Event: On August 9, Dongfang Wealth released its 2024 semi-annual report. 1H24 achieved total operating income of 4.94 billion yuan/yoy -14.0%, achieved net profit of 4.06 billion yuan/yoy -4.0%, and a weighted average ROE of 5.52% /yoy-0.78pct.

All of Dongcai's business lines are under pressure, and profits slightly exceeded expectations driven by high growth in proprietary revenue. 1) Revenue split: 1H24's total revenue was 4.94 billion yuan/yoy -14.0%, of which net revenue from handling fees and commissions (mainly brokerage business), net interest income (mainly two loans), and operating income (mainly fund sales) achieved revenue of 2.4, 1.03, and 1.52 billion yuan, respectively, with year-on-year ratios of -4.0%, -8.0%, and -28.8%, respectively. Contributed revenue accounts for 48.4%, 20.8%, and 30.8%. 2) The high increase in investment income drove profit performance better than revenue: 1H24 achieved 1.63 billion yuan/yoy +42.5%, and the estimated annualized return on investment was 4.30% /yoy+0.86pct; the final investment scale of 1H24 was 83.6 billion/ +21.8% compared to the beginning of the year, including 53.5 billion/yoy +19.1% for transactional bonds, and 14.9 billion/yoy +164% for bank financial management and structured deposits.

R&D investment continues to grow, and the net interest rate of the securities business has increased. During the reporting period, the company's cost control was good. The sales and management investment ratio of 1H24 was -37.1% and -2.2%, and the sales expenses ratio was 3.06% and 23.2%, respectively, -1.12 and +2.82pct, respectively; the company continued to increase AI research and development. 1H24 invested 0.56 billion yuan/yoy +9.9% in R&D, and the R&D cost rate was 11.2% /yoy+2.44pct. The net interest rate of the 1H24 company was 82.0% /yoy+8.55pct, and the net margin of the securities business was 65.3% /yoy+1.45pct.

The basic market of the securities business is stable, the market share of the brokerage business is increasing, and the revenue from the two loans is increasing. 1) In terms of brokerage business: 1H24 achieved brokerage revenue of 2 billion yuan/yoy -9.7% (average daily share base turnover yoy -7% in the 1H24 market), and the company 1H24 achieved a share base transaction volume of 9.2 trillion yuan/yoy -6.4%, with a market share ratio of 4.0% /yoy+0.05pct. 2) In terms of Liangfinance business: 1H24 achieved revenue of 1.26 billion yuan/yoy +5.9%. At the end of the period, the company raised 43.6 billion yuan/yoy -5.8%, and the share of Liangfinance's market share was 2.94%/+0.03pct compared to the beginning of the year.

The downturn in the fund market dragged down the dropshipping business, and the leading position on the channel side was maintained. In the first half of 2024, the company relied on AI technology to optimize and upgrade the Tiantian Fund user interaction experience to further enrich investment tools and enhance the user investment experience; 1H24 achieved 1.41 billion/yoy -29.7% in financial e-commerce service revenue, and 1H24 achieved fund sales of 851.4 billion yuan/yoy +4.4%, of which non-commodity sales were 499.7 billion yuan/yoy -1% (the share of new partial equity funds in the 1H24 market was only 57% in the same period last year).

The big AI model continues to break through, and the financial scene is deeply cultivated and empowered to be implemented. In June '24, the company took the lead in empowering the Choice smart financial terminal and launched an intelligent solution with seven major scenarios including AI search, AI Q&A, and AI research report summaries. We believe that Dongfang Wealth has multiple advantages in financial data+business scenarios+AI technology. Subsequent companies are expected to further expand their application in scenarios such as Dongfang Wealth App and Tiantian Fund to enable the company's business expansion.

Investment analysis opinion: 2024-2026E Dongfang Wealth's net profit to mother was 7.95, 8.34, and 9.2 billion yuan, respectively, -3%, +5%, and +10% compared with the same period last year. The current closing price corresponds to 24-26E dynamic PE of 20.8 times, 19.8 times, and 18.0 times.

Risk warning: large-scale net redemptions of public funds; fund sales side fee reform exceeds expectations; market liquidity falls short of expectations.