Incident: Dongfang Wealth released its 2023 annual report. During the reporting period, it achieved total operating income of 11.081 billion yuan, -11.25%; realized net profit to mother of 8.193 billion yuan, -3.71% year on year; and ROE (weighted) was 11.91%, -2.46pct year on year. Among them, total operating revenue/net profit to mother achieved in the 23Q4 quarter was 25.93/1,983 billion yuan, -11.33%/+3.62% year-on-year.
The securities services business as a whole is under pressure, but the market share continues to rise. The company's securities service business revenue during the reporting period was $7.194 billion, -8.44% year-on-year. 1) In terms of brokerage business, market trading sentiment was low in 2023. The average daily share base turnover of the entire market was 991.706 billion yuan, -3.10%, and the company's share base turnover was 19.27 trillion yuan, with a market share share ratio of +0.13pct to 4.01%; however, during the reporting period, the net revenue of the company's securities brokerage business was 4.291 billion yuan, -10.40% year over year, which is expected to be mainly affected by the decline in commission rates. 2) In terms of the dual finance business, as of the end of 2023, the balance of the two loans in the market was 1.65 trillion yuan, and the market share was 44.871 billion yuan, with a market share of +0.41 pct to 2.72% year over year; during the reporting period, the company's interest income was +5.18%, but interest expenses were +25.94% year over year, dragging down net interest income -8.70% year over year to 2,227 billion yuan.
Fund consignment revenue declined, and the scale of holding contracted. The company's fund sales revenue during the reporting period was RMB 3.625 billion, -16.19% YoY. 1) In terms of fund sales, due to poor fund market performance, Tiantian Fund's total fund/non-monetary fund sales volume during the reporting period was -23.12%/-24.08% year-on-year to 15479/908.5 billion yuan. 2) In terms of holdings, as of the end of the reporting period, Tiantian Fund's non-commodity fund/equity fund holdings were 549.6/402.9 billion yuan, -5.97%/-13.49% year-on-year.
Proprietary business revenue increased significantly, providing resilience to performance. The company's own business revenue during the reporting period was 2,226 billion yuan, +99.96% year over year; of these, fair value change income provided a major increase of 671 million yuan from negative to positive in 2022, or an increase in the value of existing financial assets due to declining market interest rates. Self-operated business revenue for the 23Q4 quarter was 622 million yuan, +417.68% year-on-year and +36.11% month-on-month; the high increase in proprietary business revenue provided strong resilience to performance, and the year-on-year decline in net profit to mother narrowed from -5.84% at the end of 23Q3 to -3.71% at the end of 23.
The launch of a self-developed model is expected to enable the company to grow. During the reporting period, the company increased investment in R&D and strengthened AI capacity building. R&D expenses were +15.49% to 1,080 billion yuan, and the R&D cost ratio was +2.26pct to 9.75% year over year. In January 2024, the company's self-developed “Wonderful Vision” financial model was officially closed tested. It is being integrated into the company's product ecosystem in an orderly manner. Combining the company's own traffic and business scenario advantages, it will fully empower the company's business development in the future.
Investment advice: The company's performance is under phased pressure due to sluggish market trading sentiment, but the implementation of the company's AI model is expected to continue to empower the company's development, and stock repurchase and equity incentive plans will further enhance confidence. Total revenue for 2024-2026 is expected to be +10.18%, +13.90%, +6.51%, net profit to mother +11.67%, +16.28%, +8.22%, EPS is 0.58, 0.67, 0.73 yuan, and PE corresponding to the closing price on March 15 is 23.67, 20.36, and 18.81 times. Maintain a “buy” rating.
Risk warning: equity market fluctuates sharply, fund market continues to be sluggish, industry competition intensifies