Wealth trends: Well-known domestic financial information service providers, strong stock price performance interprets beta
Established in 2007, Wealth Trend is a well-known financial information service provider in China. It has built the Tongdaxin series of brands, providing comprehensive financial IT solutions to B-side financial institutions (mainly brokerage firms) customers, maintaining a leading position in the field of front-end market trading systems, and also providing financial information services to C-end Internet individual investors; equity is concentrated, and core executives have achieved shareholding.
As of 2024Q1, Huang Shan, the founder and chairman of the company, held 68.2% of the company's shares, while Deputy General Managers Zhang Lijun and Tian Jinen held 0.8% and 0.8% of the company's shares respectively; the company's stock price trend is similar to the brokerage index, which interprets strong beta attributes. Looking at the review, the company's ROE and PE valuations after 2022 showed a strong correlation. The stock price trend is similar to the brokerage index and has strong beta characteristics. The company's main customer base is brokerage firms. Downstream demand is affected by brokers' IT investment, so performance and stock prices are easily affected by the brokerage sector.
Industry changes: The policy side drives the rise in prosperity, and there is plenty of room for securitization rates to increase 1) The policy side promotes the implementation of credit innovation, and domestic substitution accelerates. With the full promotion of Financial Credit Innovation, Financial Xinchuang's basic software and hardware and upper application solutions are expected to usher in a boom; 2) The China Securities Association issued a “Three-Year Improvement Plan” to encourage brokerage firms and others to increase IT investment. In April 2024, the nine New National Rules and supporting policies were implemented intensively. IT systems for brokers-related business were rapidly changed in line with policy guidelines, and IT suppliers are expected to usher in a rise in demand for brokerage system transformation; 3) The number of A-share investors remains high, and there is plenty of room for improvement in China's securitization rate in more developed markets. The number of new A-share accounts opened on the Shanghai Stock Exchange in 2023 was 21.444 million, and 9.25 million natural person investors were added in the first 8 months of 2023, maintaining a high level. At the end of 2022, the securitization rates of China, the United States, Japan, and the United Kingdom were 64.1%, 158.3%, 127.0%, and 100.5% respectively. There is still plenty of room for improvement in China's securitization rate.
Revenue side: B-side customers cover a wide range and are highly sticky, and the C-side product line is gradually being enriched 1) B-side business contributes to the main revenue sources, and the customer coverage is extensive and highly sticky. In 2023, the company's B-side software sales and maintenance revenue was 364 million yuan, +44.0% year-on-year, contributing 83.9% of revenue, and 93.7% gross margin. The company covers more than 90% of domestic securities companies. Customers are highly sticky and the stock software maintenance business forms a revenue cushion. The company has built a moat with strong first-mover advantage and technical advantages. Since 2022, with the acceleration of brokers' national secret transformation, the company's B-side business revenue has entered a high growth channel; 2) The C-side business is in an active stage, and the product line is gradually being enriched. According to data from Yiguan Qianfan, the number of monthly active users of the company's Tongdaxin App in April 2024 was 2.246 million, +25.0%. In recent years, the company has increased its efforts in the C-side market, continued to polish products, and expand traffic conversion, and customer conversion efficiency and payment penetration rate are expected to improve.
Cost side: Using technology and innovation as development support, embracing AI to enhance product competitiveness 1) The company mainly focuses on direct sales, B2B, and online sales, and the sales expense ratio is lower than that of peers. In 2023, the company's sales expenses were 100 million yuan, +36.5% year on year. The corresponding sales expenses rate was 2.3%, +0.02pct year over year, all significantly lower than peers, showing that the company's platform has a solid traffic base, has a certain brand effect, and there is still room for business breakthroughs in the future; 2) Focus on independent R&D and talent development, and the R&D cost rate is high. In 2023, the company's R&D expenditure was 80 million yuan, +6.6% year on year, and the corresponding cost rate was 17.4%, -4.7 pct year on year. Compared with peers, the company's R&D expenses rate and R&D staff share were high, supporting the business with technology and R&D innovation. Furthermore, a new open AI platform has been launched - ask Xiaoda to embrace AI technology to enhance product competitiveness.
I am optimistic that the company will benefit from the increase in industry prosperity driven by policy, and at the same time actively embrace innovation in the application of AI technology in the financial field, enrich the product matrix, and create a new path for performance growth. The company's net profit for 2024-2025 is estimated to be 370 million yuan and 4.4 billion yuan, respectively, and the corresponding PE is 42.2 and 35.2 times, respectively, giving it a purchase rating.
Risk warning
1. The turnover of the two markets declined sharply; 2. Regulatory policies were tightened; 3. Profit forecasting assumptions were unfounded or fell short of expectations