Incident: Recently, Oriental Wealth released its 2024 mid-year report. The data showed that total revenue was 4.945 billion yuan, -14% year over year, and net profit to mother was 4.055 billion yuan, -4% year over year; weighted ROE was 5.53%, -0.78 PCT year on year. The performance was basically in line with expectations.

2024Q2's net profit was year-on-year, -4.27% month-on-month, and +7.59%, slightly improving month-on-month. The cumulative daily stock base trading volume in 2024H1 was -6.83% YoY and -7.18% YoY in Q2. Micro-liquidity was under year-on-year pressure. The issuance share of 2024H1 stocks and partial equity funds was -35.05% year-on-year, and -14.82% month-on-month in Q2.

The projected year-on-year growth rates of operating income (mainly composed of fund sales revenue) and other types of financial business revenue (mainly securities business) were -28.85% and -5.20%, respectively. The former dragged down the company's overall revenue. According to the subsidiary's perspective, the revenue of Dongfang Wealth Securities and Tiantian Fund was +8.76% and -29.64%, respectively, and net profit was +11.22% and 23.08% year-on-year, respectively. Looking at the securities business segment, interest income, handling fees and commission income were -7.97% and -3.96%, respectively, year-on-year.

The market share of the two finance companies maintained an upward trend, and the market share of transactions declined slightly, underpinning the performance of large proprietary businesses.

The market share of 2024H1 financing capital was 2.94%, +0.03PCT; the company's self-operation was +42.45% YoY and +1.45% month-on-month. Considering the weak macroeconomic recovery and poor trading in the secondary market, we expect bonds to contribute to the profit from its own operation. In terms of scale, the company's investment assets were +11.13% YoY, with transactional financial assets +18.26% YoY to 82.871 billion yuan, and debt investment +51.59% YoY.

Costs have declined due to market conditions, and AI is expected to consolidate the platform's advantages. The total operating costs of 2024H1 were -4.22% YoY, Q2 -1.33%, mainly due to sales expenses of -37.12% YoY, Q2 -18.86% month-on-month, R&D expenses +9.85% YoY, and Q2 -4.56% YoY. The decline in sales expenses is mainly due to the year-on-year decline in marketing expenses. In terms of R&D, the company continues to make breakthroughs in AI research and development, the self-developed “fantastic” financial model continues to be iteratively upgraded, and capabilities in multi-modal derivation and financial intelligence construction are constantly being strengthened.

Investment advice: With the management adjustments of the new Securities Regulatory Commission, continue to push forward capital market reforms and continuously boost market confidence. The trend of increasing market share in core businesses such as corporate brokerage and finance is expected to continue. The Miaoxiang AI financial model empowers the company's business, continues to effectively improve the level of corporate governance, and growth is expected to continue to be higher than that of traditional brokerage firms. Furthermore, the current valuation comparison between Dongcai Group and A-share Fintech companies has an advantage, and the strategic allocation window is prominent.

Assuming that the A-share stock trading volume in the market gradually stabilizes and the average growth rate of the new development fund is generally improving. The brokerage commission rate and the two financing rates are basically stable, with profit margins of 76%, 70%, and 72% respectively. The company's share base market share and two finance market share are steadily increasing, and the brokerage business commission rate and two financing rates are generally stable. It is expected that the company's diluted EPS in 2024, 2025, and 2026 will be 0.52, 0.53, and 0.61 yuan respectively. The corresponding PE is 20.42, 19.88, and 17.31 times the “purchase”” Ratings.

Risk warning: Risk of increased friction between China and the US; risk of continued inversion of the China-US spread; geopolitical risk; macroeconomic downside risk; risk of systemic decline in the stock market; risk of slowing fund issuance; risk of tightening regulations; risk of management changes affecting asset management business development; risk of falling market share of fund sales; risk of falling market share of traditional businesses falling short of expectations.