GLMS Securities has released a research report stating that due to weak demand and rapid capacity expansion leading to oversupply, prices for mass consumption goods have been declining continuously from 2021 to 2025, resulting in damage to pricing power, profitability, and valuations. Prices for some mass consumption goods may have already bottomed out in 2025, with an upward price cycle expected to begin in 2026. Assuming demand improves, the upward price elasticity and sustainability could be stronger. The firm specifically recommends focusing on the restaurant supply chain and the dairy industry chain. The pricing logic for the restaurant sector has already begun to play out, which is expected to drive simultaneous improvements in pricing, profits, and valuations, while also potentially benefiting from the recovery in service consumption. The dairy industry chain shows strong certainty, influenced by both the beef cattle cycle and the raw milk cycle. The main views of GLMS Securities are as follows:

Review of the current mass consumption goods operating cycle: Oversupply has led to declines in both prices and profits. Weak demand combined with rapid capacity expansion has resulted in oversupply, causing prices for mass consumption goods to fall continuously from 2021 to 2025, harming pricing, profitability, and valuations. Supply: The period from 2017 to 2022 was marked by rapid capital expenditure expansion in the mass consumption goods sector, with a compound annual growth rate (CAGR) of 14% for capital expenditures from 2017 to 2022. After a roughly two-year construction cycle, the years 2020 to 2025 have seen a peak in capacity releases, leading to a significant expansion in supply. Demand: Demand has been relatively weak since 2021. In recent years, growth in restaurant demand has slowed from double-digit rates before 2020 to low single-digit growth. Prices: A continuous decline began in 2021, with the average ex-factory prices of leading mass consumption goods companies generally falling from their peaks. 1. Quick-frozen foods: Volume has increased slightly (supported by ongoing penetration rate growth logic), but prices have declined significantly. Demand: While the overall restaurant market is weak, the quick-frozen segment still benefits from penetration rate growth logic (driven by restaurant standardization and cost reduction/efficiency efforts), leading to sales volume growth for key companies. Supply: Capital expenditure in the quick-frozen sector had a CAGR of 31% from 2018 to 2022. Considering the two-year construction cycle, 2025 may represent the peak of competitive intensity, negatively impacting prices and profits for key companies. Leading company Anjie Foods has continued to gain market share, but its adjusted net profit margin attributable to parent company owners declined from a high of nearly 10% in 2023 to around 8%+ in the first three quarters of 2025. 2. Seasonings: For basic seasonings, volume decreased and prices dropped slightly; for compound seasonings, volume increased but prices fell. The price resilience of basic seasonings is higher than that of compound seasonings. Basic seasonings see nearly 50% of demand from the restaurant sector; weak restaurant demand has pressured volumes, but due to their essential nature and stable competitive landscape, prices have only declined slightly. Compound seasonings still benefit from penetration rate growth logic, catering to demands for restaurant standardization and home convenience, leading to stable volume, but increased competition has caused significant price declines. The net profit margin attributable to parent company owners for basic seasoning leader Haitian Flavours remains around 25% (peak was 28%), while for compound seasoning leader Yihai International, it has fallen from a peak of 18-20% to the current 11-12%. 3. Dairy industry chain: Combining upstream cyclical attributes and downstream consumer attributes, weak demand coupled with a downcycle in raw milk has led to declines in both volume and price. Weak demand and expanded scale from peak farm construction have driven raw milk prices down to near decade lows (raw milk prices had generally remained above 3.2 RMB/kg since the melamine incident), causing losses for upstream farms, and declines in market share, pricing, and profits for midstream dairy companies.

Prices for some mass consumption goods may have already bottomed out in 2025, primarily due to improvements on the supply side and terminal price inefficiencies. An upward price cycle is forecast to begin in 2026. Assuming demand improves, the upward price elasticity and sustainability could be stronger. The focus is on the restaurant supply chain and the dairy industry chain. 1. Restaurant supply chain: The pricing logic has already begun to play out, expected to drive simultaneous improvements in pricing, profits, and valuations, while also potentially benefiting from the recovery in service consumption. (1) Quick-frozen foods: Supply-side conditions have bottomed and are improving, awaiting a demand recovery. Competition in the quick-frozen industry may have reached a cyclical bottom in 2025—characterized by reduced capital expenditures, smaller firms shifting to OEM production, and leading companies moderating price wars—leading to bottoming prices and profits. Companies are already taking actions such as promotional adjustments and product mix upgrades to improve prices and profitability. (2) Seasonings: Prices and profits likely bottomed in 2025, and the sector itself possesses valuation scarcity. The report anticipates that Haitian Flavours' average price in 2025 might achieve flat to slightly positive year-on-year growth, while Yihai International's ex-factory prices may be increasing. (3) Beer: Product mix upgrades are driving improvements in pricing and profitability. Beer companies prioritize profits, and a stabilization and upturn in the Producer Price Index (PPI) could further improve the competitive landscape. Under an optimistic scenario where restaurant demand recovers in 2026, the restaurant supply chain could experience simultaneous growth in volume, price, and profits with enhanced elasticity. 2. Dairy industry chain: Influenced by both the beef cattle cycle and the raw milk cycle, the dairy industry chain shows strong certainty. (1) Upstream farms: The pricing logic for beef cattle has already begun to play out, with beef cattle prices expected to continue rising in 2026, driving profit improvements. The pricing logic for raw milk is expected to become apparent in the second half of 2026. (2) Midstream dairy companies: The pricing logic is expected to materialize in the second half of 2026, primarily driven by spot milk prices catching up with contract prices, indicating an upward industry cycle.

Investment Recommendations: (1) Restaurant supply chain: Quick-frozen > Seasonings > Beer. Recommendations include Anjie Foods for its ongoing market share gains, Yihai International which has begun raising prices, Qianhe Flavours for a potential turnaround, and Zhongju High-tech. Also monitor Baoli Foods. (2) Dairy industry chain: Monitor Youran Dairy. Recommendations include Modern Dairy, New Hope Dairy, Yili Group, and Mengniu Dairy.

Risk warnings: Potential slower-than-expected recovery in CPI and Food CPI; intensified industry competition; significant increases in raw material prices.