Introduction to this report:
The decline in the company's net profit is mainly due to insufficient demand for residents' equity funds combined with rate reforms, putting pressure on fund consignment revenue; it is expected that the company's increased investment in AI-related technology will drive the growth of wealth management and B-side financial information services.
Key points of investment:
Maintain the “overholding” rating and maintain the target price of 30.97 yuan/share, corresponding to 55xP/E in 2024. The company's total revenue in 2023/adjusted revenue (including net revenue from investment business) was 11.081 billion yuan/13.317 billion yuan, -11.25%/-2.09% YoY; attributed/deducted non-net profit of 8.193 billion yuan/7.862 billion yuan, -3.71%/-4.18% YoY. The performance was in line with expectations. The decline in net profit to mother was mainly due to a decline in fund sales, handling fees and commission income. At the same time, the increase in overall operating costs further dragged down performance. Based on the current market environment and the company's business conditions, the company was given 0.56/0.59/0.61 yuan for 2024-2026 (0.56/0.60 yuan for EPS before adjustment 2024/2025). Maintain the “Overweight” rating and maintain the target price of 30.97 yuan, corresponding to 55xP/E in 2024.
Insufficient demand for residents' equity funds combined with pressure on fund consignment revenue due to rate reforms is the main reason for the decline in the company's performance. 1) In 2023, the company's fund consignment revenue was -16% to 3.625 billion yuan, contributing 246% of the total decline in adjusted revenue. Insufficient demand for equity funds due to low residents' risk appetite was the main reason for the decline in consignment sales. The scale of new equity funds issued during the same period was -28.29% to 290 billion shares; starting in July, the public fund rate reform further drove the decline in fund consignment revenue; 2) Fee and commission revenue were affected by poor market trading, etc., -8.9.433% YoY to -9.433% 6.7 billion yuan, contributing after adjustment Revenue declined by 159% of the total, increasing the pressure on performance. 3) Thanks to the company's increased allocation of bond-like assets, the company's investment income increased sharply to 2,236 billion yuan, 100% year-on-year, and the return on investment reached 3.4%, slowing down the decline in performance.
The increase in the company's total operating costs has exacerbated the decline in profits; the “fantasy” model has begun closed testing, and performance growth can be better achieved with the power of AI. The company's total operating costs were +3.49% YoY to 4.329 billion yuan, resulting in a net profit margin (net profit to mother/adjusted revenue) -1.04pct year over year; the increase in total costs was mainly due to management expenses +5.65% YoY to 2,316 billion yuan, and R&D expenses +15.49% YoY to 1,081 billion yuan. The company set up an artificial intelligence division, and the “Wonderful Vision” financial model independently developed by the company officially began closed testing. With data characteristics and algorithm advantages, the “Wonderful” financial model is continuously optimized in financial scenarios such as financial advancement, investment and research quality improvement, and transaction efficiency. It is expected that it will better enhance wealth management services and B-side financial information services.
Catalyst: Capital market trading is active, and residents' demand for wealth management continues to grow.
Risk warning: The capital market has declined sharply.