Performance Overview
In 2023, Orient Securities achieved operating income of 17.09 billion yuan, a year-on-year decrease of 8.75%; net profit to mother of 27.54 billion yuan, a year-on-year decrease of 8.53%; a weighted average return on net assets of 3.45%, a year-on-year decrease of 0.71 pct; and the dividend rate increased to 50%. 23Q4 achieved net profit to mother - 103 million yuan, a year-on-year decline of 110% and a month-on-month decline of 111%. By business line, the year-on-year growth rates of brokerage, investment banking, asset management, interest, and investment net income were -10%/-13%/-23%/8%/26%, respectively, accounting for 16%/9%/12%/10%/14% of total revenue, respectively.
Asset management companies contributed highly to profits, but their own performance declined
Wealth management: In 2023, Orient Securities achieved net brokerage revenue of 2.78 billion yuan, a year-on-year decrease of 10%. Among them, in terms of purchasing on behalf of someone else, net revenue fell 14% year over year. In terms of the consignment business, revenue fell 14% year over year, mainly due to the relatively high share of consignment equity products in the company's consignment business. Fluctuations in the equity market in 2023 affected investors' sentiment in purchasing equity products. In terms of the scale of consignment sales, the company's equity product holdings at the end of 2023 decreased by 5% compared to the beginning of the period. In terms of investment, at the end of 2023, the company's fund investment scale was about 14.36 billion, the number of service customers was about 138,000, the customer retention rate was 69%, and the reinvestment rate was 76%, maintaining high stickiness.
Asset management: In 2023, Orient Securities achieved net revenue from asset management business of 2.03 billion yuan, a year-on-year decrease of 22%. According to Wind data, as of the end of 2023, Huitianfu and Dongfanghong had management scales of 8,177/183.4 billion yuan respectively, ranking 10/33rd in the market. In 2023, net profit of Huitianfu and Dongfanghong decreased by 32%/41% year-on-year respectively, contributing 36% to the company's net profit. The pressure on the asset management business is mainly due to factors such as stock market shocks and lower management rates for public equity products. However, the next three stages of public fund reform are expected to reduce trailing commission rates for consignment sales, partly hedging the impact of falling management rates and helping the asset management business to return to normal.
Investment fluctuates greatly, and Q4 investment losses lead to negative profit
Orient Securities achieved net investment income of 2.39 billion yuan in 2023, an increase of 26% over the previous year, but it is highly volatile.
On a quarterly basis, the net income from 23Q1-23Q4 investment was 11.5/3.7/9.0/ -0.3 billion yuan, respectively, and the increase and fall of the Shanghai Composite Index 23Q1-23Q4 was 5.9%/-2.2%/-2.9%/-4.4%, respectively. The trend of changes in investment income was highly correlated with the rise and fall of the index. Investment losses in Q4 were the main cause of negative net profit. In terms of derivatives, the company's interbank market bond market trading volume increased 12% year over year, OTC options trading volume increased 17% year over year; income swap transaction volume increased 134% year over year.
Profit forecasting and valuation
Dragged down by 23Q4 investment losses, the company's annual net profit to mother decreased by 8.5% year on year, but the dividend rate increased to 50%, and the asset management company's profit contribution remained at a high level. Net profit due to mother is expected to increase 17%/11%/17% year on year in 2024-2026, BPS is 9.55/9.87/10.24 yuan, and the corresponding PB is 0.86/0.83/0.80 times the current price. The company was given 1.2 times PB in 2024, corresponding to a target price of 11.46 yuan, maintaining a “buy” rating.
Risk warning
The macroeconomy declined sharply; the equity market recovery fell short of expectations.