Description of the event

Wealth Trends released its 2024 three-quarter report. During the reporting period, it achieved operating income of 0.21 billion yuan, -15.4% year-on-year, and realized net profit to mother of 0.14 billion yuan, or -27.3% year-on-year.

Incident comments

Affected by factors such as falling downstream demand, the company's Q3 single quarter results were under pressure. 1) In the first three quarters of 2024, the wealth trend achieved operating income and net profit to mother of 0.21 and 0.14 billion yuan, respectively, -15.4% and -27.3% year over year, weighted ROE was 4.1%, -2.0pct year on year; 2) Looking at the Q3 single quarter, the company achieved operating income and net profit to mother 0.063 and 0.044 billion yuan respectively, respectively. Affected by factors such as falling downstream demand, the company's Q3 revenue and net profit to mother were under pressure.

Q3 The revenue side was clearly under pressure, and performance improvements lagged behind downstream brokerage firms. 1) Looking at the market environment, the average daily turnover of the two markets in the first three quarters was 797.3 billion yuan, or -10.6%, the market popularity was weaker than the same period last year; 2) The company received 0.07 billion yuan of cash flow from selling products and services in a single quarter, or -32.6%. The contract debt at the end of Q3 was 0.11 billion yuan, -14.5% year over year. The main reasons were a decrease in sales project acceptance revenue, a decline in cash management revenue, and a decrease in government subsidies related to revenue during the reporting period. The company mainly focuses on the B-side business, and the improvement in performance lags behind downstream brokerage firms. After the press conference of the 924 new offices, the company's downstream demand is expected to benefit from a significant recovery in market popularity; 3) Furthermore, at the end of 2024Q3, the company's Tongdaxin App had a monthly activity of 2.5 million people, +29.5% and +12.9%, respectively, and the activity of the C-side platform increased significantly.

On the cost side, increased R&D investment has weakened profitability. In the first three quarters of 2024, the wealth trend gross profit margin and net margin were 82.0% and 68.5% respectively, +0.6 and -11.2pct, respectively. The gross margin remained stable, and the net interest rate declined.

The company's sales, management, and R&D expenses for the first three quarters were 0.005, 0.006, and 0.062 billion yuan, respectively. The corresponding cost rates were 2.2%, 3.1%, and 29.4%, respectively, and -0.2, +0.3, and +9.9pct, respectively. The increase in the company's R&D investment weakened profitability.

I am optimistic that the company's subsequent performance will benefit from the recovery in downstream demand, and at the same time actively embrace innovation in the application of AI technology in the financial field, enrich the product matrix, and achieve a continuous increase in market share. The company's net profit for 2024-2025 is expected to be 0.256 and 0.363 billion yuan, respectively, and the corresponding PE is 108.4 and 76.6 times, respectively, maintaining the purchase rating.

Risk warning

1. The turnover of the two markets dropped sharply;

2. Regulatory policies have been tightened.