Event

On August 18, Dongxing Securities released its 2017 mid-year report.

In the first half of 2017, the company achieved operating income of 1.411 billion yuan, year-on-year-14.14%; net profit of 565 million yuan, compared with-25.75% of the same period last year; net assets of 18.714 billion yuan per share, + 1.95% of BVPS of 6.77 yuan per share at the beginning of the year; weighted average ROE of 3.02%, year-on-year-2.55bp.

Brief comment

The overall net profit fell much more than the industry average, and the company's brokerage and proprietary business income in the first half of the year fell 29.26% and 86.55% respectively compared with the same period last year due to the market downturn. Investment banking and asset management business income also fell by 32.19% and 36.01% at a high base, superimposed management fees + 11.63%, resulting in the company's home net profit of-25.75%. The decline is greater than-11.55% of the industry average. However, from a quarterly point of view, the decline of the company's business line income in the second quarter was narrower than the previous quarter, of which the net income of the entrusted asset management business was + 70.86% month-on-month, driving the quarter-on-quarter decline in net profit narrowed to-13.33%. At the same time, Dongxing Hong Kong performed well, with 2017 H1 achieving a cumulative operating income of 110.3899 million yuan, + 1019.22% compared with the same period last year, accounting for 8.24% of the parent company's operating income, becoming a new profit source for the company to stabilize income fluctuations.

Brokers: market share of trading volume is year-on-year-20bp, commission rate-0.17bp is affected by lacklustre market performance. In the first half of the year, the company's stock base unilateral turnover in the two markets was 503.4 billion yuan, month-on-month-25%, market share 0.89%, year-on-year-20bp; agent buying and selling securities business + seat rental income totaled 363 million yuan, ranking 27th in the industry; commission rate 3.53%, compared with the same period last year-0.17bp.

Credit: more than 36% of revenue

At the end of the first half of the year, the company realized 354 million yuan of interest income. The balance of margin trading was 8.705 billion yuan, which was basically the same as at the end of last year and ranked 21st in the market. The stock pledge repurchase business realized 160 million yuan of interest income, an increase of 154.41 percent over the same period last year. The scale of stock pledge continued to grow, and the balance of stock pledge at the end of the period was 19.5 billion yuan, an increase of 2.63% over the beginning of the year.

Investment bank: net income ranking rose 8 places compared with the end of last year

The growth rate of the company's investment banking revenue (- 32.19%) is slightly lower than the industry level (- 29.50%), but in the first half of the year, the company achieved a net investment banking income of 284 million yuan, accounting for 20.1% of the income, ranking 21st in the industry, up 8 places from the end of 2016. A total of 9 equity main underwriting orders were completed, with an average underwriting amount of 1.348 billion yuan per order, up from 857 million yuan in the same period last year. Bond main underwriting completed 7 orders, with a total financing scale of 11.008 billion yuan. Affected by regulatory policies, equity refinancing and bond issuance have decreased significantly. The new third board business maintained rapid growth, with 24 companies listed in the first half of the year, ranking 19th in the industry, up 2 places from the end of last year, and the market value of the target of the innovation layer increased by nearly 8 percentage points compared with the same period in 2016. With the gradual development of cross-border investment banks, Dongxing Hong Kong, a subsidiary, has completed 2 single IPO projects and 3 single underwriting projects.

Asset management: the proportion of channels continues to rise, and net income is down 36% from the same period last year.

At the end of the first half of the year, the total entrusted size of the company's asset management was 119.149 billion yuan, an increase of 18.563 billion yuan over the end of 2016. Among them, the scale of collection, orientation, special and fund trusteeship accounted for 24.37%, 65.12%, 2.24% and 8.27% of the total, respectively. The scale of targeted investment management reached 77.588 billion yuan at the end of the reporting period, an increase of 14.201 billion yuan over the end of last year, accounting for an increase in 2.1bp. The net income of the company's asset management business in the first half of the year was 241 million yuan,-36.01% compared with the same period last year, far lower than the industry average growth rate of + 4.20%.

Proprietary: the scale of investment is reduced, and the average return on investment is 1.89%.

In the first half of 2017, the average size of the company's proprietary disk was 30.392 billion yuan,-4.68% over the previous year, and the rate of return on investment was 1.89%. Self-operating revenue shrank by 86.55% in the first half of the year, mainly because equity investment was hit hard.

Investment suggestion

At present, the company's PE and PB are 36.2X and 2.72X, respectively, and the valuation is at a historically low level. In the future, relying on the strong comprehensive financial layout and resource endowment advantages of major shareholder China Oriental Capital Management, the company is expected to reverse the current sharp decline in revenue from various business lines through the collaborative sharing of customers, brands, channels, products, information and other resources. In the first half of 2017, the cumulative scale of the collaborative business carried out by the company and the group was nearly 100 billion yuan, and the total revenue of the collaborative business is expected to increase by 13.59% over the same period last year. Judging from the first two quarters of this year, the decline in revenue from all business lines of the company in the second quarter has narrowed month-on-month. We forecast that the EPS of the company from 2017 to 2018 will be 0.49 yuan and 0.59 yuan respectively, and the BVPS will be 7.04 yuan and 7.39 yuan respectively, maintaining the "overweight" rating.

Risk hint

The ban on restricted shares has been lifted (October 17, 2017 and February 26, 2018); liquidity on the capital side has tightened and trading volume has declined; the policy side continues to be strongly regulated; the economic downturn is obvious and the demand for investment and financing in the capital market is insufficient.