Incident: Recently, Dongfang Wealth released its 2024 quarterly report. The data showed that total revenue was 2,456 billion yuan, -12.60% year over year, and net profit to mother was 1,954 billion yuan, -3.70% year over year; weighted ROE was 2.69%, -0.38 PCT year on year. The results were basically in line with expectations.
2024Q1 net profit was -1.55% month-on-month, slightly under pressure. The cumulative daily stock trading volume of 2024Q1 was +3.01% and +4.68%, respectively. Micro-liquidity was under year-on-year pressure. The year-on-year and month-on-month growth rates of 2024Q1 stocks and partial equity funds were -45.23% and -19.71%, respectively. The projected year-on-year growth rates of operating income (mainly composed of fund sales revenue) and other types of financial business revenue (mainly securities business) were -30.34% and -1.54%, respectively. The former dragged down the company's overall revenue. Looking at the securities business segment, interest income, handling fees and commission income were -5.39% and +0.25%, respectively, year-on-year.
The market share of finance and transactions maintained an upward trend, and the large proprietary business underpinned the performance. The market share of capital raised from 2024Q1 was 2.91%, +0.11PCT year on year; the company's large self-operation was +64.90% year over year, and +30.49% month over month. Considering the weak macroeconomic recovery, we expect bonds to contribute to the self-operating profit. In terms of scale, the company's investment assets were -2.40% YoY, with transactional financial assets +0.42% YoY to 69.714 billion yuan, and other debt investments -26.21% YoY.
The cost side is relatively stable, and AI is expected to consolidate the platform's advantages. The total operating costs of 2024Q1 were YoY, -5.77%, and -1.89%, mainly due to sales expenses YoY, -40.34%, -28.25% month-on-month, R&D expenses YoY, +15.55%, and -1.84% month-on-month. The decline in sales expenses is expected to be mainly due to a decline in sales staff remuneration expenses. In terms of research, the previous annual report said that integrating and strengthening R&D capabilities, focusing on strengthening AI capacity building, and actively exploring the application of large models in various financial scenarios has further consolidated the company's R&D technical advantages. In January 2024, the “Mianxiang” financial model independently developed by the company officially began closed testing, and continuous optimization and upgrading. 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 23.56, 20.77, and 18.85 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.