Incident: Recently, Dongfang Wealth released its 2023 annual report. The data showed that total revenue was 11.081 billion yuan, -11.25% year on year, and net profit to mother was 8.193 billion yuan, -3.71% year on year; weighted ROE was 11.94%, -2.46PCT year on year. The performance was basically in line with expectations.
Q4 Net profit was basically flat month-on-month. The cumulative daily stock base trading volume in 2023 was -3.10%, of which the cumulative daily stock base trading volume in Q4 was -1.62% YoY and -5.16% YoY. Micro-liquidity was under year-on-year pressure. The share of equity and partial equity funds issued in 2023 was -28.15%, and -10.57% and +12.91% year-on-year in Q4, respectively. Projecting to the profit side, Dongfang Wealth Securities and Tiantian Fund were +3.39% and -2.80% year-on-year.
Dongcai Securities's share of revenue showed a further upward trend. In 2023, Oriental Wealth Securities and Tiantian Fund accounted for 77.69% and 32.82% of revenue respectively, with the former continuing the upward trend. In terms of net profit, the above two accounted for 66.60% and 2.54% respectively, both showing an upward trend.
The market share of finance and transactions maintained an upward trend, and the large proprietary business underpinned the performance of the securities sector. The share of financing capital in 2023 was 2.80%, +0.42PCT year on year; the share share of the stock base was 4.01%, +0.13PCT year on year. The company's self-operation was +99.96% YoY and +36.11% month-on-month. Considering the weak macroeconomic recovery, we expect bonds to contribute to self-operated profits. In terms of scale, the company's investment assets were +7.26% YoY, with transactional financial assets +7.80% YoY to 68.288 billion yuan, and other debt investments +1.88% YoY.
The market share of fund holdings continues to be under pressure. Fund sales in 2023 and non-monetary fund sales were -23.12% and -24.08%, respectively; the non-monetary market public fund holdings and equity fund holdings were -5.97% and -13.49%, respectively, with market shares of 3.37% and 5.94%, respectively, declining year-on-year.
There have been improvements on the cost side, and AI is expected to consolidate the platform's advantages. Total operating costs in 2023 were +3.49% YoY, mainly R&D expenses +15.49% YoY. The company integrates and strengthens R&D capabilities, focuses on strengthening AI capacity building, and actively explores the application of large models in various financial scenarios, further consolidating the company's R&D technical advantages. In January 2024, the “Wonderful” financial model independently developed by the company officially began closed testing. With data characteristics and algorithm advantages, the “Miaoxiang” financial model focuses on continuous optimization of financial vertical capabilities in core financial scenarios, and is being integrated into the company's product ecosystem in an orderly manner.
Investment advice: With the management adjustments of the new Securities Regulatory Commission, continue to push forward capital market reforms and continuously boost market confidence. The trend of increasing market share in core businesses such as corporate brokerage and finance is expected to continue. The Miaoxiang AI financial model empowers corporate business, private sector genes effectively improve the level of corporate governance, and growth is expected to continue to be higher than that of traditional brokerage firms. Furthermore, the current valuation comparison between Dongcai Group and A-share Fintech companies has an advantage, and the strategic allocation window is prominent.
Assuming that the A-share stock trading volume in the market gradually stabilizes, and the average growth rate of the new development fund is generally improving. The brokerage commission rate and the two financing rates are basically stable, with profit margins of 69%, 69%, and 67% respectively. The company's share base market share and two finance market share are steadily increasing, and the brokerage commission rate and two financing rates are generally stable. It is expected that the company's diluted EPS in 2024, 2025, and 2026 will be 0.55, 0.63, and 0.69 yuan respectively. The corresponding PE is 24.58, 21.66, and 19.66 times the “buy and maintain” “Entered” rating.
Risk warning: Risk of increased friction between China and the US; risk of continued inversion of the China-US spread; geopolitical risk; macroeconomic downside risk; risk of systemic decline in the stock market; risk of slowing fund issuance; risk of tightening regulations; risk of management changes affecting asset management business development; risk of falling market share of fund sales; risk of falling market share of traditional businesses falling short of expectations.