Items:

Oriental Wealth issued an annual performance forecast for 2022, with a net profit of 80 billion yuan (- 6.5% compared with the same period last year).

Comments:

The performance is in line with expectations. Affected by the epidemic in the fourth quarter, the activity of market trading decreased significantly. We estimate that Dongcai's annual operating income is 12.59 billion yuan (- 3.8% compared with the same period last year) and net profit is 8.66 billion yuan (+ 1.3% compared with the same period last year). The increase in net profit margin may mainly come from the increase in revenue from proprietary business. It is estimated that the net profit in the fourth quarter is 2.07 billion yuan (- 3.9% month-on-month,-10.9% compared with the same period last year). We estimate that the main drag is that the securities brokerage business has dropped by about 15% month-on-month, and the wealth management business and heavy capital business may grow slightly from the same period last year.

Securities brokers: Q4 revenue may be slightly higher than expected, and the market share increases rapidly. According to the regional trading volume and Dongcai market, we estimate that the company's annual market share of trading volume is 4.02% (year-on-year + 0.3pct), of which the market share increased to 4.17% in the fourth quarter. The market share of Q1~Q3 is 4.01%, 4.15% and 4.03% respectively. The expected revenue from brokerage business was 1.146 billion yuan. According to the reasons for the change in the performance forecast, the transaction volume is basically the same as the same period last year, and the income related to the securities business increased slightly compared with the same period last year, according to which the company's handling fee income may be higher than 1.195 billion yuan compared with the same period last year, higher than the original expectation. There may be a significant increase in transaction commission rate.

Wealth management: mixed stock holdings improved in the fourth quarter, while non-goods holdings declined, but wealth management business income may have improved compared with the previous quarter. The annual operating income is expected to be 4.82 billion yuan (year-on-year-10.8%), and the fourth quarter operating income is expected to be 1.28 billion yuan (+ 7.3% month-on-month), mainly due to the month-on-month increase in the holding size of the stock base and the increase in fund redemption income. The net worth range of mixed stocks fell 0.9 per cent in the fourth quarter, but the enthusiasm for purchase increased (estimated to account for 6 per cent of net worth). Based on changes in the size of the fund market, we expect the retained size of Dongcai shares to be 502 billion yuan (+ 4 per cent on a month-on-month basis). The net worth range of bond funds fell 0.5 per cent in the fourth quarter, but the scale of debt-based redemptions was large (estimated redemptions accounted for 19.7 per cent of net worth), so we estimate that Dongcai's non-base retention size may decline slightly to 651.6 billion yuan (- 2 per cent month-on-month).

Heavy capital business: the scale of the business may continue to improve. (1) it is estimated that the annual interest income is 2.45 billion yuan (+ 5.5% compared with the same period last year), benefiting from the increase in the market share of brokerage business and making up for the shortage of capital, the market share of the two financial institutions may be slightly higher than the same period last year. In the fourth quarter, the market size of the two financing companies was 1.54 trillion yuan (month-on-month + 0.14%). Taking into account the development of the group's financing business, the company's market share of trading volume continues to increase, and the amount of funds raised in the fourth quarter is expected to reach 38.5 billion yuan (+ 5.7% compared with the previous quarter). (2) it is estimated that the annual proprietary business income is 1.74 billion yuan (+ 36.0% compared with the same period last year).

Convertible bond financing in the early stage, the capital has increased, and the scale of the company's investment in proprietary business has increased significantly. It is estimated that by the end of 2022, the company's self-owned assets will be 62.13 billion yuan (year-on-year + 85.1%).

Investment advice: the market boom in 2022 is significantly lower than that in 2021, but the company's performance is robust compared with the same period last year. There are two reasons: (1) market share, premium rate upward: fund retention market share and securities brokerage market share are significantly upward, securities brokerage commission rate may have a certain upward. (2) the increase in the scale of net assets and the increment brought about by proprietary business. It is estimated that Dongcai's total operating income for the whole year is 12.59 billion yuan (year-on-year-3.8%), with total revenue of 10.86 billion yuan (year-on-year-8.1%) after deducting proprietary business. In the early stage, the collection of convertible bonds gradually entered the proprietary business, bringing income and profit growth. Considering the higher-than-expected decline in market trading activity in the fourth quarter, we downgrade the company's 2022Universe 2023 EPS to 0.66, 0.84, 0.84, and 6.85 BPS, respectively, to 0.73, 0.95 and 1.21, respectively. The current stock price is 15.86% PE, 15.89%, 16.59, respectively. Based on historical valuations and peer-to-peer comparable valuations, we value our 2023 results at 35 times PE, corresponding to the target price of $29.50. Maintain the recommended rating.

Risk hints: market trading volume is falling; risk appetite is declining; capital market innovation is not as expected; domestic and global epidemics are repeated and aggravating; real economic recovery is not as expected.