Incident: Dongfang Wealth released its 2023 annual report. In 2023, the company achieved revenue of 11.081 billion yuan, -11.25%; net profit to mother of 8.193 billion yuan, -3.71% year over year; weighted average ROE of 11.94%, down 2.46 pct year on year. On the same day, Oriental Wealth released the 2024 Restricted Stock Incentive Plan (draft).
Comment:
Securities business: Annual revenue +5.0% year-on-year, clearly driven by proprietary business. In 2023, the company's securities business achieved revenue of 9.420 billion yuan, +5.0% year-on-year. Among them, handling fee and commission income/net income from interest/revenue from proprietary operations were $4,967/22.27/2,226 billion yuan, respectively, or -8.3%/-8.7%/+100.0% year-on-year.
The market share of brokerage business and dual finance business increased markedly, and the increase in the scale of self-operation contributed to investment income. In terms of brokerage business, in 2023, the total share base turnover of the industry was 239.99 trillion yuan, -3.1% compared to 2022. The company's annual stock fund turnover was 19.27 trillion dollars, and its market share increased to 4.01% from 3.88% in 2022. In terms of the dual-finance business, as of the end of 2023, the market balance of dual-finance loans was 1.65 trillion yuan, +6.9% compared to the beginning of the year. The company's financing and securities lending business raised 46.264 billion yuan, and the company's share of the two financing markets increased from 2.37% at the beginning of the year to 2.80%. The scale of financial assets has increased, and the income contribution of proprietary investment has increased markedly. The company's annual revenue from proprietary investment was 2,226 billion yuan, +100.0% year-on-year. Proprietary investment income was clearly driven by scale. By the end of 2023, the company's financial investment assets were 83.965 billion yuan, +16.2% compared to the beginning of the year.
Fund business: Affected by the lukewarm fund market, annual revenue fell 8.9% year on year. In 2023, the company's fund business revenue was 3.888 billion yuan, -16.0% year-on-year. In 2023, the company's non-commodity fund sales volume was 908.5 billion yuan, -24.1% year-on-year; by the end of 2023, the company's non-commodity public fund holdings were 549.6 billion yuan, down 6.0% from the beginning of the year.
The share repurchase and issuance of stock incentives showed confidence in the company's business development: On February 27, 2024, the company disclosed an announcement on the adjustment of the use of repurchased shares and cancellation. As of the disclosure date, the total number of shares repurchased by the company through centralized bidding transactions was 71.45 million shares, accounting for 0.45% of the company's total share capital. The actual repurchased shares were used to cancel and reduce registered capital. On March 15, the company released a stock incentive plan (draft). The number of restricted shares to be granted to incentive recipients is 40 million shares, and the initial grant price is 13.75 yuan per share. A total of 871 people were awarded incentives, including directors, senior management personnel, middle management personnel, and key technical personnel working for the company. This incentive plan grants restricted stocks for the three fiscal years 2024-2026. Based on 2023 net profit, the company's net profit growth rate for 2024/2025/2026 is not less than 10%/20%/30%. The company's recent share repurchases and equity incentives conveyed the company's determination to stabilize stock prices and achieve performance growth.
AI progress: Continue to promote capacity building in the field of artificial intelligence, and focus on the “fantasy” of major language models in the financial field. In 2023, the company established Qisimiaoxiang Digital Technology Co., Ltd., to increase investment in artificial intelligence research and development technology, and continue to improve the “Wonderful Vision” language model in the financial field.
In January 2024, the company's self-developed “fantasy” financial model officially began closed testing. In addition to having general abilities such as text generation, semantic understanding, knowledge question and answer, logical reasoning, mathematical calculation, and coding skills, the model paid more attention to vertical capabilities in financial scenarios. Miaoxiang Big Model was awarded “Best Practice Case” in the Big Model Case Selection organized by the Chinese Academy of Information and Communications Technology, and became the first batch and only financial industry partner in the “Fang Sheng” Big Model evaluation system of the China Academy of Information and Communications Technology. In the future, the company will continue to vigorously promote R&D work, further deepen technological empowerment, actively lay out the frontiers of fintech, actively explore user needs, and lead product transformation and service upgrades.
Profit prediction and investment rating: We believe that with the development of investment-side reforms in the capital market, the company is expected to benefit from the equity and institutionalization of residents' wealth management, and the growth brought about by the long-term increase in the scale of the wealth management circuit. The application of AIGC is also expected to catalyze the improvement of the company's operational and product capabilities, and achieve a further increase in market share. Furthermore, we believe that the company will also use capital businesses such as self-management and dual financing to accelerate development and achievement of performance. We expect 2024-2026E net profit to be 93.86/106.78/12.351 billion yuan respectively, corresponding to 2023-2025E PE of 23.08x/20.28x/17.54x, maintaining a “buy” rating.
Risk factors: Investment-side reforms in the capital market fell short of expectations, implementation of AIGC applications fell short of expectations, profit fluctuations in proprietary business; decline in fund sales rates exceeding expectations; decline in customer risk appetite, etc.