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UOB Kay Hian Initiates Coverage on Waterdrop Inc.

On March 14, 2025, UOB Kay Hian provided its first ever coverage of Waterdrop Inc. (WDH), assigning a 'Buy' rating with an optimistic price target of $2.20 per American Depositary Share (ADS). This rating comes as a result of the company's impressive journey in building a substantial user base, predominantly fueled by its strong brand recognition and equity. UOB Kay Hian reports that Waterdrop is well-positioned to unlock greater user lifetime value, leading to sustained growth in the future.

The company has leveraged its proprietary technology to enhance operational efficiency, translating to improved profit margins. Additionally, the report indicates that accompanying factors, such as its attractive valuation and strong net cash position, contribute to a limited downside risk. In the fourth quarter of 2024, Waterdrop announced a net operating revenue of 687 million yuan (approximately $95 million), showcasing a healthy financial trajectory. The operating expenses comprised 45.1% of the revenue. Notably, the net profit attributable to shareholders peaked at 99.62 million yuan (approximately $13.8 million), marking the twelfth consecutive quarter of profitability.

Looking at the annual figures for 2024, Waterdrop achieved a net operating revenue of 2.772 billion yuan (approximately $384 million). The net profit attributable to shareholders reached 368 million yuan (about $51 million), reflecting a significant year-on-year growth of 119.8%.

UOB Kay Hian's analysis suggests that Waterdrop is on track for impressive future earnings, predicting a compound annual growth rate (CAGR) of 25.0% for net profit from 2023 to 2028. This growth is anticipated to be driven primarily by the expanding first-year premiums (FYP) from its insurance offerings and continuous improvements in cost management. Since Waterdrop has reduced its dependency on third-party customer acquisition channels, its insurance segment has maintained a steady operating margin exceeding 20%, and they expect further reductions in losses from non-insurance segments. Their digital clinical trial solution business is in the process of optimizing structural approaches, further enhancing efficiency.

Leveraging Artificial Intelligence (AI) technologies, Waterdrop has been at the forefront of industry innovation since its inception, investing around 300 million yuan (approx. $42 million) in research and development annually. Having accrued over 100 technology patents, the company has established a comprehensive application system for AI across all insurance scenarios. Recently, Waterdrop introduced the innovative DeepSeek model, significantly elevating its service capabilities and operational efficiency.

The introduction of AI-driven tools such as the AI Insurance Assistant allows them to empower personnel while also upgrading the AI Insurance Expert, which provides users with tailored insurance consultations and planning services. One of the standout features of the new models is the real-time AI Service Assistant, Bao Xiaohui, who is available 24/7 to answer queries and improve service efficiency by reducing escalation of issues by approximately 50%.

According to UOB Kay Hian, Waterdrop optimizes customer acquisition and risk management using its proprietary AI technology and robust data insights. The company's persistent investment in R&D has translated into enhanced operational capabilities and higher sales conversion efficiency.

Despite a recent rally in share prices, UOB Kay Hian indicates that Waterdrop's current valuation remains lower than it should be, suggesting a golden investment opportunity, particularly in China's burgeoning insurtech sector. The report notes Waterdrop's forecasted price-to-book (P/B) ratio for 2025 to be roughly 0.74x, notably 0.4 standard deviations below its three-year historical average. When compared to its global online insurance brokerage peers, Waterdrop continues to appear undervalued.

In conclusion, UOB Kay Hian's coverage highlights Waterdrop Inc.'s innovative prowess and sustained financial growth, making it an appealing choice for investors looking to participate in a thriving sector.