occurrences

Dongfang Wealth released its 2024 semi-annual report. 2024H1 achieved total operating income of 4.945 billion yuan, -14% year over year; net profit to mother 4.056 billion yuan, -4% year over year; and ROE 5.52%, a decrease of 0.78 pct from the same period last year. 2024Q2's total revenue in a single quarter was 2.489 billion yuan, -15.3% YoY, +1.3% month-on-month; net profit to mother was 2.102 billion yuan, -4.28% YoY, +7.57%.

The fee business fluctuates with the market, and the self-operated fixed income business has become a highlight

1) 2024H1 achieved a total processing fee and commission revenue of 2.395 billion/yoy -4%, of which 2Q24 single quarter fee and commission revenue was 1.213 billion yuan/yoy -7.7% /qoq +2.6%, which is expected to be mainly due to a decline in trading between the two markets and the year-on-year decline in commission rates. The average daily share base turnover in the 2Q24 market was 828.9 billion/yoy -17.8% /qoq -8.3%. As of the end of June 2024, the balance of the two loans was 1.48 trillion yuan, down 10% from the end of 2023.

2) 2024H1 net interest income 1.027 billion yuan/yoy -8%, 2Q24 single quarter net interest income 0.505 billion yuan, yoy -10.5% /qoq -3.3%. The amount of capital raised by the company at the end of the second quarter of '24 was 43.6 billion yuan, -5.79% compared to the end of 2023. The estimated market share of the company's financing business was 2.99%, an increase of 0.4 pct over the end of '23. 3) Benefiting from the sharp year-on-year increase in revenue from the securities self-operated fixed income business, 2024H1 achieved investment income and fair value change income of 1.639 billion yuan, yoy +42%. According to estimates, the company's 2Q24 annualized return on investment was 3.5%, yoy+0.2pct. Under the bond market, the company's return on investment increased.

The lackluster fund market affects the company's fund business revenue

2024H1's revenue, mainly fund sales, was 1.523 billion yuan/yoy -28.8%, 2Q24 single-quarter revenue 0.772 billion yuan, yoy -27.3% /qoq +2.8%. The share of newly issued equity funds in the 2Q24 market was 56.1 billions/yoy -33% /qoq -1%. The combined impact of fee cuts in the fund market is expected to lead to a year-on-year decline in Dongcai's fund sales revenue. The third phase of the fund fee reduction is expected to be implemented within this year, and may have an impact on Dongcai's consignment business. The overall size of Tiantian Fund is also expected to be under pressure. By the end of 2023, Tiantian Fund Equity Fund held 447.1 billion yuan, or YOY -9.8%.

Profit Forecasts, Valuations, and Ratings

Considering that fund fee cuts affect the company's fund sales revenue, we expect the company's 2024-2026 revenue to be 11.1/12.1/13.7 billion yuan, +0.2%/+9%/+13% year over year, and net profit to mother of 8.4/9.4/10.8 billion yuan, respectively, +3%/+11%/+15% year over year, and EPS of 0.53/0.59/0.68 yuan/share, respectively. As a leading Internet brokerage firm, the company is expected to benefit from the restoration of volume and price in the securities market in the future; at the same time, the company announced that it will integrate business and R&D capabilities and establish an artificial intelligence division to further open up space for subsequent AI+ finance. Based on the company's fundamentals and historical PE situation, the company was given 25 times PE in 24 years, with a target price of 13.25 yuan, maintaining a “buy” rating.

Risk warning: Market recovery falls short of expectations, increased competition in the industry, risk of policy changes