Description of the event

Orient Securities released its 2024 mid-year report. During the reporting period, it achieved operating income of 8.57 billion yuan, down 1.4% year on year, and realized net profit of 2.11 billion yuan, up 11.0% year on year; weighted average return on net assets increased 0.22pct to 2.66% year on year; operating leverage after excluding customer capital fell 2.1% to 3.38 times compared to the beginning of the year.

Incident comments

Profits improved significantly year over year, and self-employment contributed to flexible performance. 1) 2024H Orient Securities achieved operating income of 8.57 billion yuan, down 1.4% year on year, and realized net profit of 2.11 billion yuan, up 11.0% year on year; 2) By business line, the company's brokerage, investment banking, asset management, interest, self-employment, and other income were 10.5, 5.5, 7.1, 0.69, 2.49, and 3.09 billion yuan, respectively, -28.7%, -25.4%, -30.2%, +33.6%, and +23.9%. Fee-related business brokerage, investment banking, and asset management have all declined with the market, and high growth in proprietary businesses has created flexible performance.

The brokerage business declined with the market, and the buyer's investment model gradually matured. 1) The company's brokerage business declined with the market, achieving brokerage revenue of 1.05 billion yuan in 2024H, or -28.7% year-on-year. The total number of customer fund accounts was 2.8 million, +4.2% from the beginning of the year, including 6704 institutional clients, +1.1%; 2) Continued to promote the shift of wealth management business to a “buyer investment” model. By the end of 2024H, the scale of the company's fund investment products was about 14.6 billion yuan, +1.7% compared to the beginning of the year. I am optimistic that the company will continue to make efforts to transform wealth management to buyer investment; 3) At the end of 2024H, the company's two financing balance was 22.6 billion yuan, up from +9.0% at the beginning of the year, increasing its market share 0.3 pct to 1.53%.

Asset management pressure declined year-on-year, and active management capabilities were at the forefront. 1) 2024H's asset management business revenue was 0.71 billion, or -38.1% year-on-year. It is expected that the AUM scale will shrink mainly due to poor investor subscription sentiment. As of 2024H, the total management scale of TSE Asset Management was 224.9 billion yuan, or -14.6%, of which the size of public funds was 169.4 billion yuan, -13.5% YoY; 2) As of 2024H, the absolute yield of equity funds under Eastern Securities Asset Management in the past ten years was 316.86%, ranking 2nd in the industry; fixed income funds had an absolute yield of 32.80% over the past seven years, ranking the top 40% in the industry. In addition, the company's Huitianfu Fund (holding 35.4% of shares) was a non-commodity public fund with a size of nearly 500 billion dollars at the end of 2024H, with a net profit of 0.69 billion yuan, or -13.4% over the same period last year.

Self-management improvements support performance, and equity risk mitigation has come to an end. 1) 2024H's self-operated business revenue was 2.49 billion yuan, contributing to performance flexibility; 2) Financial assets continued to expand. At the end of the first half of the year, the company's financial investment scale was 198.4 billion yuan, +2.2% compared with the beginning of the year. Among them, investment in other equity instruments increased sharply to 13.92 billion yuan, +121.1% compared to the beginning of the year, estimated that the return on 2024H investment was 2.3%, +0.5pct year on year; 3) The balance of the company's stock pledge business to be repurchased was 5.03 billion yuan compared to the beginning of the year At the beginning of the year, -14.8%, the scale was effectively reduced; credit impairment losses were calculated at 0.31 billion, and equity risk mitigation came to an end.

In the long run, the company is still a benchmark for brokers' benefits in wealth management and asset management. Marginal self-operating income has improved, equity risk mitigation has come to an end, and annual performance flexibility and certainty are strong under a low base. The company's net profit for 2024-2025 is estimated to be 2.97 billion yuan and 3.31 billion yuan, respectively. The corresponding PE is 23.6 and 21.2 times, respectively, and the corresponding PB is 0.82 and 0.77 times, respectively, maintaining the purchase rating.

Risk warning

1. A sharp correction in the equity market;

2. Regulatory policies have been tightened.