Performance review

1Q23 performance is in line with our expectations

Wealth Trends announced 1Q23 results: revenue +34.6% year on year to 65.08 million yuan, net profit of the mother +25.3% year on year to 56.17 million yuan, net profit of the mother after deduction was +26.8% year-on-year to 41.64 million yuan, with earnings of 0.6 yuan per share, in line with our expectations.

Development trends

C-side business performance is improving, and B-side project revenue is growing steadily. The average daily turnover of the 1Q23 A-share market was -13% year-on-year to 878.7 billion yuan, and the number of new A-share accounts opened -12% year-on-year. The company's revenue grew steadily in a volatile market environment, mainly due to: 1) On the B-side, due to the impact of the epidemic in the early stages, some customers were unable to enter the market, and project settlement and receipt delays were delayed, while 1Q business settlement and collection gradually returned to normal, driving the steady growth of B-side software sales and maintenance service revenue (contributing 79% of the company's revenue in total in '22); 2) On the C-side, the company increased its securities information service business development efforts and efforts to develop its securities information services business Overlay 1Q Driven by structured market conditions, user activity increased significantly (Questmobile statistics Tongdaxin App 1Q23 average MAU increased 59% year over year to 1.55 million people), which led to an increase in revenue from securities information services (revenue contribution of 21% in '22). In terms of key operating indicators, cash received from product sales and labor provision in 1Q23 increased 74% year-on-year to 84.83 million yuan, mainly due to revenue growth and the recovery of upfront accounts receivable. Contract liabilities & advance accounts were +17% yoy /2.7% +2.7% month-on-month to 150 million yuan, which may support steady future revenue growth.

The advantages on the cost side are obvious, and profit margins remain high. Operating costs in 1Q23 were +32% year on year. The increase in information usage fees was mainly driven by increasing the development of the C-side securities information service business. However, benefiting from the company's targeted marketing model dominated by institutional customers and high customer stickiness, gross margin remained high at 79.7%. The company continued to increase R&D investment. In 1Q23, R&D investment increased 28% year on year to 16.57 million yuan, with an R&D expenditure ratio of 25.5%; the sales expenses rate/management expenses ratio was 2.0%/3.5% respectively, maintaining a relatively low level. At the same time, the company strengthened cash management, and investment income (profit and loss from changes in fair value) increased 21% year on year to 16.89 million yuan, interest income of 10.86 million yuan; the overall net interest rate was 86.3%.

Market recovery and flexible targets for AI investment in the main line. Considering the recent recovery in market sentiment (the average ADT expanded to 1.15 trillion yuan from 2Q to today, compared to 1Q23 +30% /2Q22 +21%), we expect the company's users to remain active and promote the high elasticity of the C-side business; the B-side business will benefit from increased performance by brokers' own performance & increased IT investment (we expect brokers' 1Q performance to increase 50% + year-on-year), the gradual implementation of financial innovation and national secret transformation projects, and the expansion and upgrading needs of brokerage firms under market reform. In addition, the company has continuously strengthened AI capacity building, especially research in fields such as AIGC/interactive AI. Currently, it has implemented products such as Xiaoda Smart Writer/Ask Xiaoda, formed a set of systematic financial data solutions, and developed a series of special AI functions such as smart financial Q&A/company maps. We think it is also expected to benefit from the main AI investment line. The company is currently trading at 40/32x 23/24e P/E. Considering that the average transaction since listing has been trading P/E for nearly 50x a year, the P/E in May-June 21 increased from 41x to 58x due to market activity. Looking ahead, we are optimistic that corporate flexibility will increase further in the upward cycle of the market.

Profit forecasting and valuation

The profit forecast was basically unchanged; the target price was maintained at 190 yuan, corresponding to 47x 24e P/E and an upward margin of 46%; and the outperforming industry rating was maintained.

risks

Stock market activity is declining, business and customer structures are being unified, and securities information system supervision is becoming stricter