Incidents:

On August 9, Oriental Wealth announced the 2024 semi-annual financial report. The company achieved revenue of 4.94 billion yuan in the first half year of 2024, a year-on-year decrease of 14.0%; net profit to mother of 406 billion yuan, a year-on-year decrease of 4.0%; weighted average ROE of 5.52%, down 0.78 pct from the same period last year; and basic earnings per share of 0.26 yuan/share.

Comment:

Revenue and profit increased slightly from quarter to quarter in Q2. 24H1 achieved revenue of 4.94 billion yuan, -14.0% year over year, revenue Q2 increased 1.3% month-on-month; net profit to mother 4.06 billion yuan, -4.0% year over year; and Q2 increased 7.6% month-on-month. 24H1's securities business/IT service business revenue was 3.42/1.52 billion yuan respectively, accounting for 69.2%/30.7% of total revenue, respectively, +6.4/-6.4 pct. The decline in 24H1's performance was mainly due to factors such as capital market sentiment, and the decline in traditional business revenue.

The brokerage business continued to be under pressure, and proprietary revenue was +42.1% year-on-year. In terms of brokerage business, 24H1's brokerage business market share increased steadily year on year, and stock base transaction volume fell slightly by 6.4% year on year; 24H1's net income from securities brokerage business fees and commissions was 2 billion yuan, -9.7% year over year, mainly due to the slump in the A-share market affecting the decline in brokerage securities business revenue. In terms of credit business, as of the end of June, the company's balance of the two loans reached 42.37 billion yuan +6.6% year over year, driving an increase in interest income, but net interest income declined due to the impact of increased interest on bond financing. 24H1's net income from credit business interest was -8.0% of 1.03 billion yuan, mainly due to an increase in interest expenses payable on bonds and interest expenses for selling and repurchasing financial assets. In terms of proprietary business, 24H1's transactional financial assets were +21.4% to 82.87 billion yuan compared to the beginning of the year, of which bond assets were +19.1% to 53.49 billion yuan at the beginning of the year. Since this year, lower interest rates in the bond market have driven self-operated business revenue +42.1% to 1.64 billion yuan over the same period, contributing significantly to the company's performance.

Revenue from the fund management business declined year on year, and R&D investment increased AI layout. In the first half of the year, the company's Internet financial e-commerce platform achieved a total of 86.03 million fund approval (subscription) transactions, with fund sales of 851.38 billion yuan, +4.4% year over year, of which sales of non-monetary funds ranged -0.9% to 499.66 billion yuan. Affected by the downturn in the fund market and the reform of public offering fees, 24H1 fund's sales revenue was 1.42 billion yuan, -29.6% compared with the same period last year. The company continued to strengthen its platform advantages, reduce costs and increase efficiency. In the first half of the year, the company's management expenses were -2.2% to 1.15 billion yuan; the AI layout continued to deepen, and 24H1's R&D expenses were +9.9% to 0.56 billion yuan. The company continues to vigorously promote large-scale model research and development, use AI to enhance the quality and efficiency of the financial ecosystem, and help the financial industry innovate and upgrade digitally. In the future, the company is expected to benefit from the development of smart finance, continuously expand diversified businesses, and increase financial services business benefits.

Investment advice: As a leading Internet financial services company, the company's huge customer base and strong performance resilience all provide good application scenarios for “AI+”. At the same time, as the first industry pioneer to launch an “AI+DATA” smart financial terminal in China, the company actively lays out the AI direction. The 8.0 version of the Choice smart finance terminal was launched. The “Wonderful” financial model focuses on continuously optimizing financial vertical capabilities in core financial scenarios. Combined with a closed business loop formed by “public fund+fund marketing+agent trading of securities”, the performance space can be expected. In view of the current turbulence in the A-share market, we adjusted our 24-26 net profit forecast to 82.81 (down 17.8%) /88.04 (down 24.0%) /94.51 billion yuan, EPS of 0.52/0.56/0.60 yuan, PE valuation of 20.44/19.22/17.90 times, and downgraded the rating to “increase holdings”.

Risk warning: The return on R&D investment falls short of expectations, and the A-share market continues to be sluggish.