Introduction to this report:

The decline in the company's net profit was mainly due to insufficient demand for residents' equity funds and pressure on fund consignment revenue due to rate reforms; the addition of fixed income products led to a significant increase in investment income.

Key points of investment:

Maintaining the “overholding” rating, the target price was lowered to 16.20 yuan/share, corresponding to 2024 30xP/E.

The company's 2024H1 adjusted revenue (including investment business revenue) was 6.584 billion yuan, -4.63% YoY; net profit to mother was 4.056 billion yuan, -4.00% YoY. The performance was in line with expectations. The decline in net profit attributable to mother was mainly due to a decline in fund sales, handling fees and commission income. The adjusted 2024-2026 EPS was 0.54/0.56/0.58 yuan (previously adjusted 0.56/0.59/0.61 yuan). Maintaining the “gain” rating, considering that the share of investment income in the company's revenue continues to rise, some refer to traditional brokers' valuations, and the valuation was lowered to 30xP/e in 2024, and the target price was lowered to 16.20 yuan.

The main reason for the decline in the company's performance is due to insufficient demand for residents' equity funds, the pressure on fund consignment revenue due to rate reforms, and the decline in income from securities brokerage and financial services due to market fluctuations. 1) 2024H1, the company's fund consignment revenue was -30% to 1.412 billion yuan, contributing 187% of the total decline in adjusted revenue. Insufficient demand for equity funds due to low residents' risk appetite was the main reason for the decline in consignment sales. The scale of new equity fund issuance was -35% to 107 billion shares during the same period; the public fund rate reform implemented in July 2023 further drove the decline in fund consignment revenue; 2) Net interest income compared to -7.97% to 1.027 billion Yuan contributed 28% of the total decline in adjusted revenue; handling fee revenue was -3.96% to 2.395 billion yuan, contributing 31% of the total adjusted revenue decline, increasing the pressure on performance. 3) Thanks to the company's increased allocation of bond-like assets, the company's investment income increased sharply to 1.639 billion yuan, 42% year-on-year, and the return on investment reached 4.3%, slowing down the decline in performance.

Costs have generally declined, and R&D investment is still increasing; AI products are being implemented at an accelerated pace, and application scenarios are gradually being enriched. The company's total operating cost was -4.22% to 2.069 billion yuan; the reduction in total cost was mainly due to a decrease in sales expenses, which decreased 37.12% year over year. R&D expenses were +9.85% to 0.556 billion yuan compared to the same period, which is expected to be mainly due to the company's continued investment in large models. The company's self-developed “Wonderful Vision” financial model has been applied in multiple scenarios, and together with Choice Data, it is pioneering the launch of next-generation smart financial terminals in the industry, covering intelligent solutions covering multiple scenarios. It is expected that the company's big model products will better enhance wealth management services and B-side financial information services.

Catalyst: Capital market trading is active, and residents' demand for wealth management continues to grow.

Risk warning: The capital market has declined sharply.