Highlights

• For 2Q/1H26 results, among the 20 China consumer companies under our coverage, eight beat expectations, six were in line and six missed expectations. Against a still uncertain consumption environment, most companies lowered their full-year guidance or adopted a more cautious tone on their outlook.
   
• We prefer companies that: a) offer higher earnings visibility supported by multiple growth drivers, b) benefit from improving industry supply-demand dynamics and potential share gains, and c) demonstrate strong execution capabilities and solid track records.
   
• Maintain OVERWEIGHT. Our top picks are: Anta, Atour, Midea and YUM China in consumer discretionary, and Mengniu in consumer staples.

Analysis

• Consumer discretionary
  • Apparel & textiles – Maintain MARKET WEIGHT. Among the sportswear companies under our coverage, only Anta has maintained its full-year guidance, which we view as conservative, while Li Ning and Xtep have lowered their guidance. Sportswear companies aim to optimise product structure and costs to protect gross margins, with any raw material impact on margin expected to be reflected in 2027. On expenses, branding investments are set to increase in 2H26, particularly for Li Ning. Overseas expansion has also become a new strategic focus for domestic sportswear companies.
     
  • For textiles, margin was a miss in 1H26, primarily due to: a) higher labour costs, b) rising raw material prices, c) renminbi appreciation, and d) tariff sharing. Looking into 2H26, we expect volume to remain stable yoy. However, margin is likely to stay under pressure, though sequential recovery vs 1H26 may occur as renminbi appreciation and tariff-sharing pressures ease. We prefer apparel to textiles.
     
  • Broadline retail – Downgrade to MARKET WEIGHT from OVERWEIGHT. The domestic market outperformed, while overseas markets lagged expectations. Margin was a miss, as the overseas direct-to-consumer (DTC) business, which has not yet achieved overall profitability, contributed a rising share of revenue, while the higher-margin distributor business delivered a weak performance. In the near-term, we expect margin to remain a drag, with overseas markets requiring time to achieve operational improvement.
     
  • Household durables – Maintain OVERWEIGHT. In 2Q26, overseas sales of home appliances outperformed the domestic market. On the margin side, efficiency improvement measures enabled household durable companies to offset raw material price increases, mainly copper and plastic. Looking into 2H26, a more favourable comparable base should support performance in the domestic market, while overseas markets are expected to continue delivering steady growth. On profitability, raw material cost pressure is expected to ease sequentially, and tariff refunds could provide additional support for gross margin and overall profit in 2H26.
     
  • Hotel. In 2Q26, hotel operators delivered better-than-feared results, supported by RevPAR growth, with average daily room rate (ADR) increases partially offset by yoy declines in occupancy rates (OCC). In terms of network expansion, hotel openings for both companies are expected to be more skewed toward 2H26. Meanwhile, Atour’s retail business, its second growth engine, maintained strong momentum, leading management to raise its full-year revenue growth target. Looking ahead, STR data indicates that both OCC and ADR for upper-midscale and upscale hotels during the summer season (1 July-29 August) were below last summer's levels, indicating that the RevPAR remains uncertain in 2H26. However, we believe the companies are able to achieve the full-year hotel opening targets, given the rich pipeline.