Incident: Dongfang Wealth released its 2023 annual report. In 2023, the company achieved total revenue of 11.081 billion yuan, and realized net profit of 8.193 billion yuan, or -3.71% year over year; of these, total Q4 revenue for the single quarter was -5.30% to 2,593 billion yuan, and net profit to mother +0.01% yoy to 1.985 billion yuan, which is in line with expectations.
The overall pressure on the securities business: 1) Stock trading market share bucked the trend, and the decline in brokerage business revenue is expected to be due to the transaction structure. Overall market trading activity needs to be boosted in 2023. The average daily share base turnover of the entire market was -2% YoY to 992.1 billion yuan, of which 23Q4 was -1%/+4% YoY/+4% YoY to 950.1 billion yuan respectively. The share base transaction volume of Dongfang Wealth Securities bucked the trend. The share base transaction volume in 2023 was +0.2% to 19.27 trillion yuan, and the share base trading market share was +0.12pct to 4.01% compared to 2022. The company's net revenue from handling fees and commissions in 2023 (mainly net income from the securities brokerage business) was -8% to $4.967 billion, which is expected to be mainly due to a further decline in transaction rates (the company's net commission rate for stock trading is expected to drop from 2.38 per 10,000 in 2022 to 2.21 per 10,000 in 2023), and the declining willingness of retail investors to trade during the market downturn, and retail investors are mostly in the company's customer structure. 2) The market share of the two finance loans increased slightly, and net interest income was dragged down by interest expenses. As of the end of 2023, the total market balance was 1,650.9 billion yuan, +7% compared to the end of the previous year. The company raised 46.3 billion yuan in capital, +26% compared to the end of the previous year, driving the company's share of the two financing markets +0.42pct to 2.80% compared to the end of the previous year.
The company's net interest income is -9% year-on-year to 2,227 billion yuan, which is mainly expected to increase the scale of corporate bond repurchases, driving interest expenses +26% to 2,052 billion yuan (of which interest expenses on the sale and repurchase of financial assets +56% to 920 million yuan year-on-year).
The fund sales business was constrained by a decline in trading activity: in 2023, Dongfang Wealth Financial's e-commerce service (fund sales) business revenue was -16% year-on-year to 3.625 billion yuan. 1) Front-end: Fund sales declined year-on-year. Fund subscription and subscription activity was sluggish in 2023 (the share of new funds in the entire market was -22% to 1,1275 billion shares), and Tiantian Fund's total and non-monetary fund sales in 2023 were -23%/-24% year over year, respectively, to $1,5479/908.5 billion yuan. 2) Back-end: Equity and non-monetary fund holdings continue to shrink. As of the end of 2023, Tiantian Fund's equity/non-monetary fund holdings were 4029/549.6 billion yuan respectively, -13%/-6% from the end of 2022, market shares were 6.72%/3.37%, respectively, and +0.49pct/-0.39pct from the end of 2022, respectively.
Profit forecast and investment rating: Taking into account the expectation of a reduction in public offering fees and a reduction in the final commission ratio, we slightly raised our previous profit forecast for the first quarter of 2024. We expect the company's net profit to be 92.88/10.597 billion yuan for 2024-2025 (previous values were 92.49/10.502 billion yuan, respectively), with corresponding growth rates of +13.36%/+14.09 percent, respectively. The company is expected to achieve net profit of 12.502 billion yuan in 2026, corresponding to a growth rate of 17.98%. The current market value corresponds to PE 23.27/20.40/17.29 times, respectively. I am optimistic that the company will continue to consolidate its leading position as a retail brokerage firm and use the advantages of financial AI to restructure the stock share of the traditional securities business and maintain a “buy” rating.
Risk warning: 1) The limit on changing public offering fees to commissions exceeded expectations; 2) the equity market fluctuated greatly; 3) competition in the industry intensified.