Incident: Recently, the company disclosed its 2023 annual report, achieving total operating income of 11.1 billion yuan, -11% year on year; net profit to mother of 8.2 billion yuan, -4% year on year; basic earnings per share of 0.52 yuan, -4% year on year; and weighted average return on net assets of 11.94%, -2.46 pct year on year. Overall, the revenue side was under pressure due to market sentiment. Revenue from securities services/financial e-commerce services was -8%/-16%, respectively; however, benefiting from a sharp increase in fixed income income from self-employment, the company's investment income and fair value change income (not included in total operating income) were +100% year-on-year to 2.2 billion yuan, driving the profit side decline narrower than the revenue side.
The scale of sales holdings has both declined, and the market share remains leading. 1) In terms of sales scale, due to the decline in industry sentiment, the company's fund sales scale was drastically reduced to 1.5 trillion yuan in 2023, -23% year-on-year (of which non-cargo base sales volume was 0.9 trillion yuan, -24% year over year). 2) In terms of holdings, China Foundation Association data shows that as of 2023Q4, Tiantian Fund's mixed/non-commodity fund holdings were 402.9 billion yuan/549.6 billion yuan, QoQ -6%/-5%, YoY -13%/-6%, accounting for 8%/6% of the total value of top 100 consignment agencies, all maintaining the 3rd place in the industry. We believe that the decline in the scale of the company's fund sales is mainly affected by the market environment, but its leading edge in consignment sales is still stable. As the equity market warms up, it is expected to boost the bottom of fund issuance, compounded by the low base performance in 2023, we are optimistic that the company's fund sales revenue will be boosted in 2024.
Falling rates put pressure on brokers, and proprietary investment doubled. 1) In the brokerage business sector, the average daily share base turnover of the Shanghai and Shenzhen markets was -3% to 991.7 billion yuan, and the net revenue of the company's securities brokerage business was -10% to 4.3 billion yuan during the same period, which is expected to be mainly affected by the decline in commission rates; Dongcai Securities's share base trading volume was 19.27 trillion yuan, with a market share ratio of +0.1 pct to 4.0% year over year.
2) In the Liangfinance business segment, the company's Liangfinance business raised 44.9 billion yuan in capital at the end of 2023, +26% compared to the beginning of the year (market financing balance +9% YoY during the same period); interest income from financing was +3% YoY to 2.5 billion yuan, which is also expected to be affected by the rate. 3) In the proprietary investment sector, the company achieved +100% year-on-year change in investment income+fair value to 2.2 billion yuan in 2023, mainly benefiting from the sharp year-on-year increase in revenue from the securities self-operated fixed income business.
Continue to increase R&D expenses and actively promote technological innovation. The company's R&D expenses in 2023 were +15% to 1.1 billion yuan, and R&D expenses/total operating income was +2.3 pct to 9.8% year over year. We are actively exploring the application of the big model in various financial scenarios (in January 2024, the company's self-developed “fantastic” financial model officially began closed testing). We are optimistic that the company will continue to strengthen digital technology capabilities.
Investment advice: Maintain a buy-A investment rating. The company's 2023 performance was mainly affected by market sentiment, and the fund sales and securities service business were pressured to a certain extent. In August 2023, the company launched a share repurchase plan. It has been implemented as of February 26, 2024, with a cumulative repurchase amount of nearly 1 billion yuan, and plans to adjust all repurchased shares to be cancelled. It is expected to raise EPS levels and boost investor confidence. Looking ahead, we are optimistic that the company is a characteristic target for wealth management. With its leading market share in brokerage business and leading fund sales advantages, it will fully unleash its performance flexibility as the market sentiment recovers. We expect the company's 2024-2026 EPS to be 0.55 yuan, 0.61 yuan, and 0.68 yuan respectively, giving the company 30xP/E in 2024, corresponding to a target price of 16.6 yuan.
Risk warning: The equity market fluctuates greatly, industry competition intensifies, macroeconomic decline, etc.