Matters:
Dongfang Wealth released its 2023 annual report, achieving total operating income of 11.081 billion yuan (YoY -11.25%); net profit to mother of 8.193 billion yuan (YoY -3.71%); total assets of 239.578 billion yuan, net assets belonging to the parent company of 71.963 billion yuan, EPS (diluted) 0.52 yuan, and BVPS 4.54 yuan. The company plans to distribute a cash dividend of 0.40 yuan (tax included) for every 10 shares. Combined with the 2023 share repurchase amount, the proposed cash dividend amount accounts for 13.95% of the net profit attributable to mother.
Ping An's point of view:
The full-year results were in line with expectations, and the main business was under relative pressure. The Q4 single-quarter results were basically flat month-on-month.
In 2023, against the backdrop of a relatively slump in the A-share market, the company's total operating income was -11% YoY, and net profit to mother was -4% YoY. By business segment, revenue from securities business/fund sales/financial data services/internet advertising services was -8%/-16%/-13%/-14%, respectively, accounting for 65%/33%/2%/1% of revenue, respectively. Q4 Total revenue for a single quarter was 2.59 billion yuan (QoQ -5%, YoY -11%), and net profit to mother was 1.98 billion yuan (QoQ +0.01%, YoY +4%). The cost side continues to increase R&D investment. The 2023 management rate is 20.9% (YoY+3.3pct), mainly due to an increase in employee remuneration; the R&D rate is 9.8% (YoY+2.3pct).
Proprietary fixed income business revenue increased sharply year over year, driving the decline in profit narrowing. Proprietary income of $2.23 billion in 2023 (YoY +100%), proprietary investment scale of 81.97 billion yuan (YoY +13%), corresponding return on investment of 2.7% (YoY+1.2pct). Overall, the company's ROE in 2023 was 12.0% (YOY-3.6pct).
The performance of the securities business was dragged down by market fluctuations, but the market share increased steadily. 1) Brokerage: According to Wind statistics, the average daily stock base turnover of the A-share market in 2023 was 991.7 billion yuan (YoY -3.1%), and the average daily share base turnover in the 23Q4 single quarter was 943.4 billion yuan (YoY -2%, QoQ +3%), which improved slightly from month to month.
In 2023, the company's share base transaction volume was 19.27 trillion yuan, accounting for about 4.0% (YoY+0.1pct) of the market's bilateral share base turnover according to Wind statistics; however, net brokerage revenue of 4.89 billion yuan (YoY -8%) is expected to be mainly affected by the decline in commission rates. 2) Two finance: At the end of 2023, the company raised 44.9 billion yuan (YoY +26%) in financing and securities financing, with a market share of about 2.7% (YoY+0.4pct) of the balance in Wind statistics. However, due to increased interest expenses, net interest income in 2023 was $2.23 billion (YoY -9%).
The performance of the fund consignment business continues to be under pressure. According to Wind statistics, the share of newly issued funds in the entire market in 2023 was 1.11 trillion shares (YoY -25%), and the share of equity funds was 296.2 billion shares (YoY -32%). The company's monetary fund sales volume was -22% YoY, the non-cargo base sales volume was -24% YoY, and the non-cargo-based holding scale was -6% YoY. Combined with the reduction in active equity fund management rates, the company's fund sales revenue was 3.63 billion yuan (YoY -16%) in 2023.
The new draft equity incentive plan was announced, which is expected to increase the company's development momentum and demonstrate management's confidence in growth. On March 14, Dongfang Wealth also announced an equity incentive plan (draft). It plans to grant 40 million shares of restricted shares to 871 middle and senior managers, business executives and other incentive recipients, accounting for about 0.25% of the company's total share capital. The grant price is 13.75 yuan/share. Based on 2023 net profit, the performance assessment requirements for this equity incentive plan are that net profit growth rates for 2024, 2025, and 2026 should not be less than 10%, 20%, and 30%.
Investment advice: Market trading sentiment has been weak since 2023, and conditions such as securities trading and new development funds have continued to be sluggish, hampering the company's performance. Taking into account the recent recovery in trading activity in the A-share market, there are expectations of a reduction in the fund sales business rate. The company's 24/25 net profit forecast was lowered to 90.7/10.00 billion yuan (the original forecast was 90.8/10.08 billion yuan), and an additional 26-year net profit forecast of 11.12 billion yuan was added, corresponding to a 10.7%/10.3%/11.2% year-on-year increase. However, considering the company's user traffic and the advantages of the Internet wealth management business layout, I am optimistic about the long-term growth of the wealth management industry and company fundamentals. Recently, the company has accelerated the development and implementation of the AI big model. The self-developed financial model idea has begun closed testing. In the future, it is expected to empower the company's product capabilities and operational capabilities and relieve the pressure of reducing fees and commissions. At the same time, the company also released a “double improvement in quality and return” action plan in February and completed a share repurchase of nearly 1 billion yuan. The release of this new round of draft equity incentive plans is also expected to further stimulate the enthusiasm and creativity of core talents and enhance market confidence. Maintaining a “recommended” rating based on the company's leading position in the wealth management and financial information services industry.
Risk warning: 1) The equity market has fluctuated greatly; 2) the macroeconomic downturn has reduced investors' risk appetite; 3) competition in the fund consignment industry has intensified unprecedentedly; 4) the volume of newly developed funds, fund purchases, and fund holdings have declined; 5) the development of new businesses has been blocked.