Key points of investment

Incident: Dongfang Wealth released its 2024 three-quarter report. The company's total revenue for 24Q1 to 3 was -13.96% to 7.304 billion yuan, and net profit to mother was -2.69% to 6.042 billion yuan. Among them, total revenue for the Q3 quarter was -13.86% YoY to 2.359 billion yuan, and net profit to mother +0.09% YoY to 1.986 billion yuan.

Against the backdrop of the decline in trading activity in the third quarter, the company's securities business performed better than the overall market: 1) The securities brokerage business showed leading advantages: the average daily share base turnover in the 24Q1 to 3 market was -8% to 925.1 billion yuan, of which -12%/-15% in Q3 were -12%/-15% to 807.3 billion yuan, respectively. The company's net revenue from handling fees and commissions from 23Q1 to 3 (mainly composed of net income from securities brokerage business) ranged from -5% to 3.6 billion yuan, of which -8%/-4% to 1.2 billion yuan in Q3 in a single quarter, the revenue decline was less than the overall market, further demonstrating the company's scale advantage and performance resilience in the midst of shocks at the bottom of the industry cycle. 2) Proprietary investment remains steady. From 24Q1 to 3, the company's own business revenue (income from investment income+net income from changes in fair value - return on investment in joint ventures and joint ventures) was +50% to 2.4 billion yuan, of which Q3 was +68% to 0.8 billion yuan, which partially relieved the operating pressure on the company's main business, and is expected to increase significantly in revenue from the fixed income business. 3) The market share of the two finance companies has increased. As of 2024Q3, the total balance of the two loans in the market was 1440.1 billion yuan, -9% compared to the same period last year; the company's financing capital was 43.8 billion yuan, +1% compared to the end of the previous year, driving the company's share of the two loans market increased by 0.32 pct to 3.04% from the end of the previous year.

The fund business continues to be under pressure due to the cooling of fund issuance compounded by public fund reform: the share of newly developed funds in the 2024Q3 market was 176 billion shares, -27%/-50% month-on-month, a new low in a single quarter since 2019, and the front end of the company's fund business is under great pressure. Combined with the gradual implementation of public offering rate reform measures, the company's 24Q1-3 revenue (mainly composed of fund business revenue) ranged -27% to 2.2 billion yuan, of which 23Q3 revenue in a single quarter was -22%/-7% month-on-month, respectively, to 0.7 billion yuan.

Currently, trading enthusiasm is bursting at an accelerated pace, and performance flexibility for the fourth quarter is expected to be unleashed: since late September 2024, along with the Federal Reserve's interest rate cuts and the mass implementation of domestic economic stimulus measures, investor enthusiasm has been rapidly ignited, and market transactions have increased significantly. As of October 25, 2024, the average daily share base turnover in October 2024 was $2325.9 billion, +158% over the same period last year. At this stage, the overseas liquidity environment is gradually improving, and a new round of domestic stimulus policies is poised to begin. The combination of internal and external positive factors is expected to drive a sharp increase in market turnover and corporate revenue. Furthermore, in October, Dongcai Fund announced that Dongfang Wealth Securities plans to increase its holdings in ETFs, equity index funds, and partial share hybrid funds under Dongcai Fund to no more than 2 billion yuan. Under the current market trend, Dongfang Wealth is also expected to increase investment income and further enhance performance.

Profit forecast and investment rating: According to the company's business situation in the first three quarters of 2024, we slightly lowered our previous profit forecast. The company's net profit for 2024-2026 is 8.731/10.195/12.175 billion yuan, respectively (the previous forecast was 92.88 /10.597/12.502 billion yuan, respectively), and the corresponding growth rates are +6.56%/+16.77%/+19.42%, respectively. The corresponding EPS is 0.55/0.65 per share, respectively /0.77 yuan. The current market value corresponding to PE is 40.12/34.36/28.77 times, respectively. I am optimistic that the company will continue to consolidate its leading position as a retail brokerage firm and use the advantages of financial AI to restructure the stock share of the traditional securities business and maintain a “buy” rating.

Risk warning: 1) The limit on changing public offering fees to commissions exceeded expectations; 2) the equity market fluctuated greatly; 3) competition in the industry intensified.