Incident: Dongfang Wealth released its 2023 annual report, achieving total operating income and net profit of 110.81 billion yuan and 8.193 billion yuan, respectively, of -11.25% and -3.71% year on year, respectively, and annual ROE of -2.46 pct to 11.94% year on year.
Market shocks have put pressure on the securities business and fund sales. 1) On the revenue side, the securities business and financial e-commerce business achieved operating income of 71.94 billion yuan and 36.25 billion yuan respectively in 2023, accounting for 64.9% and 32.7% respectively; 2) On the cost side, total operating costs increased slightly by 3.5% to 4.329 billion yuan, among which operating costs, sales expenses, management expenses, and R&D expenses were +0.7%, -11.0%, +5.7%, +15.5% to 5.38, 4.68, 23.16, and 1,081 billion yuan, respectively. The decline in scale led to a simultaneous contraction in sales expenses, and increased investment in AI large-scale model technology led to a relatively rapid increase in R&D expenses.
Both fund sales and holdings declined, putting pressure on the company's consignment sales revenue, and its market share remained stable. 1) In terms of sales, the share of all funds/equity funds newly launched in the 2023 market was -22.4% and -31.7%, and the sales volume of the company's total funds/non-commodity funds was -23.1%, -24.1% to 15,479, 908.5 billion yuan. The decline in the escrow scale put pressure on the company's subscription fees; 2) In terms of holdings, the average quarterly holding volume of equity funds in 2023 was 444.8 billion yuan, the average quarterly holding ratio was 6.2%, down slightly 0.12pct year on year. pressure.
The share of the securities business increased steadily, and investment income strongly boosted performance. 1) Brokerage business, the company's net revenue from handling fees and commissions in 2023 was -8.3% to 4.967 billion yuan, and the company's agent share base turnover in 2023 was +0.2% to 19.27 trillion yuan, with a market share share ratio of +0.13pct to 4.01% year over year. The decline in handling fee revenue is expected to decline further; 2) Dual finance business. At the end of 2023, the company's financing capital was +26.3% to 44.871 billion yuan, market share +0.41pct to 2.72% year over year; 3) Investment business, Investment income+fair value change profit and loss in 2023 was +100.3% year-on-year to $2,236 billion, mainly due to the fact that financial assets increased 16.2% from the beginning of the year to $83.965 billion, and the yield on bond investment also performed well.
Investment advice: Optimistic about Dongfang Wealth's long-term growth in the wealth management market expansion. The increase in market share will drive the company's steady growth. The company is expected to achieve net profit of 94.49, 108.40, and 12.529 billion yuan respectively in 2024-2026, +15.3%, +14.7%, and +15.6% year-on-year respectively. The PE valuation corresponding to the closing price on March 15, 2024 is 22.82, 19.89, and 17.21 times, respectively, maintaining the company's “increase in wealth” rating.
Risk warning: risk of large fluctuations in the capital market; risk of a sharp decline in market transaction scale; risk of a company's business share falling short of expectations; risk of industry regulatory policies exceeding expectations and tightening