Description of the event
Dongfang Wealth released its 2023 annual report. During the reporting period, it achieved total operating income of 11.08 billion yuan, -11.2% year on year, and realized net profit to mother of 8.19 billion yuan, -3.7% year on year. The weighted average return on net assets decreased by 2.5 pct to 11.9% year on year.
Incident comments
Companies in weak markets operate steadily, and their resilience stems from a high increase in self-employment income. In 2023, the company achieved revenue (including investment income) and net profit to mother of 133.2 billion yuan and 8.19 billion yuan, respectively, -2.1% and -3.7% year-on-year, respectively. The weighted ROE was 11.9%, or -2.5pct year-on-year. By business, e-commerce, etc., net interest income, net handling fee income, and investment income were 38.9 billion yuan, 22.3, 49.7 billion yuan, and 2.24 billion yuan, respectively, with year-on-year differences of -16.0%, -8.7%, -8.3%, and +100.3%. The company's investment income continues to increase, and the share of contributed revenue continues to rise.
The heat of the market has cooled slightly, and the fund market has clearly cooled down. The average daily turnover of the two markets in 2023 was 876.4 billion yuan, -5.3% year on year, with an average balance of 1.61 trillion yuan, or -0.8% year over year. Affected by equity market shocks, the popularity of the new development fund market also declined markedly. In 2023, the share of newly issued equity and hybrid funds was 295.5 billion shares, or -31.7% year-on-year. The total net asset value of mixed stock funds at the end of the year was 6.8 trillion yuan, -9.2% year-on-year.
The number of daily activities of Tiantian Fund has declined, and the brokerage and finance market share continues to increase. 1) In 2023, the daily trading volume of Dongcai's Tiantian Fund platform was -31.2% to 1.88,000 people, and the sales volume of non-commodity funds was -24.1% year-on-year to 908.5 billion. By the end of 2023, Dongfang Wealth (Tiantian Fund+Dongcai Securities) stock & hybrid fund held a share of 447.1 billion yuan, with a market share of 8.91% among the top 100 consignment agencies, +0.07pct; 2) The market share of agent trading stock base turnover continued to increase, +0.24pct to 8.03% year over year, estimated net commission rate of 0.026%, -8.5% year on year; the market share of the two finance loans increased significantly, +0.42pct to 2.80% year on year.
On the asset side, the growth rate of the scale of investment assets has slowed, and the high increase in investment returns has shown impressive performance. By the end of 2023, the company's financing volume was 46.26 billion yuan, +26.3% year on year; the company's investment assets continued to grow at a high rate of 77.36 billion yuan at the end of the year, +7.1% year over year, of which the size of transactional financial assets was +7.8% to 68.29 billion yuan; in 2023, the company achieved a total investment income of 2.24 billion yuan, +100.3% year over year, providing resilience to the company's overall performance.
On the cost side, the research cost rate increased slightly due to the increase in AI investment. In 2023, the company's sales, R&D, and management expenses were 4.7 billion, 10.8 billion, and 2.32 billion, respectively, -11.0%, +15.5%, and +5.7% year-on-year respectively. The corresponding expense rates were 3.5%, 8.1%, and 17.4%, respectively, and -0.4, +1.2, and +1.3 pct, respectively. The company's cost side was well controlled.
I am optimistic about the deep integration of the AI model with Dongfang Wealth's strong internet financial ecosystem to enhance product competitiveness and spawn a new model of traffic monetization. In the short term, due to the market environment, the company's performance growth rate is slowing down, but in the medium to long term, the company has significant competitive advantages on the customer acquisition side and cost control side. The company is expected to achieve net profit of 8.91 billion yuan and 9.82 billion yuan respectively in 2024-2025, corresponding to PE of 24.3 and 22.0 times, respectively, maintaining the purchase rating.
Risk warning
1. The turnover of the two markets dropped sharply;
2. Regulatory policies have been tightened.