In the first half of 2023, Dongxing Securities achieved a net profit of 350 million yuan, an increase of 28.21% over the same period last year. From the perspective of the business structure of light and heavy assets, Dongxing Securities has a more balanced revenue structure in and before 2021, but it has fluctuated obviously due to the fluctuation of investment income since 2022. In 2022, Dongxing Securities's light assets business accounted for 73 per cent of revenue (among other business income), while 2023H1 accounted for 41 per cent. As a securities company under China Oriental, Dongxing Securities has the characteristic advantage of AMC, and is expected to rely on shareholders to expand business opportunities. Taking into account the gradual landing of the future active capital market policy and the expectation of the transformation of brokerage business in the future, Dongxing Securities will be given 1.1 times PB in 2023, corresponding to the target price of 9.2 yuan, maintaining a "hold" rating.

The net profit of 350 million yuan was in line with expectations, an increase of 28.21% over the same period last year. 2023H1, Dongxing Securities achieved operating income of 1.818 billion yuan, an increase of 1.96% over the same period last year; net profit of its parent was 350 million yuan, an increase of 28.21% over the same period last year; and the current EPS was 0.11 yuan per share, an increase of 28.21% and 1.32%, an increase of 0.27%. As of the end of 2023H1, BVPS belonging to common shareholders was 8.28 yuan, up 1.53% from the beginning of 2023.

Credit business: scale pressure leads to a decline in income, and the risk is more manageable. 2023H1, Dongxing Securities net interest income was 544 million yuan, down 15.26% from the same period last year, accounting for 34.19% of operating income (among other business income).

The decline in credit business income of Dongxing Securities was mainly due to the pressure on the scale of the business. At the end of 2023H1, the principal balance of margin trading of Dongxing Securities was 15.971 billion yuan, down 14.8% from the same period last year; the stock pledge balance was 1.751 billion yuan, down 7.01% from the same period last year. From the perspective of risk, as of the end of 2023H1, the average guarantee ratio of margin financing and short selling of Dongxing Securities maintained 269.75%, an increase of 11.21% over the beginning of 2023, and the overall credit risk can be controlled.

Brokerage business: affected by the activity of the market, income declined, and Internet channels promoted the transformation of investment.

2023H1, Dongxing Securities brokerage fee net income of 339 million yuan, down 16.50% from the same period last year. The decline in Dongxing securities brokerage business revenue was mainly affected by the decline in market trading activity in the first half of the year, with net income from fees falling 17.38 per cent and 15.81 per cent respectively in 2023Q1 and Q2 brokerage business, and 16.59 per cent year-on-year for the whole first half of the year. Although the traditional brokerage business is affected by the market, Dongxing Securities continues to promote investment capacity building, and the transformation of wealth management business promoted by Internet channels has achieved initial results: 2023H1 has signed more than 10,000 new investment business, the number of Internet drainage customers has increased by 11.53% over the same period last year, and the number of effective customers has increased by 147.40% over the same period last year.

Proprietary business: the investment income has increased significantly, and the investment assets are mainly fixed income. 2023H1, Dongxing Securities proprietary investment business income is 388 million yuan (investment income + fair value change profit and loss), while 2022H1 is a net loss of 233 million yuan. From the perspective of investment asset structure, at the end of 2023H1, Dongxing Securities financial investment assets were 57.7 billion yuan, an increase of 13.14% over the same period last year, of which fixed income assets were mainly fixed income assets: debt investment + other debt investment accounted for 57.37%. Among transactional financial assets, bonds reached 8.77 billion yuan, accounting for 42.86% of trading financial assets and 15.20% of all financial investment assets. From the risk indicators, Dongxing Securities proprietary investment risk is more controllable, proprietary equity and its derivatives / net capital ratio of 10.25%, a decrease of 6.71 percentage points; proprietary non-equity securities and their derivatives / net capital ratio of 241.82%, an increase of 11.14% over the same period last year.

Investment bank & asset management business: the sharp reduction of investment bank equity business leads to a decline in revenue, and the profit contribution of public subsidiaries increases significantly. 2023H1, Dongxing Securities investment banking business net income was 198 million yuan, down 65.3% from the same period last year, accounting for 12.45% of operating income (among other business income) (2022H1 is 38.44%). The decline in investment banking revenue was due to a decline in the size of the equity financing business with higher fees, with Dongxing Securities 2023H1 shares being mainly underwritten at 2.555 billion yuan, down 72.5 per cent from the same period last year. The net income from asset management fees was 99 million yuan, an increase of 23.75% over the same period last year. Among them, Dongxing Fund, a public offering subsidiary, is an important part of Dongxing Securities asset management business, and its asset management scale is expanding rapidly. As of the end of 2023H1, the scale of Dongxing Fund public offering management increased by 65.4% to 37.012 billion yuan from the beginning of 2023, and made a net profit of 20 million yuan in 2023H1, contributing 5.7% to Dongxing Securities net profit, which was significantly higher than 0.7% in the same period in 2022. However, considering the gradual implementation of the fee reduction reform of public offering funds, it may be difficult to maintain the trend of rapid increase in the contribution of Dongxing funds to the profits of the parent company.

Risk factors: the turnover of A shares dropped significantly, the performance of proprietary business was lower than expected, and the transformation of brokerage business to investment was not as expected.

Earnings forecast, valuation and rating: taking into account the decline in market trading and other factors, we adjust Dongxing Securities 2023 EPS 2024, the new 2025 EPS forecast to 0.31 pounds 0.34 yuan, BVPS forecast to 8.36 pounds 8.56 pounds 8.79 yuan (the original forecast 2023 shock 2024 EPS 0.43 pounds 0.45 yuan, BVPS 8.63 pounds 8.93 yuan).

Dongxing Securities, backed by China Orient, is expected to give full play to the unique advantages of AMC securities firms, further promote the coordination of asset management and wealth management, and the company's performance is expected to continue to grow in the future. Referring to the 30% quantile level of the average PB of four comparable companies Huaxi Securities, Western Securities, Southwest Securities and Guojin Securities since 2019, and taking ±7.5% as the reasonable range of PB valuation of Dongxing Securities, it is estimated that the reasonable PB of Dongxing Securities is about 1.1-1.3 times. According to the lowest estimate of the reasonable valuation range, it will be given 1.1 times PB in 2023, corresponding to the target price of 9.2 yuan, maintaining the "hold" rating.