Incident: Oriental Wealth released its 2024 semi-annual report. Driven by investment business, the company's second-quarter results slightly exceeded expectations. 1H24 achieved revenue of 4.94 billion yuan/yoy -14%; net profit to mother 4.06 billion yuan/yoy -4%; weighted average ROE of 5.52% (unannualized) /yoy-0.78pct. Quarterly results: 2Q24 achieved revenue of 2.49 billion yuan/yoy -15.3% /qoq +1.3%, net profit of 2.1 billion yuan/yoy -4.3% /qoq +7.6%.

Total revenue split: The year-on-year decline in fund sales revenue has narrowed, and the brokerage business is under pressure. According to the company's announcement, 1H24 Dongcai achieved handling fees and commission income (mainly brokerage), net interest income (mainly from the two financings), and operating income (fund business) of 2.395 billion yuan, 1.03 billion yuan, and 1.52 billion yuan, respectively, of -4.0%, -8.0% and -28.8% year-on-year respectively, accounting for 48%, 21% and 31% of revenue, respectively.

Fund sales: The decline in revenue is expected to be mainly affected by the decline in fund management fees. Focus on the progress of subsequent sales rate reforms. According to Wind statistics, in the first half of 2024, 105 billion shares of newly issued partial shares were raised, a year-on-year decrease of 43%.

According to the company's announcement, Tiantian Fund's fund sales in the first half of the year were 851.3 billion yuan, +4.4% year over year; of these, sales of non-monetary funds were 499.7 billion yuan, down 0.9% year on year. The second phase of public fund reform has been implemented, and transaction commission adjustments have been completed. Subsequent supervision will further regulate fund sales fees. It is expected to be implemented before the end of 2024. At that time, the company's sales revenue is expected to be impacted.

Brokerage & finance business: The share market share of the equity base has remained stable, and the share of the two financing markets has increased slightly. According to the company's announcement, the company's share base trading volume during the reporting period was 9.2 trillion yuan, a year-on-year decrease of 6%, which is similar to the year-on-year decline in the average daily share base trading volume of the market.

We estimate the market share ratio of the company's stock base turnover to be 4.0% (4.01% market share in 2023). The company's net brokerage revenue during the reporting period was 2 billion yuan, down 9.7% year on year, mainly due to the decline in revenue from proxy purchases (1H24 revenue was 2.53 billion yuan, yoy -7.2%) and transaction unit seat leasing (1H24 revenue was 0.046 billion yuan, yoy -78.2%).

The decline in net interest income was mainly hampered by an increase in interest expenses (+41% to 0.497 billion yuan in interest payable on bonds); interest income from financing funds was +5.9% to 1.26 billion yuan.

Investment business: The 1H24 bond market continues to strengthen, and the company's investment income has increased dramatically. In the first half of 2024, the company's investment revenue was 1.632 billion yuan, +43% year-on-year. The size of investment assets increased by 20.5% to $101.6 billion at the end of '23. Among them, transactional financial assets were $82.9 billion, up 21.4% from the end of '23, and investments in other equity instruments were $10.6 billion, up 137% from the end of '23. We estimate the company's return on investment of 3.5%, up 0.88pct from '23.

Investment analysis opinion: Lower 24-25E profit forecast, raise 26E profit forecast, and maintain the company's buying rating. In 2024, Dongfang Wealth was affected by the public fund reform policy throughout the year. Considering that the new equity funds were still weak in the first half of 2024, we lowered the 24-25E profit forecast; considering that Dongcai released the Miaoxiang Big Model for seven major scenarios on 2024/6/5, built into Dongcai's Choice smart finance terminal, the subsequent Miaoxiang Big Model is expected to empower the financial business line, so the 26E profit forecast was raised. The company's 24-26E net profit is expected to be 8.02, 8.66, and 9.34 billion yuan (the original forecast was 8.46, 8.67, 9.16 billion yuan), or -2%, +8% compared to the same period last year.

Risk warning: Large-scale net redemptions of public funds have caused the growth rate of the fund sales business to fall short of expectations; the sharp decline in market share base turnover has led to a decline in the growth rate of the securities business.