Incidents:

On October 25, Dongfang Wealth announced financial results for the first three quarters of 2024. In the first three quarters of 2024, the company achieved revenue of 7.3 billion yuan, a year-on-year decrease of 14.0%; net profit to mother of 6.04 billion yuan, a year-on-year decrease of 2.7%; weighted average ROE was 8.14%, down 1.02 pct from the same period last year; and basic earnings per share were 0.38 yuan/share.

Comment:

Both revenue and profit declined in Q3 compared to the previous quarter. 24Q1-3 achieved revenue of 7.3 billion yuan, -14.0% year over year; Q3 quarter revenue was -13.9% compared to the same period last year, -5.2% month-on-month, 2.36 billion yuan; net profit to mother was 6.04 billion yuan, -2.7% year over year; Q3 single quarter was +0.1% compared to the same period last year, and -5.5% month-on-month compared to Q2 single quarter, 1.99 billion yuan.

The revenue of 24Q1-3's securities business/IT service business was 5.06/2.24 billion yuan respectively, accounting for 69.3%/30.7% of total revenue, respectively, +5.4/-5.4 pct. The decline in 24Q1-3'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 +49.3% year-on-year. 24Q1-3, the average daily share base trading volume of the A-share market was 921 billion yuan, -8.6%; the net income from handling fees and commissions of the 24Q1-3 company was 3.55 billion yuan, -5.3% year-on-year, -8.0% in the Q3 quarter compared to the same period last year and -4.4% month-on-month in Q2, or 1.16 billion yuan, mainly due to the decline in revenue from traditional businesses such as brokerage trading of securities. In terms of credit business, as of the end of September, the balance of the two loans in the city was 1.44 trillion yuan, -9.5%; 24Q1-3's net income from credit business was -9.7% of 1.51 billion yuan, -13.3% in the Q3 quarter compared to the same period last year, and -5.1% month-on-month, or 0.48 billion yuan in the single quarter compared to the previous quarter, which was mainly affected by a decrease in interest income and an increase in interest expenses on the sale and repurchase of financial assets. In terms of self-operated business, the size of the company's 24Q1-3 transactional financial assets was +19.4% to 84.5 billion yuan, compared to +23.7% at the end of the previous year. Since this year, bond market earnings have driven proprietary business revenue +49.3% to 2.41 billion yuan. Q3 single quarter was +67.2% compared to the same period last year, and -7.2% month-on-month in Q2, to 0.77 billion yuan. Self-operated business contributed significantly to the company's performance in the first three quarters.

The scale of fund consignment sales increased year-on-year, and R&D investment continued to increase AI layout. As of the end of September, Tiantian Fund, a wholly-owned subsidiary of the company, had 10,390 consignment funds/188, respectively, with a year-on-year ratio of +10.3%/+2.2%, ranking first in the market; among them, only 1674/4543/3082 equity/bond funds were sold, respectively, +15.5%/+4.1%/+18.9% year-on-year. The scale of the company's fund consignment sales increased significantly compared to the same period last year. 24Q1-3's IT service business revenue was 2.24 billion yuan, -26.8% year over year, and -6.0% month-on-month in Q3 compared to Q2, or 0.72 billion yuan. It is estimated that it was mainly affected by the downturn in the fund market. On the cost side, the company continued to strengthen its platform advantages to reduce costs and increase efficiency. The company's management expenses were -4.1% to 1.71 billion yuan in the first three quarters; the company's R&D expenses were +7.3% to 0.85 billion yuan in the first three quarters, +2.7% compared to the same period last year, and +7.8% month-on-month compared to the Q2 single quarter, to 0.29 billion yuan. The company continued to increase its large-scale model layout and enhance the quality and efficiency of the financial ecosystem with AI to help the company innovate and upgrade its business digitally and intelligently. 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 service company, the company's huge customer base and strong performance resilience all provide sufficient application scenarios for the company to lay out the “AI+” financial ecosystem. The “fantastic” financial model focuses on the company's core financial scenario and continuously optimizes financial vertical capabilities. Combined with the company's “public fund+fund consignment+agent trading of securities”, the performance space can be expected. In the future, the company is expected to take the lead in benefiting from capital market policy reforms. We maintain our forecast net profit of 8.281/8.804/9.451 billion yuan for 24-26, EPS of 0.52/0.56/0.60 yuan, PE valuation of 43.28/40.70/37.91 times, and maintain the rating as “increase in holdings”.

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