Broker: UOB Kay Hian
Date of Report: Monday, 09 June 2025

Waterdrop Inc Delivers a Robust Q1 2025: Strong Profit Growth and a Bullish Revenue Outlook

Overview: Waterdrop Inc’s Impressive 1Q25 Performance

Waterdrop Inc (WDH US), a leading insurtech platform headquartered in China, reported a stellar start to 2025. The company’s first-quarter results surpassed expectations, with net profit surging by 34% year-over-year (yoy) to Rmb108.2 million. This performance was powered by an improved operating margin and robust growth in first-year premium (FYP). The company remains confident in achieving its ambitious 20% revenue growth target for the year and has increased its target price to US\$2.36, representing a 59.5% upside from current levels.

Stock Data and Major Shareholders

• GICS Sector: Financials
• Bloomberg Ticker: WDH US Equity
• Shares Issued: 361.7 million
• Market Cap: US\$533.5 million
• 52-week High/Low: US\$1.57 / US\$0.97
• Key Shareholders:
  • Tencent and affiliates: 23.0%
  • Peng Shen: 22.2%
  • Boyu Capital: 13.0%
  • Swiss Re Principal Company Asia Pte. Ltd.: 5.7%
  • Guang Yang: 2.4%

1Q25 Financial Highlights

Earnings Analysis: Operational Efficiency Drives Exceptional Profitability

• Net profit in 1Q25 reached Rmb108.2 million, accounting for 40% of the full-year 2025 forecast.
• The opex-to-revenue ratio improved significantly, dropping 6.1 percentage points yoy to 40.3%, reflecting enhanced operational efficiency.
• While FYP saw an impressive 19.3% yoy surge (Rmb2.1 billion), total revenue grew more modestly at 7.0% yoy—lagging the 20% annual growth target due to a lower take-rate on higher short-term product sales.
• Insurance segment operating margin rebounded to 23%, up 1.7ppt yoy and 5.4ppt quarter-on-quarter (qoq).
• Non-insurance segments (crowdfunding, digital clinical trial solutions) reported narrower operating losses but were affected by seasonality, with crowdfunding and other segments’ operating loss margins deteriorating on a qoq basis.
• Net margin expanded by 2.9ppt yoy to 14.4%, tempered by lower interest income and a higher effective tax rate.

Revenue Mix and Segment Performance

The strong FYP growth was primarily driven by a 30.1% yoy increase in short-term insurance premiums, thanks to refined client acquisition strategies. However, long-term FYP slipped by 1.6% yoy to Rmb590 million, reflecting subdued demand for life insurance products. Insurance-related income increased by just 8.4% yoy to Rmb658 million due to a lower take-rate associated with the higher mix of short-term products. Crowdfunding service fees were flat, while the digital clinical trial solutions segment achieved 11.5% yoy revenue growth.

Key Financials and Forecasts

Cash Position and Liquidity

• Waterdrop’s cash balance (including short-term and long-term investments) was Rmb3.54 billion at the end of 1Q25, slightly down from Rmb3.67 billion in 4Q24.
• The reduction was mainly due to US\$7.3 million in dividend payments and Rmb198.4 million in loan repayments.
• The company maintained a healthy positive operating cash flow of Rmb94.5 million in 1Q25.

Management Outlook: Accelerating Growth in 2025

• Management remains confident in achieving the 20% revenue growth target for 2025, despite the slower start in the first quarter.
• Distribution investments will be ramped up over the next quarters, with revenue growth expected to accelerate in the second half of 2025.
• Earnings pressure is expected to be moderate, with only a slight net profit decline projected despite increased selling and marketing expenses for business expansion—an improvement from previous conservative forecasts of a 27% earnings decline for 2025.

Earnings Revisions and Valuation

• 2025-2027 net profit forecasts have been raised by 8.3%, 12.9%, and 13.7%, respectively, reflecting reduced operating expenses through ongoing efficiency improvements.
• The 2025 revenue forecast was also increased by 2.4% to align with 1Q25 results and the company’s updated guidance of 20-25% revenue growth.
• Waterdrop’s target price is now set at US\$2.36, based on a DCF methodology, implying a 1.2x 2025F P/B and 21.2x 2025F PE.
• Current valuation remains attractive, with the stock trading at just 0.73x 2025F P/B and boasting a solid net cash position exceeding 90% of its market cap.

Key Metrics and Growth Trends

Conclusion: Waterdrop Inc Positioned for Accelerated Growth

Waterdrop Inc’s 1Q25 results showcase operational excellence and a strong start to the year, with net profit and margins exceeding expectations. The company’s strategy of enhanced client acquisition, disciplined cost management, and a solid cash position underpin its growth trajectory. With management doubling down on distribution investments and an improved earnings outlook, Waterdrop is well-placed to deliver robust growth through 2025 and beyond. The stock remains a compelling buy for investors seeking exposure to China’s insurtech sector.