The price of live hogs has fallen to its lowest level in nearly a decade, accelerating industry consolidation. Many small and medium-sized farmers are exiting the market, and some unlisted large-scale breeding enterprises are facing severe financial strain. In a recent internal communication, DEKON AGR (02419) Chairman Wang Degen stated that while the industry's winter is not yet over, he is optimistic about the future: "The more severe the current decline and the deeper the wounds, the brighter tomorrow's smile will be. The prerequisite, of course, is that you survive." Wang Degen's firm stance is not merely rhetorical. Amidst widespread market pessimism, he has chosen to invest his own capital to continuously increase his holdings in the company. Data from the Hong Kong Stock Exchange shows that from May 27th to June 9th, he purchased a total of 1.3283 million shares, involving over HK$68.46 million. This action, which aligns management's personal interests with the company's collective interests, demonstrates the senior leadership's confidence in DEKON AGR's long-term prospects and underscores their commitment to shareholder returns and capital efficiency. Wang Degen's willingness to increase his stake against the market trend is likely underpinned by the company's preparedness to endure the industry's cyclical fluctuations. President Yao Hailong disclosed the latest cost data in the investor call: the complete production cost for May was approximately 11.8 yuan per kilogram, maintaining the company's position in the industry's top tier. In excellent regions, the complete cost has dropped to 11.29 yuan per kilogram. Within the cost structure, feed accounts for about 60%, and piglet costs account for 19%. Yao Hailong noted that as roughly 80% of the company's capacity is concentrated in southwestern China, it faces a raw material cost disadvantage of about 200 yuan per ton compared to peers. However, "with the same raw material prices, we still have room to reduce costs by 0.5 to 0.6 yuan. DEKON AGR's management advantages are fully evident." According to Yao Hailong, the company's feed conversion ratio still has room for improvement by 0.1 to 0.2, achievable through methods like formula testing and precision feeding to control sow feed costs. The medium-term target for pigs weaned per sow per year (PSY) is around 33. Currently, excellent weaning costs have fallen below 210 yuan, with PSY in some farms reaching 35 to 36. Labor efficiency also has potential for improvement by 50 to 80 pigs per person. Furthermore, DEKON AGR will continue to increase the development of local raw materials in the southwest to reduce transportation costs. Yao Hailong's medium-term goal is to reduce the complete cost to 11-11.3 yuan per kilogram on a monthly basis. Despite ongoing industry pressure, the competitive moat of DEKON AGR's unique "No. 2 Family Farm" model continues to deliver value. The company notes that about one-third of the farmers in the No. 2 Farm system have a PSY exceeding 30, placing them at the forefront of the industry. "We have spent over a decade continuously refining and improving this model." Even with the current low hog prices, DEKON AGR maintains farmer service fees above 300 yuan. Wang Degen cited a recent example: a batch settled last week from a No. 2 Farm achieved a service fee of 374 yuan per head, with the farmer's complete cost at only 11.2 yuan per kilogram. "They would have been satisfied with a 300 yuan settlement, but we gave them 374. Local officials called upon hearing this, surprised that farmers could earn so much in this market." This vividly illustrates the core strength of DEKON AGR's farmer partnership model. Even at the bottom of a challenging industry cycle, the company empowers its partner farmers through technology and management, enabling them to achieve stable returns far exceeding industry averages. This creates a positive cycle of "enhanced enterprise efficiency, increased farmer income, and more stable cooperation," validating the resilience of the No. 2 Farm's profit-sharing mechanism. Financially, DEKON AGR is also well-prepared for the downturn. CFO Jiang Yongjun stated that the initial capital expenditure budget for the year was 600 to 800 million yuan, which has been further reduced in response to industry conditions, with all new capacity expansions under control. Wang Degen also clearly stated that the company currently has sufficient cash flow and sound financial operations. "Be strategically optimistic, but tactically pessimistic," Wang Degen said. "What we need to do is anticipate a longer winter and prepare thoroughly for the difficult period. When the best opportunity arrives, we will still be healthy and retain the flexibility for development." Beyond its core hog business, DEKON AGR's yellow-feathered chicken business continues to focus on a differentiated strategy. Wang Degen stated the company will persist in avoiding "homogeneous competition" with peers. Meanwhile, the company's layout in food processing is progressing steadily, striving to complete the "final kilometer" of the full industry chain.
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