Summary of Key Points
Yanghe Shares, once a leader in the liquor industry, delivered a half-year report in 2026 that fell far below the industry average: net profit in the first half of the year decreased by 40% year-on-year, and its market value plummeted from nearly 400 billion yuan at its peak in 2021 to less than 80 billion yuan, a reduction of 80%. On the surface, this decline in performance is a common issue as the entire liquor industry enters a period of adjustment. However, the core foundation of Yanghe has long been weakening: its efforts to expand outside its home province of Jiangsu have been largely unsuccessful, and its home market is being continuously eroded by local competitors. Although Yanghe has initiated measures to reorganize its distribution channels and make structural changes, several critical obstacles remain unresolved, and there are no signs of performance improvement in the short term.
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Easy-to-Understand Explanation of Key Points
1. Yanghe's Performance Decline is Multi-Faceted and Exceeds Normal Industry Trends
This year, all liquor companies are struggling, but Yanghe's situation is particularly severe. The following figures illustrate this: total revenue in the first half of the year was 10.5 billion yuan, a decrease of nearly 30% year-on-year, and net profit dropped by 40% year-on-year. The second quarter was even more alarming, with net profit from sales of liquor amounting to only 155 million yuan, less than what some popular milk tea brands earn in a single quarter. This kind of performance has almost never occurred among the industry's leading companies. More importantly, Yanghe has announced that it will not distribute dividends this year. Many long-term investors bought Yanghe stocks because of the company's tradition of stable cash dividends, which were considered more reliable than bank deposits. The suspension of dividends has shattered the investors' belief that Yanghe would always make a profit, thus shaking their confidence in the stock.
Moreover, the decline is widespread across all price segments, from high-end products priced at thousands of yuan to affordable bottles costing just a few dozen yuan. None of Yanghe's product lines have been able to withstand the market pressure. There is also a dangerous sign: the advance payments made by distributors to Yanghe (reflected in the financial statements as contractual liabilities) have decreased from 7.5 billion yuan to 4.3 billion yuan, a reduction of 3.2 billion yuan, indicating that distributors are hesitant to stockpile Yanghe's products for fear of losing money. This means that Yanghe's future performance will not be supported by pre-ordered inventory, and the pressure will only increase.
2. Why Did Yanghe Perform Worse than Its Peers?
Yanghe used to be among the top three companies in the industry due to a dual strategy: expanding nationwide through a deep distribution network, with markets outside Jiangsu accounting for half of its revenue, and focusing on its home market in Jiangsu, which has one of the strongest liquor consumption capacities in the country. However, both strategies have failed. The expansion efforts have faced challenges: during the industry's boom, Yanghe offered high rebates and subsidies to distributors to encourage them to sell products nationwide, but now, with the industry in decline, products are sitting in distributors' warehouses unsold for months, sometimes at prices lower than the purchase cost. As a result, 422 distributors outside Jiangsu have left, rapidly shrinking Yanghe's market presence outside the province.
The situation in Jiangsu is even worse: revenue in the province decreased by 38% year-on-year, almost twice the decline in other regions. This is because local liquor companies, such as Jingshiyuan, have targeted Yanghe's core market. Instead of expanding blindly, Jingshiyuan has focused on developing its presence in Jiangsu, penetrating every county, taking over key market segments such as wedding and business events. With the industry entering a period of competition for existing market share, Yanghe has lost ground both externally and internally.
3. Yanghe's Claim That Poor Performance Is a Voluntary Choice to “Deflate Bubbles and Restructure” Is Partly True, Partly False
In response to its poor financial results, Yanghe provided a somewhat plausible explanation: it claims it is deliberately holding back production to adjust the market structure. The company aims to reduce inventory, stabilize prices, and ensure distributors can make a profit on each sale, even if this means sacrificing short-term financial performance. Yanghe is indeed implementing changes, such as reducing the number of marketing centers from 26 to 14, cutting the number of business units from 73 to 47, and slashing nearly half of the grassroots offices. The new evaluation criteria focus on how much alcohol consumers actually consume and whether inventory levels have decreased. This approach aligns with the current industry trends. Yanghe also has a significant advantage: it owns 740,000 tons of aged base liquor, a valuable asset that provides a solid financial foundation and will help the company through this adjustment period.
4. The Right Direction for Reform, but Three Overcoming Hurdles Are Necessary for a Turnaround
Yanghe's reform strategy is sound, but whether it will be effective remains uncertain due to three major obstacles:
1. Policy Inconsistency: The company's leadership has changed frequently in recent years, and the new management has overturned previous policies and evaluation methods, leading to declining performance. Investors are cautious, fearing further changes that could result in losses.
2. Lack of New Hit Products: Yanghe's growth in the past relied on established products like Mengzhi Blue, but these products now face competitive pressure with minimal profit margins. Despite numerous new products, none have become popular enough to drive revenue growth.
3. Changing Market Conditions: The overall demand for liquor is declining, and consumers are reducing their spending on liquor for both business and personal gatherings. Reducing inventory across all channels will take longer than expected, possibly extending the adjustment period by 2-3 years. The era of easy profits in the liquor industry is over. Yanghe's success in the past relied on innovative strategies, but to survive this downturn, it needs the cooperation of distributors and consumer demand.
In summary, while Yanghe's reform efforts are correct, the company faces significant challenges that must be overcome to see improvement.