Goldman Sachs: The most difficult phase for Chinese baijiu is over.

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Goldman Sachs’ latest research report believes that the most difficult destocking phase for China’s baijiu (white liquor) industry has passed—the supply side has accelerated production cuts, key mid-to-high-end varieties have seen wholesale prices stabilize, and channel inventories have become healthier. The industry is currently in the very early stages of recovery. However, broader business demand recovery remains to be confirmed due to macro uncertainties, and the industry's long-term market capacity also faces structural contraction.

According to news from Tracking Trader Desk, on June 23, Goldman Sachs upgraded Gujing Gongjiu from Sell to Buy and upgraded Jinshiyuan from Neutral to Buy, setting their 12-month target prices at 105 and 31 RMB respectively, implying about 28% upside; at the same time, it maintains Moutai as the sector top pick while remaining cautious on Wuliangye, Shuijingfang, and Yanghe. Goldman analysts Leaf Liu, Christina Liu, and Valerie Zhou pointed out in the report that the balance sheets of these two regional liquor companies have shown signs of improvement ahead of others, current valuations are at the bottom of the historical cycle, and the risk-reward ratio is becoming attractive.

Meanwhile, Goldman Sachs lowered most baijiu stocks’ 2026–28 profit forecasts, cutting net profit estimates for ultra-high-end (excluding Moutai) by up to 10%, and mid-to-high-end by up to 52%, and reduced some target P/E ratios by 4–19% to reflect the long-term contraction in industry market capacity— predicting that industry sales by 2030 will only return to about 75% of 2024 levels.

Since Goldman Sachs downgraded the sector’s rating in July 2025, the CSI Baijiu Index has dropped about 30% cumulatively, underperforming the MSCI Consumer Staples Index by about 12 percentage points; the sector is down an average of about 27% year to date, currently trading at a 2026E P/E of 19x and 2027E P/E of 16x, comparable to the valuation at the beginning of the 2015 recovery, with both P/E and P/B at ten-year lows.

Cyclical Position: The Worst is Over, Recovery Still in Early Stages

Goldman Sachs characterizes the current baijiu industry as “very early in recovery but showing stabilization signals,” supported by supply and demand, price, and cash flow dimensions.

On the supply side, cuts have accelerated significantly this year: small liquor companies are exiting successively, and large brands have begun suspending capital expenditure plans, including Shuijingfang, and the industry’s oversupply is narrowing. On the demand side, Goldman’s macro dashboard model shows that the YoY decline in sales of ultra-high-end and mid-to-high-end baijiu has continued to narrow since Q1 2026, with the bottom likely appearing in Q4 2025; but broader demand recovery for mid-to-high-end varieties is still slow, awaiting further channel inventory reduction.

Goldman points out that, based on industry cycle patterns, improvements in company financial statements usually appear as the last signal; currently, we are at the crucial point transitioning from channel inventory normalization and wholesale price stabilization to demand recovery and stock price rebound. Goldman remains attentive to the upcoming capital expenditure cycle—historical data show a clear positive correlation between baijiu sector valuation and sales growth during infrastructure investment upcycles. It is expected that, driven by AI-related spending (especially in Anhui and Jiangsu), fixed asset investment may re-accelerate in the second half of the year, but the boost to baijiu business banquets from this capex cycle is expected to be weaker than in previous real-estate-led cycles.

Wholesale Price Stabilization: Mid-to-High-End Takes the Lead, Feitian Returns to Affordable Range

Goldman Sachs observes that, from the end of 2025 through the first half of 2026, Feitian Moutai and key mid-to-high-end varieties have shown a broad trend of wholesale price stabilization, including Jinshiyuan, Gujing Gongjiu, and products of ZJLD. This has happened after channels underwent approximately 3–4 quarters (since Q2–Q3 2025) of accelerated destocking.

For example, the wholesale price of Feitian Moutai as a percentage of the average monthly salary of urban employees has fallen from a high of nearly 60% in 2021 to about 28% currently, even below the affordable level of 2013, and the cost-performance ratio of high-end baijiu has significantly improved.

Goldman further points out that sales growth of ultra-high-end baijiu has historically been positively correlated with secondary housing prices in first- and second-tier cities. Expected recovery in some top-tier city property markets will provide additional support to high-end varieties. In terms of channel inventory, major brand distributors’ inventories are stabilizing, brands are not imposing mandatory pre-payment requirements on distributors, and channel health continues to improve.

Cash Flow Improvement: Ultra-High-End Turns Positive, Mid-to-High-End Swings from Negative to Positive

In terms of cash flow, Goldman Sachs calculates that adjusted sales (including changes in customer prepayments) showed a significant rebound in Q1 2026, with ultra-high-end returning to positive growth, indicating early signs of warming in orders and distribution, possibly also reflecting the effects of Moutai’s direct-sales reform and other channel structure adjustments.

As for operating cash flow/revenue ratio, ultra-high-end saw a slight rebound in Q1 2026, and mid-to-high-end switched from negative value in Q4 2025 to positive in Q1 2026; inventory days’ YoY growth began to slow from Q4 2025 through Q1 2026. Of note, accounts receivable rebounded in Q1 2026, indicating that there is still prepayment pressure in the channels, and the path of balance sheet improvement for both types diverges to some extent.

Goldman expects that 2026 will still be a challenging year for most stocks, with Moutai and Jinshiyuan being exceptions; most companies’ operating cash flow growth is expected to gradually recover by 2027, with profitability improvement being the main driver.

Industry Capacity Shrinkage: TAM in Long-term Downshift

Goldman Sachs expects that industry sales by 2030 will recover only to about 75% of 2024 levels, mainly due to contraction in scenarios related to business banqueting consumption—such scenarios account for about 30–40% of total baijiu consumption, and an even higher proportion for high-end products.

By category, Goldman expects ultra-high-end sales volumes to return to 2024 levels by 2030, while mid-to-high-end may shrink by around 20% compared to 2024. Per capita baijiu consumption has dropped from an average of 19–21 bottles (500ml) per year in 2012–2019 to about 12 bottles in 2025. Goldman expects this to further drop to around 10 bottles in the long term; the core consumer group (aged 15–64) is also expected to shrink by about 1% per year starting in 2028.

Overall, Goldman expects companies under coverage to see revenue/net profit growth of about 2%/5% in 2026, with revenue/net profit growth rebounding to 7–8%/8–9% in 2027–28. In terms of industry concentration, the sales/sales revenue market share of the top five companies has risen from 22%/56% in 2024 to 24%/58% in 2025; Goldman expects it to further reach 30%/68% in 2028, with the concentration of leading brands accelerating during this downcycle.

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The above highlights are from Tracking Trader Desk.

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