Key points of investment
Overview of the data
In 24Q1, Dongfang Wealth achieved total operating income of 2.46 billion yuan, a year-on-year decrease of 12.6%; net profit to mother was 1.95 billion yuan, down 3.7% year-on-year and 1.6% month-on-month; the weighted average return on net assets was 2.69% (unannualized), a year-on-year decline of 0.38 pcts, which is in line with expectations. In terms of revenue structure, the share of securities business and consignment business revenue in 24Q1 was 69%/31%, respectively, and 23Q1 accounted for 62%/38%, respectively. Under the increasing market share of the securities business and pressure on consignment revenue, the share of securities business revenue continued to increase.
It is expected that the pressure on the dropshipping business has not peaked
In 24Q1, Dongfang Wealth achieved operating income (mainly fund sales) of 750 million yuan, a year-on-year decrease of 30%. According to Wind data, the share of emerging funds in the 24Q1 market (according to the fund's establishment date) fell 6% year on year, and the share of new issues+hybrid funds fell 41% year on year. The “Public Fund Industry Rate Reform Work Plan” issued by the Securities Regulatory Commission in July 2023 mentions “In 2022, expenses related to sales channels will account for about 37% of total public fund expenses. The Securities Regulatory Commission will adopt regulatory amendments to coordinate the benefits of investors and motivate sales agencies to further regulate fees in the public fund sales process. It is expected to be completed by the end of 2024”. It is expected that subsequent supervision will still regulate sales fees and reduce trailing commissions for consignment agencies, and the pressure on the consignment business has not yet peaked.
The market share of the securities business continues to increase
In 24Q1, Dongfang Wealth achieved net revenue from handling fees and commissions of 1.18 billion yuan, the same as the previous year. The average daily share base turnover in the 24Q1 market increased slightly by 1% year over year, and market share is expected to increase as commission rates decline.
In 24Q1, Dongfang Wealth achieved net interest income of 520 million yuan, a year-on-year decrease of 5%. The balance of funds raised by Maodongcai fell 3% from the end of 2023 in 24Q1, but the market share increased by 0.43pct to 2.91% year over year. Judging that the decline in net interest income is mainly due to an increase in interest expenses due to an increase in the size of interest-bearing debt.
Benefiting from the performance of the bond market, investment increased
24Q1 Dongfang Wealth achieved investment income of 8.1 million yuan (including investment income and profit and loss from changes in fair value), which continued to increase 64% year over year under a high base. Judging from the 24Q1 bond market's good performance and Dongcai's steady investment style, judging from the company's transactional financial asset structure in 2023, the share of the bond size was 66%.
Profit forecasting and valuation
Dongfang Wealth's 24Q1 consignment revenue dropped significantly, and due to fund rate reforms, the pressure may not have peaked yet. However, the market share of the securities business continues to rise, and the growth rate of investment income is impressive. The net profit growth rate for 2024-2026 is expected to be 10%/9%/10%, respectively, and the corresponding EPS is 0.57/0.62/0.68 yuan, respectively. The current price corresponds to PE 21.96/20.13/18.24 times PE. The company was given 30 times PE in 2024, corresponding to a target price of 17.00 yuan, maintaining a “buy” rating.
Risk warning
The macroeconomy declined sharply; capital market prosperity fell short of expectations; competition in the fund marketing industry intensified.