Incident: Oriental Wealth released its 2024 semi-annual report. In the first half of the year, the company achieved revenue of 4.945 billion yuan, -14.00% year over year; net profit to mother 4.056 billion yuan, -4.00% year over year; weighted average ROE of 5.52%, down 0.78 pct year on year.

Revenue split:

1) Securities business: 2023H1, the company's securities business achieved revenue of 5.057 billion yuan, +6.3% year-on-year.

Among them, handling fee and commission income/ net income from interest/ revenue from proprietary operations were 2.395/1.027/1.634 billion yuan, respectively, or -4.0%/-8.0%/+42.5% compared with the same period last year. Looking at a single quarter, Q2's securities business revenue was 2.541 billion yuan, +0.3% year over year and +0.98% month over month. Among them, handling fee and commission income/net income/net income from proprietary operations were 1.213/0.505/0.823 billion yuan, respectively, -7.7%/-10.5%/+25.6% year-on-year, and +2.59%/-3.40%/+1.45% month-on-month.

2) Fund business: 2024H1, the company's fund business revenue was 1.523 billion yuan, -28.8% year-on-year. Looking at a single quarter, the company's fund business revenue in the second quarter was 0.771 billion yuan, -27.3% year-on-year, and +2.70% month-on-month.

Comment:

[Driven by a decline in market transactions and the scale of finance, the company's share of the two finance markets bucked the trend] In the first half of 2024, the total share base turnover of the industry was 115.2 trillion yuan, -7.6% compared to the same period last year. The company's 2024H1 stock fund turnover was 9.21 percent, -6.4% year over year, with a market share of 4.0%, which was basically the same as at the beginning of the year. By the end of 2024H1, the balance of the two loans in the market was 1.48 trillion yuan, -10.3% compared to the beginning of the year. The company's financing and securities lending business raised 42.369 billion yuan. The company's share of the two financing markets was 2.86%, +14pct compared to the beginning of the year.

[Significant growth in proprietary assets drives performance, with year-on-year and month-on-month performance in the second quarter being slightly better than in the first quarter] The scale of financial assets increased dramatically, driving a marked increase in proprietary investment income. Against the backdrop of scarce assets, increasing defensive investment and increasing dividends may be an important strategy. By the end of 2024H1, the company's financial investment assets had further increased sharply to 100.873 billion yuan, +20.1% from the beginning of the year and +16.1% at the end of the first quarter. Among them, the investment scale of other equity instruments was 10.582 billion yuan, +137.2% compared to the beginning of the year, and +34.6% compared to the end of the first quarter.

[A slight month-on-month recovery in the fund market led to a month-on-month increase in Q2 performance. In the future, we still need to pay attention to the impact of the decline in sales rates] The month-on-month improvement in sales in the equity fund market led to a marginal increase in performance. 2024Q2, the size of the “stock+hybrid” emerging fund in the market was 55.7 billion shares, -27.6% year over year and +2.0% month over month. The survival size of the “Stock+Hybrid” fund was 6.17 percent, +1.0% compared to the beginning of the year and -1.2% compared to the end of the first quarter. In the first half of 2024, the company's fund sales/non-commodity fund sales volume was 851.382/499.664 billion yuan, +4.43/ -0.88% year-on-year. The second phase of the public offering fee reduction was officially implemented in early July. Continued attention is needed if the third phase of fee reduction starts or has an impact on the fund's sales side rate.

[The company continues to make breakthroughs in AI research and development, and the application of the “Wonderful” financial model improves service levels] In June 2024, Dongfang Wealth's “Wonderful” financial model joined hands with Choice Data to take the lead in launching next-generation smart financial terminals in the industry, covering seven major scenarios, bringing more intelligent experiences to financial advancement, investment and research quality improvement, and transaction efficiency.

Profit forecasting and investment ratings: Optimistic about scale growth under the trend of institutionalization and equity and market share growth driven by the application of large AI models. First, the company is expected to benefit from the equity and institutionalization of residents' wealth management, and the market price reduction and increase logic needs to be continuously verified. Second, the application of AIGC is also expected to catalyze the improvement of the company's operational capacity and product capabilities, and achieve a further increase in market share. The company will also use capital-based businesses such as self-employment and mutual financing to accelerate development and achievement of performance. We expect 2024-2026E net profit to be 9.386/10.678/12.351 billion yuan respectively, corresponding to 2024-2026E PE of 17.59x/15.46x/13.37x, maintaining a “buy” rating.

Risk factors: Investment-side reforms in the capital market fell short of expectations, implementation of AIGC applications fell short of expectations, profit fluctuations in proprietary business; decline in fund sales rates exceeding expectations; decline in customer risk appetite, etc.