occurrences
Tonghuashun released its 2024 semi-annual report. 2024H1 achieved operating income of 1.389 billion yuan, -5.51%; net profit to mother 0.363 billion yuan, -20.99%; net profit after deducting non-return to mother was 0.344 billion yuan, -23.26% year over year; and ROE was 5.25%, -1.48 pct year over year.
The decline in market trading popularity led to a marginal weakening of the company's performance in 2024H1. The company's operating income and net profit to mother were -5.51% and -20.99%, respectively. The growth rate was -6.98 pct and -5.96 pct, respectively, compared to 2024Q1. The weakening performance growth rate is mainly due to the weak performance of the company's value-added telecommunications business, software sales and maintenance due to low market trading popularity. 2024H1's value-added telecommunications business and software sales and maintenance business achieved revenue of 0.769 and 0.103 billion yuan respectively, -10.96% and -7.19% year-on-year respectively. The company's two major businesses are highly correlated with market performance. The weakening performance is mainly due to the weakening of market stock turnover performance. The average daily stock turnover of 2024Q2 was 826.962 billion yuan, -17.74% YoY and -6.65% YoY.
Gross margin declined slightly, and R&D efforts continued to increase
In terms of gross margin, 2024H1's overall gross margin was 84.85%, compared to -4.23pct in 2023. 2024H1's sales expenses, management expenses, and R&D expenses were +8.78%, +13.26%, and +5.12%, respectively. The sales expenses rate, management expense ratio, and R&D investment accounted for 17.44%, 8.23%, and 42.62%, respectively, accounting for -0.74pct, -2.22pct, and -6.18pct respectively at the end of 2024Q1. Sales expenses are growing rapidly, mainly because the company continues to increase its sales promotion efforts to expand its market share. Management expenses are growing rapidly, mainly due to significant increases in employees' wages and additional expenses. The salary and additional expenses of the 2024H1 company's administrative expenses were 68.3584 million yuan, +27.69% over the same period last year. In terms of R&D, against the backdrop of weak market performance, 2024H1's R&D expenses were +5.12% year-on-year. The main reason is that the company continues to increase investment in personnel and computing power related to the field of large artificial intelligence models.
Significant customer resource advantages
In terms of institutional customers, the company's products and services now cover more than 90% of domestic securities companies, in addition to a large number of public fund companies, private equity firms, banks, insurance, etc. In terms of individual users, as of the end of 2024H1, the total number of registered users of Tonghuashun Financial Network reached 0.625 billion, +0.33% compared to the beginning of the period. The number of daily users using the free Tonghuashun Online Market Client was 14.39 million, and the number of weekly active users reached 19.21 million, and the overall customer resources were abundant. Thanks to strong customer resources, 2024H1 achieved revenue of 0.35 billion yuan in advertising and internet promotion services, or +9.45% year over year.
Profit Forecasts and Ratings
Considering the current market situation, we expect the company's revenue for 2024-2026 to be 3.3/3.5/3.7 billion yuan, respectively, -8.09%/+5.76%/+7.17%, 3-year CAGR of 1.37%; net profit to mother is 1.3/1.4/1.5 billion yuan, respectively, with year-on-year growth rates of -7.48%/+5.95%/+7.92%, and 3-year CAGR of 1.90%. Considering the company's significant customer resource advantages and subsequent flexibility, we maintain a “buy” rating.
Risk warning: Steady growth falls short of expectations, the popularity of market transactions is declining, and regulatory policies are shifting.