While the hog farming industry remains in a period of deep adjustment, opportunities for long-term excess returns are quietly brewing.
Recent hog sale prices are as low as 9.5 yuan per kilogram, a 33% drop from the same period last year, keeping prices at depressed levels and leading to widening losses across the sector.
Specifically, raising pigs from birth to market results in a loss of over 300 yuan per head under a self-sufficient model, a situation that has persisted for nine months.
The practice of buying piglets for fattening incurs a loss exceeding 200 yuan per head, a trend that has lasted even longer at twelve months.
Simultaneously, piglet prices have recently accelerated their decline, falling from over 220 yuan per head to 150 yuan in just two weeks.
This has weakened industry expectations for price increases in the latter half of the year and pushed the process of eliminating outdated capacity into a deeper phase.
Data from a third-party industry source corroborates this trend, showing a cumulative reduction in hog production capacity of approximately 1.4% from September 2025 to May 2026.
Capacity in May 2026 alone fell by 0.85% month-on-month, indicating a significant acceleration in the pace of capacity reduction.
Recent government measures to intensify hog capacity control, which explicitly require leading breeding enterprises to implement "four leadership" responsibilities and optimize capacity, along with similar policies being rolled out in major hog-producing provinces, are accelerating the exit of inefficient and outdated capacity.
Industry forecasts suggest that future hog supply will follow a pattern of "slight, weak recovery followed by renewed contraction," with prices likely to remain low and bottoming throughout 2026.
A cyclical rebound driving prices higher is strongly anticipated by 2027, and with the support of national capacity control policies, the subsequent upcycle is expected to be more prolonged.
Based on the high conviction of a 2027 hog cycle reversal, long-term capital is quietly beginning to build positions on the left side, aiming to secure undervalued assets.
Within this investment thesis, DEKON AGR (02419) has naturally become a focal point due to its rare core cost advantages and historically low valuation levels.
Core Investment Thesis
The company possesses mature breeding stock advantages, complemented by a comprehensive breeding management system and a family farm service management system, resulting in impressive efficiency across the entire farming process.
Since the company's fully-loaded hog farming cost dropped to 12 yuan/kg in October 2025, it has managed to maintain this cost at 11.87 yuan/kg as of May this year, despite rising raw material prices.
This places its cost structure among the industry's best, giving DEKON AGR resilient profitability far exceeding the industry average.
Financially, the company is on solid ground, holding 4.5 billion yuan in ample cash with a debt-to-asset ratio maintained at a prudent 62% as of the end of 2025, effectively insulating it from industry-wide liquidity concerns.
Critically, during the first quarter of 2026 when the entire industry was mired in deep losses, the company nearly achieved breakeven thanks to its superior cost control.
This combination of "low cost, low leverage, and high cash" not only validates its operational resilience under extreme stress but also provides significant strategic flexibility for potential industry consolidation.
Strategic Advantages and Growth Outlook
Furthermore, DEKON AGR's mature "Family Farm" model deeply establishes a unique competitive moat.
The company leverages its resources to empower small and medium-sized farmers, providing them with a one-stop service package including breeding stock, feed, technical guidance, disease prevention, and finished product sales.
This model helps stabilize production and income for partner farmers, aligning perfectly with national policies encouraging leading agricultural enterprises to support smallholders and rural revitalization.
This provides both social benefits and a solid industrial foundation with policy support for the company's long-term, stable development.
Additionally, DEKON AGR is accelerating its overseas expansion, a key strategic pivot for unlocking medium-to-long-term growth potential.
While deepening its domestic market presence, the company is steadily advancing overseas, leveraging its mature farming technology, integrated supply chain capabilities, and core breeding advantages.
It has conducted preliminary market research and begun implementation in selected regions, with plans to replicate its successful standardized farming model, refined management practices, and complete industrial ecosystem abroad.
This export of technology aims to tap into global market opportunities, creating a new overseas growth trajectory and enhancing the company's global competitiveness.
Valuation and Insider Confidence
As the 2027 hog cycle reversal gradually materializes, DEKON AGR, supported by its dual barriers of a "cost moat and financial safety cushion," along with its mature family farm model and overseas strategy, is poised for accelerated earnings growth.
The magnitude and pace of this earnings release are expected to significantly outpace the industry average.
Its current valuation, which offers a high margin of safety, lays a solid foundation for a potential "Davis Double Play" during the earnings realization phase.
Extreme market sentiment has led to severe undervaluation, with the market capitalization per head of hog at only 1,000 yuan, near historical lows.
Based on 2027 hog futures price expectations of 13-14 yuan/kg, the company's forward P/E ratio for 2027 is estimated at a mere 3-5x, an extremely low historical percentile.
This suggests limited downside and significant potential for valuation re-rating.
Given the high earnings elasticity expected in 2027 and the high certainty of valuation repair, a major shareholder has made substantial purchases of the company's shares.
Disclosures show that Chairman and key shareholder Wang Degen accumulated over 2.23 million shares between May 27 and June 25, 2026, with the total purchase amount exceeding 100 million Hong Kong dollars.
This multi-million-dollar investment by core management deeply aligns their interests with the company's long-term fate, demonstrating strong confidence in navigating the cycle and realizing long-term value.
This "insider" conviction significantly strengthens the investment case for DEKON AGR to deliver excess returns, indicating the current position offers a highly attractive risk-reward profile and clear investment value.
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