Waterdrop Inc. Receives a 'Buy' Rating from UOB Kay Hian with Price Target of US$2.20

Rhea-AI Summary

Waterdrop Inc. (WDH) received a 'Buy' rating from UOB Kay Hian with a price target of US$2.20 per ADS. The company reported strong financial results, with Q4 2024 net operating revenue of 687 million yuan (US$95 million) and net profit of 99.62 million yuan (US$13.8 million). Full-year 2024 performance showed net operating revenue of 2.772 billion yuan (US$384 million) and net profit of 368 million yuan (US$51 million), marking a 119.8% year-on-year increase.

UOB Kay Hian projects a five-year compound annual growth rate of 25.0% in net profit from 2023 to 2028. The company maintains a stable operating margin above 20% in its insurance segment and invests approximately 300 million yuan annually in R&D. Waterdrop has implemented AI LLMs, including the DeepSeek model, to enhance service capabilities and improve efficiency by 50% through its AI Service Assistant, Bao Xiaohui.

Positive

• Achieved 12th consecutive quarter of profitability
• 119.8% year-on-year increase in net profit for 2024
• Stable operating margin above 20% in insurance segment
• Strong AI implementation improving service efficiency by 50%
• Solid net cash position with downside risks
• Significant undervaluation compared to global peers

Negative

• Operating expenses constitute 45.1% of revenue
• Ongoing losses in non-insurance segments

Insights

Financial Analyst

UOB Kay Hian's "Buy" rating for Waterdrop with a $2.20 price target represents a 58% upside from the current $1.39 share price - a significant vote of confidence backed by compelling fundamentals. The company's 12 consecutive profitable quarters demonstrates operational stability, while FY2024 net profit of 368 million yuan ($51 million) increased by an impressive 119.8% year-over-year.

The projected five-year profit CAGR of 25% through 2028 suggests strong future earnings potential, driven by sustained insurance premium growth and disciplined cost management. With a 2025 P/B ratio of just 0.74x - below its historical average and significantly undervalued compared to peers - the valuation presents an attractive entry point.

Waterdrop's insurance segment maintains healthy 20%+ operating margins after reducing dependency on third-party acquisition channels. Their annual 300 million yuan ($42 million) R&D investment has yielded over 100 technology patents and established proprietary AI capabilities that drive operational efficiency. The company's technology investments provide competitive advantages in customer acquisition, sales productivity, and risk management.

With reduced operating expenses (45.1% of revenue) and narrowing losses in non-insurance segments, the overall profit margin trajectory appears positive. The company's net cash position further limits downside risk while supporting shareholder returns.

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 12^th 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.

FAQ

What is UOB Kay Hian's price target for Waterdrop (WDH) stock?

UOB Kay Hian set a price target of US$2.20 per ADS for Waterdrop with a 'Buy' rating in March 2024.

What was Waterdrop's (WDH) net profit for full-year 2024?

Waterdrop achieved a net profit of 368 million yuan (US$51 million) for full-year 2024, showing a 119.8% year-on-year increase.

What is the projected growth rate for Waterdrop (WDH) according to UOB Kay Hian?

UOB Kay Hian forecasts a 25.0% five-year compound annual growth rate (CAGR) in net profit from 2023 to 2028.

How much does Waterdrop (WDH) invest in annual R&D?

Waterdrop invests approximately 300 million yuan (US$42 million) annually in research and development.

What is Waterdrop's (WDH) expected 2025 price-to-book ratio?

Waterdrop's 2025 price-to-book (P/B) ratio is expected to be 0.74x, 0.4 standard deviations below its three-year historical average.