Target price of 15.40 yuan, maintaining “buy” rating

Overseas Chinese Bank Co., Ltd. released its annual report. In 2023, it achieved revenue of 3,943 billion yuan (yoy -0.29%), net profit to mother of 317 million yuan (yoy +0.70%), and deducted non-net profit of 305 million yuan (yoy +2.97%). Among them, Q4 achieved revenue of 969 million yuan (yoy -7.12%, qoq -0.65%) and net profit of 473,502 million yuan (yoy -53.71%, qoq -32.19%). 1Q24's revenue was 978 million yuan (yoy -0.60%) and net profit to mother was 96 million yuan (yoy -9.45%). The company plans to pay dividends of 0.1 yuan per share for the whole year, with a dividend ratio of 13% and a dividend ratio of 1.1%. We expect the company's 2024-2026 EPS to be 0.89, 1.05, and 1.22 yuan respectively. Comparable company Wind unanimously expected the average PE value to be 14.4 times. Considering that the company's ROE was higher than the average of comparable companies, the company was given 17.3 times PE in 24, with a target price of 15.40 yuan (previous value of 15.12 yuan), maintaining a “buy” rating.

Sanitation service industry orders reached a record high

The national sanitation market continues to grow. According to statistics from Environmental Sinan, in '23, the total annual turnover of the national sanitation market was 91.6 billion yuan and the total number of contracts was 252.8 billion yuan, all of which reached record highs. The main reasons include: increased transparency in government procurement/ increased sanitation marketability rate/ urban service projects represented by “city stewards” have entered a stage of high growth.

The total number of new orders added in 1Q24 exceeded 2,387 billion yuan

By the end of '23, the total number of orders pending execution by the company had exceeded 42.7 billion. According to Polaris Sanitation Network statistics, 1Q24 won bids for more than 10 sanitation service projects, with a total contract amount exceeding 2,387 billion yuan, including 400 million yuan projects. The company's leading advantage continues to be highlighted, and new orders are strong, which is expected to drive performance growth.

Gross margin was +0.63pp year on year, and accounts receivable were +48% YoY due to the slowdown in project repayment. The company's comprehensive gross margin in '23 was 26.04% (+0.63pp), demonstrating the company's effective cost control under the “city steward” strategy. The company's expense ratio was +0.02pp to 15.20% year-on-year during the 23-year period; the company increased smart city/smart sanitation research and development, leading to R&D expenses +51.84% year-on-year, and increased interest expenses, leading to +22.75% year-on-year financial expenses. Due to the slowdown in project repayments, accounts receivable were +48.19% YoY to $2.558 billion, and net operating cash flow was -56.42% YoY to $79 million.

Risk warning: The progress of sanitation marketization falls short of expectations, the scale of new orders falls short of expectations, and increased project competition affects profit prospects.