Matters:

Dongfang Wealth released its 2024 semi-annual report. During the reporting period, it achieved total revenue of 4.94 billion yuan (-14% YoY), net profit of 4.06 billion yuan (YoY -4%); Q2 achieved total operating income of 2.49 billion yuan (-15.3% YoY/+1.3% YoY), and net profit of 2.1 billion yuan (YoY +7.6%).

Commentary:

Market trading activity is declining, and brokerage and credit businesses are under pressure. (1) Decrease in share base turnover: 24H1 net income from handling fees and commissions was 2.4 billion yuan (-4% YoY), of which net income from securities brokerage business was 2 billion yuan (-9.7% YoY). Volume and price split: A-share base transaction volume in the first half of the year was 100.94 trillion yuan (-9.3% year over year), average daily turnover was 862.8 billion yuan (-8.5% year over year); the company's share base transaction volume was 9.21 trillion yuan (-6.4% year over year), market share rose slightly to 9.1% (+0.3 pct year over year), and the commission rate fell slightly to 2.061?

(-0.09bp year on year). (2) The market share of the two finance loans increased: 24H1 net interest income of 1.03 billion yuan (-8% year over year), of which interest income was 2.18 billion yuan (+6.7% year over year), and interest expenses were 1.16 billion yuan (+24.2% year over year).

The average daily balance of the two loans in the first half of the year was 1.53 trillion yuan (-3.7% year over year). At the end of the reporting period, the company raised 43.58 billion yuan, and the share of the two loans reached 2.95% (+0.4 pct year on year).

The scale of fund sales has declined. Affected by the weakness of the equity fund market, 24H1's revenue (mainly selling financial products on behalf of Tiantian Fund) was 1.52 billion yuan (-28.8% YoY). During the reporting period, the company's Internet financial e-commerce platform achieved a total of 86.03 million fund approval (subscription) transactions (-13.8% YoY) and fund sales of 851.4 billion yuan (+4.4% YoY). Of these, non-monetary funds achieved a total of 54.33 million (including fixed investment) transactions (-30.3% YoY), with sales of 499.7 billion yuan (-0.9% YoY).

Proprietary profit margin increased. 24H1's self-operated business revenue was 1.63 billion yuan (not included in total revenue, same below), +42.5% year-on-year. At the end of the reporting period, the company's self-operated business scale was 83.6 billion yuan (+19% year over year), and the annualized self-operating yield was 4.3% (+0.9 pct year over year).

Continued breakthroughs in AI research and development. 24H1, the company's self-developed “fantastic” financial model continues to be iteratively upgraded to help the financial industry innovate and upgrade digitally. In June 2024, Dongfang Wealth's “Wonderful Vision” financial model and Choice Data were the first in the industry to launch next-generation smart financial terminals, covering seven major scenarios of intelligent solutions. 24H1, the company's R&D expenses were 0.56 billion yuan, +9.9% year-on-year.

Investment advice: The one-stop Internet wealth management service provided by the company is highly correlated with the prosperity of the capital market. Considering that economic recovery falls short of expectations, profit forecasts were lowered. We expect the company's 2024/2025/2026 EPS to be 0.53/0.58/0.62 yuan (the previous value was 0.57/0.63/0.69 yuan before 2024/2025/2026), and the BPS will be 5.09/5.62/6.20 yuan, respectively. The current stock price corresponds to PE 19.7/18.2/16.8 times, and the ROE will be 11.0%/10.8%/10.6%, respectively. Recently, the company's valuation reached the bottom of nearly three years. We gave the company a PE valuation of 27 times its 2024 performance, corresponding to a target price of 14.3 yuan. Maintain a “Recommended” rating.

Risk warning: Market trading volume declined; risk appetite declined; capital market innovation fell short of expectations; real economy recovery fell short of expectations.