Waterdrop Inc. Receives a 'Buy' Rating from UOB Kay Hian with Price Target of US$2.20
BEIJING, March 19, 2025 /PRNewswire/ -- On March 14, 2025, UOB Kay Hian included Waterdrop Inc. (WDH) for the first time in its most recent report, commenting that the company has built a substantial user base through its strong brand equity and is well-positioned to unlock greater user full-lifetime value for sustained growth. Leveraging its proprietary technology, Waterdrop continues to enhance operational efficiency and improve overall profit margins. Given its attractive valuation, increasing shareholder returns, and solid net cash position, downside risks appear limited. UOB Kay Hian initiated coverage on WDH with a "Buy" rating and a price target of $2.20 per ADS.
In the fourth quarter of 2024, Waterdrop reported net operating revenue of 687 million yuan (approx. US$95 million), with operating expenses making up 45.1% of revenue. Net profit attributable to shareholders reached 99.62 million yuan (approx. US$13.8 million), marking the 12th consecutive quarter of profitability. For the full year of 2024, Waterdrop achieved net operating revenue of 2.772 billion yuan (approx. US$384 million) and net profit attributable to shareholders of 368 million yuan (approx. US$51 million), representing a year-on-year increase of 119.8%.
UOB Kay Hian's report foresees Waterdrop's net profit growing at a five-year compound annual growth rate (CAGR) of 25.0% from 2023 to 2028, driven by sustained growth in first-year premiums (FYP) from its insurance business and ongoing cost management optimization.
The report notes that after reducing its reliance on third-party customer acquisition channels, Waterdrop's insurance segment has maintained a stable operating margin above 20%. Losses in the non-insurance segments are expected to narrow further, with structural optimization in the digital clinical trial solution business generating efficiency improvements. UOB Kay Hian analysts believe these combined efforts will enhance Waterdrop's overall profit margins.
As one of the first companies in the industry to adopt AI LLMs, Waterdrop has consistently driven innovation through technology since its inception, investing approximately 300 million yuan (approx. US$42 million) annually in research and development. The company has accumulated over 100 technology patents and built a comprehensive LLM application system covering all insurance scenarios. Recently, Waterdrop introduced the DeepSeek model, significantly enhancing its AI-driven service capabilities across all market segments.
Waterdrop's application of large models focuses on two main areas: launching AI Insurance Assistant to empower insurance service personnel; and upgrading the AI Insurance Expert to provide users with insurance consultation and planning services. One of the features of the new models is the inclusion of Bao Xiaohui, an AI Service Assistant available 24/7 to provide responses in real time, reducing issue escalation and improving service efficiency by some 50%.
UOB Kay Hian's report noted that Waterdrop uses its proprietary AI technology and comprehensive data insights to optimize customer acquisition, sales productivity, customer engagement, and risk management. With consistent investment in R&D, the company continues to enhance its AI-driven operations, maximizing operational leverage and sales conversion efficiency.
Despite the recent share price rally, UOB Kay Hian is of the opinion that Waterdrop's current valuation remains below where it should be, making it an attractive investment opportunity in China's insurtech sector. Waterdrop's 2025 price-to-book (P/B) ratio is expected to come in at just 0.74x, 0.4 standard deviations below its three-year historical average. Compared to global online insurance brokerage peers, Waterdrop's valuation remains significantly undervalued.
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SOURCE Waterdrop Inc.