As DEKON AGR (02419) released its earnings forecast for the first half of 2026, market attention has once again focused on this leading hog farming enterprise, which has demonstrated remarkable operational resilience at the bottom of the industry cycle.

Influenced by extreme market conditions in the first half where the average domestic hog price in China once fell below 9 yuan per kilogram, the industry suffered losses exceeding 300 yuan per head for self-breeding farms, persisting for over eight months, fully revealing the harsh reality of a cycle trough.

However, beneath the surface of widespread industry pressure, DEKON AGR is quietly reshaping its core competitiveness and undergoing a value reassessment through a posture of "structural resilience."

According to the performance forecast, DEKON AGR shifted from profit to a loss in the first half, with an estimated loss ranging from 1.2 to 1.4 billion yuan.

This was primarily due to the persistently weak hog market and a significant year-on-year decline in hog sales prices during the reporting period, putting pressure on the gross profit of the group's core hog farming business and resulting in a gross loss.

Despite the company's efforts to enhance production efficiency and reduce farming costs through technological R&D innovation, lean production management, and business model upgrades, and its use of financial derivatives like hog futures to hedge operational risks, the negative impact of sustained low hog prices on profitability significantly outweighed the effectiveness of these measures.

In the face of deep industry-wide losses, DEKON AGR has built a solid safety cushion through extreme lean management.

Data shows the company's full cost per kilogram had steadily decreased to around 11.8 yuan by June, with the loss per head being far lower than the industry average.

A more profound moat lies in DEKON AGR's reliance on national science and technology award-level breeding technology to drive cost barriers and its deep operational stability through a farmer-partnership model, truly achieving "technology as the foundation, model as the anchor."

At the critical juncture where the industry is shifting from "scale expansion" to "high-quality survival," DEKON AGR has not only successfully navigated the darkest hours of this cycle but has also firmly secured the optimal "left-side positioning" window for the cycle reversal, thanks to its industry-leading cost advantages and comprehensive high-quality management capabilities.

When a new round of the upcycle fully commences, DEKON AGR, with its leading cost control, is poised to unleash the most powerful profit elasticity and valuation recovery potential.

Cost Foundation – Lower Losses Per Head Signal Strong Upside in a Reversal

Through excellent systematic lean management, DEKON AGR has successfully narrowed its loss per head, constructing a solid barrier against cyclical fluctuations.

According to the company's latest disclosure, its full hog farming cost had steadily decreased to approximately 11.8 yuan per kilogram by June 2026, consistently ranking within the industry's top tier.

More crucially, DEKON AGR's cost-reduction logic is not about hitting a ceiling but about building a systemic cost moat spanning from breeding stock sources to terminal management.

This system is reflected in four key dimensions.

Firstly, at the breeding stock level, the company continuously improves genetic performance by introducing Canadian lineage sources and conducting ongoing independent selective breeding.

Its independently cultivated E-series breeding pigs have now become the core terminal sire line.

This control over core genetic resources directly drives the continuous decline in farming costs, laying a genetic foundation for low-cost operations.

Secondly, in feed, leveraging its deep-rooted feed industry foundation, the company strengthens synergy across the industry chain.

Through precise nutritional formulations and centralized procurement advantages, it effectively mitigates raw material price volatility, achieving structural cost reduction in the feed segment.

Thirdly, in biosecurity, the company deeply advances disease eradication and the construction of a full-process biosecurity prevention and control system.

By eliminating sources of infection and cutting off disease transmission paths, it ensures herd health and stability, significantly reducing disease-related loss rates, continuously improving farming efficiency, and solidifying a long-term low-cost operational biosecurity defense.

Finally, in management, the company implements a "dual-drive" model of standardized systems and farmer management.

On one hand, highly standardized SOPs ensure production stability; on the other, by learning from best practices inside and outside the industry, it continuously advances lean operations and efficiency improvements, avoiding the trap of "diseconomies of scale."

Through precise feeding and feed formula optimization, the company's feed conversion ratio still has room to decrease by 0.1 to 0.2, while labor efficiency per head has potential for improvement by 50 to 80 yuan.

Looking ahead, signals of a dawn in the hog cycle are becoming increasingly clear.

According to industry consultancy data, industry capacity reduction accelerated significantly in the second quarter of 2026, and the national average hog price in July had rebounded strongly to 11.2 yuan per kilogram from 9.6 yuan in June.

As the effects of capacity reduction materialize in the second half of the year, coupled with the traditional peak consumption season in the fourth quarter, the industry's supply-demand balance is expected to see substantial improvement.

In this process, enterprises with leading cost control will be the first to cross the breakeven point.

With the industry's lowest cost "bleeding point" and extreme operational resilience, DEKON AGR is positioned to unleash the most powerful profit elasticity and valuation recovery potential in the new cycle upswing.

Breeding as the Core – Technology-Driven Cost Barriers and Farmer Partnerships

If extreme cost control is the "shield" protecting DEKON AGR from the cyclical winter, then technology innovation centered on breeding and its unique farmer-partnership model are the "engine" driving its continuous cost reduction and building long-term competitive barriers.

These two core elements are mutually reinforcing, together forming DEKON AGR's deep, difficult-to-replicate moat.

In July 2026, the "Chinese Breed Swine Breeding Technology and Core Germplasm Creation and Application" project, in which DEKON AGR participated, was awarded the National Science and Technology Progress Award First Prize.

As the first project in China's swine breeding sector to win this top award, it marks the formal transition of the Chinese hog industry from "scale expansion" to a new era of "core technology drive," and solidifies DEKON AGR's technological leadership position within the industry.

To date, DEKON AGR has achieved full genomic testing coverage for all breeding pig lines in its core breeding herd.

Relying on continuous, precise selection and matching, the number of piglets per sow per year has increased by approximately 0.2, and the days to market for hogs have been shortened by 1 day annually.

While breeding technology continues to advance, DEKON AGR's独创的 farmer-partnership model efficiently transmits the benefits of this technology to the production end.

Through a tight "company + farmer" cooperation mechanism, DEKON AGR comprehensively extends its standardized farming system and breeding achievements to partner farmers, ensuring operational stability while allowing farmers to tangibly share in the efficiency gains from technological upgrades.

In summary, DEKON AGR is forming a positive feedback loop: advancements in breeding technology continuously optimize production performance, fattening profit margins during a cycle upswing; ample profits support high returns for farmers; high returns enhance farmer loyalty and the model's replicability; finally, stable operational scale feeds back into breeding R&D investment.

This flywheel effect not only provides the company with survival confidence during the current industry shakeout but also accumulates explosive potential for future cycle reversals.

Shareholder Confidence – Major Holder Buying at Cyclical Lows

Shareholder buying during market downturns provides the most direct anchor for market confidence.

According to Hong Kong Exchange disclosures, Chairman Wang Degen conducted密集 purchases between May 27 and June 26, accumulating over 2.23 million shares with a total value exceeding 100 million Hong Kong dollars.

Notably, from May 27 to June 9 alone, he purchased 1.3283 million shares, involving over 68.46 million Hong Kong dollars.

During the industry's most pessimistic moment, the core controller's consecutive purchases with real capital speak volumes about his confidence in the bottom judgment and firm commitment to long-term development.

From a valuation perspective, the hog farming sector is currently at a historical bottom.

As of July 9, the price-to-book ratio percentile for the livestock and poultry farming index over the past five years was merely 1.5%.

One securities firm lists DEKON AGR as a key recommended stock, considering it a "scarce high-quality growth hog enterprise for this cycle and the future."

Another forecasts that during the 2027 hog cycle upturn phase, the company's profits will be significantly released.

The combination of shareholder confidence through buying, historically low valuations, and bottom signals are resonating, opening a window for valuation recovery.

In conclusion, a solid cost foundation is DEKON AGR's底气 for "surviving," a strong breeding core is its根基 for "thriving," and reinforced shareholder confidence is its保障 for "enduring."

This triple bottom line is not a simple叠加 but a complete methodology for navigating cycles: the more advanced the technology, the lower the cost; the lower the cost, the greater the profit elasticity; the greater the profit elasticity, the more substantial the valuation recovery potential.

As capacity reduction accelerates and the inflection point for hog prices approaches, DEKON AGR is in position.