The target price is 14.20 yuan, maintaining the “buy” rating

QiaoBank Co., Ltd. released its semi-annual report. In 2024, H1 achieved revenue of 1.946 billion yuan (yoy -2.63%), net profit to mother of 0.172 billion yuan (yoy -13.68%), deducting non-net profit of 0.18 billion yuan (yoy +4.10%). Among them, Q2 achieved revenue of 0.969 billion yuan (yoy -4.60%, qoq -0.96%) and net profit to mother of 76.1372 million yuan (yoy -18.49%, qoq -20.85%). Based on the current order situation, we lowered our urban and rural sanitation and cleaning revenue forecast. The company's EPS for 2024-2026 is 0.85, 0.96, and 1.10 yuan respectively (previous value of 0.89, 1.05, and 1.22 yuan for 2024-2026). Comparable to the 24-year Wind, the average PE is expected to be 13.9 times. Considering that the company's ROE is higher than the industry average, the growth prospects are promising, and the company can enjoy a certain premium. The company is given 16.7 times PE in 24 years, with a target price of 14.20 yuan (previous value of 15.40 yuan), maintaining a “buy” rating.

Sales R&D investment increased, 24H1 profit under pressure

24H1's urban and rural sanitation and cleaning business revenue was 1.88 billion yuan, -2.18% year-on-year, and gross margin was 26.33%, +0.68pp year-on-year. Overseas Chinese Bank is based in Guangdong and covers the whole country. The South China region accounts for 39.41% of revenue, and the basic market is stable. The company's 24H1 comprehensive gross margin/net margin was 26.23/ 8.89%, +0.07/ -2.00% year over year. The main reason was the increase in publicity and consulting service fees during the reporting period. At the same time, the company increased investment in smart city and smart sanitation R&D activities, resulting in 24H1 sales cost/R&D expenses +77.68/ +82.75% year over year.

24H1 added total bid amount +74% year-on-year

As of June 30, 2024, the company added a total bid amount of 3.585 billion yuan (+73.78% YoY), an annualized amount of 0.442 billion yuan (+4.74% YoY), and the total number of pending orders exceeded 46.2 billion yuan (+0.22% YoY). In the first half of 2024, the company won a bid of 0.135 billion yuan for the 2024-2027 integrated urban sanitation, cleaning and greening maintenance project in Zhaoqing New District, Zhaoqing City, Guangdong Province, 0.8 billion yuan for the integrated sanitation franchise project in Wuchuan Autonomous County, Zunyi City, Guizhou Province, 42.9 million yuan for the integrated sanitation project in Dongjiao Town, Xiuyu District, Putian City, Fujian Province, etc., and the business landscape continued to expand. We believe that the company's leading edge continues to stand out, and new orders are strong, which is expected to drive performance growth.

It is proposed to increase 0.9 billion yuan. According to the announcement on August 28, the total amount of capital to be raised by the company to issue shares to specific targets (including issuance costs) is not more than 0.9 billion yuan. It plans to invest in the “City Master” equipment centralized allocation center project/smart city management digital project/supplementary working capital or loan repayment amount of 0.58/0.05/0.27 billion yuan.

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.