CICC has issued a research report maintaining its Outperform rating for DEKON AGR (02419) with a target price of HK$111. The report forecasts that the average hog price will decline by 2026 and introduces a net profit estimate of RMB 4.2 billion for 2027. The target price, set by considering the historical average market capitalization per head in the industry, corresponds to a P/E ratio of 23 times for 2026 and 9 times for 2027. The current share price implies P/E ratios of 17 times for 2026 and 6 times for 2027, suggesting a potential upside of 41%.

DEKON AGR reported its 2025 results, with revenue increasing 3.1% year-on-year to RMB 231.6 billion, which was within the guidance range and met market expectations. The company's competitiveness in hog breeding costs is judged to remain at the forefront of the industry. Key points from CICC's analysis are as follows:

Hog slaughter volume achieved the guidance set at the beginning of the year, demonstrating steady growth. Hog segment revenue rose 3% year-on-year to RMB 188 billion in 2025, while slaughter volume increased 23% to 10.83 million heads. It is estimated that the company strictly controlled loss-related expenses, implemented deep cost reductions, and adjusted its product mix in the second half of 2025, leading the business to return to profitability during that period.

The slaughtering and auxiliary products segment saw revenue grow 55% year-on-year to RMB 14 billion in 2025. This increase was driven by higher slaughter volumes, which reached 840,000 heads, up 93% compared to the previous year.

Cost optimization and solid financials have strengthened the company's core competitiveness. Firstly, regarding cost reduction and efficiency gains, the company achieved significant cost savings through lean management, commercialization of breeding achievements, and light-asset operations. Calculations indicate the fully allocated cost of hog breeding was below RMB 12.5 per kilogram in 2025, down RMB 1 to 1.5 per kilogram year-on-year. The company announced that the total litter size for its DEKON II series sow line reached 18.5 piglets per litter, increasing the annual contribution per parent-generation sow by RMB 2,000.

Secondly, financially, the debt-to-asset ratio stood at 61.9% at the end of 2025, a decrease of 2.5 percentage points from the end of 2024. The company optimized its debt structure, with current liabilities down 7.9% year-on-year by the end of 2025, and the current ratio improved to 1.4.

The 'Farm No. 2' model, characterized by its light-asset approach, low costs, and farmer partnerships, is seen as a key growth driver. The analysis highlights that firstly, the light-asset model is unique to the company. In 2025, the total assets per head of slaughter volume were RMB 2,166, a decrease of 15% year-on-year. The combination of the light-asset model and superior profitability potential positions the company to achieve a leading Return on Equity (ROE) among its peers.

Secondly, the company possesses competitive advantages in lean management, proprietary breeding barriers, and disease control capabilities, which are expected to sustain the trend of efficiency improvements and cost reduction.

Thirdly, regarding high-quality growth, by deepening mechanisms for partnering with and supporting farmers, the company reported increases in the number of cooperative farmers under the Farm No. 2 model, slaughter volume, and per-household breeding fees in 2025. This strengthens the foundation for medium-to-long-term scaled and standardized development.

Risk factors include hog prices and slaughter volumes falling short of expectations, disease outbreaks, and raw material price increases exceeding forecasts.