Dongxing Securities is a securities firm under China Oriental, with distinct AMC characteristics. Dongxing Securities continues to expand business opportunities and innovate collaborative service models around the main business of shareholders' non-performing assets, which has formed a unique advantage in investment banking and other business areas. 2022H1, Dongxing Securities achieved a net income of 565 million yuan from investment banking business, an increase of 42.08% over the same period last year, maintaining rapid growth in a fluctuating environment. Cover for the first time, giving a "hold" rating.
China Oriental's securities companies create synergy within the AMC system. The current comprehensive strength of Dongxing Securities is about 26 in the industry. As a securities firm under China Oriental, Dongxing Securities continues to expand business opportunities and innovate collaborative service models around the main business of shareholders' non-performing assets, deeply embeds the company's business into the full cycle of China Oriental non-performing assets projects, and builds the unique advantages of AMC securities firms in investment banking and other fields, which is expected to further promote coordination in the field of asset management and wealth management. In terms of profit, the ROE of Dongxing Securities 2019-2022H1 in the past three years is 6.16%, 7.44%, 7.37% and 1.02% respectively, and the ROE in the past year is lower than the industry average.
Investment banking business: comprehensive ranking of leading companies in business strength, IPO business is developing rapidly. In the first half of 2022, Dongxing Securities achieved a net income of 565 million yuan in investment banking business, an increase of 42.08% over the same period last year, ranking 14th in the industry, significantly leading the overall ranking of companies. At the structural level, the equity underwriting scale of 2022H1 Dongxing Securities was 9.281 billion yuan, an increase of 155.67% over the same period last year. The expansion of the underwriting scale was mainly due to the good performance of IPO business.
Tengyuan Cobalt, recommended by Dongxing Securities, is the largest IPO project to raise funds for 2022H1 growth Enterprise Market. In the bond business, the financing scale of 2022H1 bonds was 9.579 billion yuan, down 53.32% from the same period last year.
Credit business: an important source of income for the company, the risk of pledge business is still worthy of attention. In terms of income and scale, the net interest income of 2021 and 2022H1, Dongxing Securities is 10.24 yuan and 642 million yuan respectively, which is the most important source of income for the company. 2022H1, Dongxing Securities margin financing and short selling principal at the end of the period balance of 18.7 billion yuan, stock pledge business balance of 1.9 billion yuan. At the risk level, the proportion of 2022H1 financial maintenance guarantee and pledge performance guarantee is 272% and 40% respectively, and the risk level of pledge business is high and worsening (25 percentage points lower than at the end of 2021). At the impairment level, by the end of 2022H1, the cumulative provision for impairment of purchased and resold financial assets was 1.247 billion yuan, with an impairment coverage rate of 66.22%.
Brokerage business: the proportion of income remains stable and the key layout in Fujian area. In 2021 and 2022H1, Dongxing Securities brokerage fee net income is 10.05yuan and 406 million yuan, accounting for about 20 per cent of brokerage income in the past five years. Among them, stock agency trading is the main body of brokerage business income, and 2022H1 stock agency trading income accounts for 74% of the total brokerage business income. 2022H1, Dongxing Securities Stock Fund Agent transactions totaled 1.43 trillion yuan, with a market share of 0.57%, down 0.04% from 2021. At the channel level, by the end of 2021, Dongxing Securities has a total of 76 business departments, including 34 in Fujian, accounting for 44.74%, which is the focus of Dongxing Securities layout.
Investment business: the proportion of income has declined, focusing on the development of fixed income business. Dongxing Securities 2021 and 2022H1 investment net income and fair value change profit and loss of 920 million yuan and-230 million yuan respectively, the revenue share showed a significant downward trend in the past five years, from 72% in 2018 to-13% of 2022H1. At the structural level, solid collection business has become the key development direction of Dongxing securities investment business. 2022H1, proprietary non-equity securities and their derivatives / net capital and proprietary equity securities and their derivatives / net capital were 230.68% and 16.96% respectively, compared with + 34.77% and-2.26% at the end of 2021.
Asset management business: the scale of asset management has declined significantly, and the contribution of public offering business is limited. At the brokerage asset management level, by the end of 2022H1, the total assets under management of Dongxing Securities was 28.728 billion yuan, down 30.77% from the end of 2021. Among them, the scale of collective, oriented and special asset management is 110.57 yuan, 89.22 yuan and 8.749 billion yuan respectively. At the level of public offering funds, Dongxing Securities operates public offering fund business through its wholly-owned subsidiary Dongxing Fund. By the end of June 2022, the total size of public fund management of Dongxing Fund was 32.302 billion yuan, an increase of 432.33% over the same period last year, and that of non-monetary funds was 22.113 billion yuan, an increase of 576.34% over the same period last year. The net profit of 2022H1 is 2.0362 million yuan, and the profit contribution rate is 0.7%.
Risk factors: stock and debt underwriting scale decline; agency turnover decline; credit business risk exposure; investment business loss risk; wealth management market development is lower than expected.
Investment suggestion: with the reform of the capital market and business innovation of the securities industry, the concentration of the securities industry is expected to increase.
Dongxing Securities is expected to create a business synergy advantage within the AMC system by continuously expanding business opportunities and innovating collaborative service models around the main business of non-performing assets in China Oriental. We believe that the current price basically reflects the reasonable valuation of Dongxing Securities, and it is expected that the company's share price will keep pace with changes in the industry as a whole in the future. It is estimated that the BVPS in 2022-23-24 will be 8.29 RMB 8.63 RMB respectively. After referring to the 10% quantile level of comparable companies West Securities, Western Securities, Southwest Securities and Guojin Securities since 2018, the reasonable range of PB valuation of Dongxing Securities is taken as ±7.5%. According to this calculation, the reasonable PB of Dongxing Securities is about 0.95-1.15 times. According to the lowest estimate of reasonable valuation range, the target price is 7.88 yuan, corresponding to 0.95 times of PB in 2022. Cover for the first time, giving a "hold" rating.