The Zhitong Finance App learned that Guotai Junan released a research report saying that from upgrading the consumer industry to exchanging price for volume, valuation restructuring led to a sharp decline in short-term valuations, and a sharp decline in the short term. Long-term steady state valuations are still awaiting future expectations to stabilize. Once expectations stabilize, short-term overfalls will be clearly reversed and entered into steady state valuations. The bank believes that the valuation of domestic consumer goods companies should be higher than overseas, but currently many consumer industry valuations are lower than overseas, and short-term undervaluation already reflects pessimistic expectations. The growth logic of the consumer industry has changed, and the restructuring of valuations has led to a sharp decline in short-term valuations, but it is abnormal below overseas. The core is that expectations for the future are unstable. Once expectations stabilize, the short-term overfall will be clearly reversed.

Guotai Junan's views are as follows:

The valuation has declined sharply, and the value is relatively undervalued.

In 2023, the consumer industry flourished from flourishing at the beginning of the year to weakening consumption power in Q2. As a result, valuations of beer, popular products, etc. have reached historic lows, and the valuation of liquor has reached a historical low of around 30%. PE of mainstream companies fell to less than 20 times in 2024, lower than overseas, and the food and beverage dividend yield increased to 1.9%. Judging from the driving force of the consumer industry, consumption is a procyclical industry. It is relatively affected by macroeconomics, but it is rare for valuations to fall below historical lows, lower than overseas developed countries. The industry is relatively undervalued in the short term, but long-term steady state valuations are still waiting for future expectations to stabilize.

Consumption power is relatively weak, from consumption upgrades to price in exchange for quantity.

China has experienced a period of rapid economic growth for decades, and consumption has been upgrading along with economic growth. In particular, since 2016, the consumer industry has gone from being driven by total volume to structural upgrading, and has entered a stage of accelerated upgrading. By 2023, the recovery of consumption power was relatively weak. Many industries experienced the phenomenon of exchanging price for volume. From consumption upgrades to sales driven, the logic of consumption growth was questioned, and the logical shift led to a sharp decline in industry valuations. In the past 3 years, due to the relative weakening of future expectations for industry growth, valuations have declined, which is the main reason for the decline in stock prices. The valuation of the food and beverage sub-sector has declined by 15-30% every year, second only to 2011-2013.

It has fallen sharply in the short term, and steady state valuations are yet to stabilize as expected.

Stock prices in the consumer sector fluctuated and fell, and valuations continued to reach new lows. How much is a reasonable valuation is a common question for everyone. Returning to the industry valuation system, the growth rate of the molecular consumer industry has slowed down, breaking the previous growth logic with sales driven growth, but the growth rate is still significantly higher than overseas; domestic interest rates on the denominator side are lower than in major overseas developed countries. The valuation of domestic consumer goods companies is supposed to be higher than overseas, but currently the valuation of many consumer industries is lower than overseas, and short-term undervaluation already reflects pessimistic expectations. The bank believes that the consumer industry's growth logic has changed, and that valuation restructuring has led to a sharp decline in short-term valuations, but it is abnormal when it is lower than overseas. The core is that expectations for the future are unstable. Once expectations are stable, the short-term overfall will be clearly reversed.

Risk warning: increased macroeconomic fluctuations, increased market competition, food safety risks, etc.