revenue guidance. Asics reported H1 2026 revenue of 534.4 billion yen (up 32.7%, or 22.0% at constant currency), an operating profit margin of 22.5% (up 2.4 percentage points), and net profit of 82.1 billion yen (up 53.3%), both revenue and profit exceeding expectations. The SportStyle (up 65.6% at constant currency) and Onitsuka Tiger (up 29.4% at constant currency) segments led the growth. At constant currency, revenue in Japan, North America, Europe, and Southeast Asia/South Asia grew by 23.8%, 19.6%, 29.7%, and 25.9%, respectively. The company raised its full-year 2026 revenue guidance to 1.05 trillion yen (up 29.5%). Tapestry reported Q4 FY2026 revenue of $1.88 billion (up 9%, or 11% at constant currency) and EPS of $1.32 (up 28%, beating the previous guidance of around $1.2). By brand, Coach and Kate Spade saw constant currency revenue growth of 14% and -7%, respectively. By region, revenue in North America, Europe, Greater China, Japan, and Other Asia grew by 7%, 19%, 28%, -4%, and 22%, respectively, with Greater China leading. The FY2027 revenue guidance is $8.4-8.5 billion (up 5-6%), with EPS of $7.8-7.9 (up low double digits). On Holding reported Q2 2026 revenue of CHF 851 million (up 13.5%, or 21.6% at constant currency), which was below market expectations. This was mainly due to the company's active control of wholesale shipments to avoid inventory build-up. The adjusted EBITDA margin was 19.8% (up 1.6 percentage points). By channel, Q2 DTC and wholesale revenue grew by 34.3% and 12.7% at constant currency, respectively. By region, Q2 revenue in the Americas, EMEA, and APAC grew by 13.0%, 20.5%, and 54.7% at constant currency, respectively. The company has lowered its constant currency revenue growth guidance for FY2026 to 20%+ (from 23%+), while raising its gross margin guidance to 65% (driven by a higher DTC mix, full-price selling, and operational efficiency improvements).

Agriculture: The off-season for white-feathered chickens is ending, and the H2 cyclical upswing is beginning. The off-season in July was not weak. Sales data for white-feathered chicken listed companies in July showed that chain prices rose year-on-year during the traditional off-season. The year-on-year increases in July were: Yisheng (parent stock + commercial chicks) +118.7%, Minhe (commercial chicks) +79.7%, Sunner (chicken meat) +3.3%, and Xiantan (chicken meat) +2.8%. Prices are rising on the margin. This week, the average price of broilers in the main production areas was 7.21 yuan/kg, up 0.36 yuan/kg week-on-week, mainly due to increased industry slaughter costs and stronger chicken product prices. The average price of commercial chicks in the main production areas was 3.43 yuan/chick, up 0.48 yuan/chick week-on-week, mainly due to the weakening impact of high temperatures, increased farmer restocking enthusiasm, and faster chick order flow. The industry has experienced two rounds of breeding stock supply gaps since 2025, with zero parent stock imports from January to May 2026, which is expected to drive a cyclical upswing across the entire industry chain. The mid-stream cycle is currently materializing, and a downstream co-movement is expected. Companies with independent breeding capabilities and continuous cost reduction, like Sunner Development, and those that expanded their import share against the trend, like Yisheng, are expected to benefit from both alpha and beta. In crop farming, production estimates have been lowered, policies are providing support, and some agricultural product prices are rising. In the international grain market, the latest USDA monthly report lowered the new crop corn yield forecast to 180.7 bushels per acre, down 2.3 bushels from last month, leading to reduced ending stocks and a significant increase in CBOT corn futures. In the domestic grain market, policy support is driving up wheat prices. On August 10, the National Food and Strategic Reserves Administration officially announced the implementation of the 2026 wheat minimum purchase price plan in Henan province starting August 11. After the market support was implemented, wheat prices began to rise. Furthermore, under the backdrop of El Niño, the challenge of climate disasters to crop yields may increase. Opportunities related to the bottoming and rising of grain prices, such as for corn, and high-yield, stress-resistant crop varieties (like Kangnong Seed's Kangnongyu 8009) are worth watching. In the pet food sector, the major pet exhibition Asia Pet Fair was held in August, with a focus on functional food trends. The 2026 Asia Pet Fair opened in Shanghai on August 19. As one of the largest pet exhibitions in China, this year's fair saw a dual expansion in scale and scope, setting a new record with a 320,000 square meter exhibition area and gathering over 2,600 high-quality domestic and international exhibitors, highlighting the booming development of the pet industry. The trend towards functional pet food is expected to strengthen, raising the entry barrier for the pet food market and benefiting industry consolidation.