On September 8, UOB Kay Hian released its latest research report on Waterdrop Inc. (WDH.US). The report highlighted that driven by robust first-year premium (FYP) growth and improved operational efficiency, Waterdrop Inc.'s second-quarter revenue and net profit attributable to shareholders increased by 23.9% and 58.7% year-over-year respectively, both exceeding expectations.

Given the company's solid growth momentum, management announced a new cash dividend totaling approximately $10.9 million, representing nearly a 50% increase from the previous dividend payment. While reaffirming the 2025 revenue growth target of 20%, the company has newly set a goal of 20% growth in net profit attributable to shareholders for 2025. Based on this analysis, UOB Kay Hian has raised its earnings forecast for Waterdrop Inc. for 2025, maintaining a "buy" rating and increasing the target price to $2.91.

In the second quarter of 2025, Waterdrop Inc. achieved net revenue of 838 million yuan and net profit attributable to shareholders of 140 million yuan, marking 14 consecutive quarters of profitability. Operating expenses (including sales, administrative, and R&D expenses) as a percentage of revenue stood at 38.7%, down 6.4 percentage points year-over-year.

Insurance-related revenue reached 739 million yuan, up 28.7% year-over-year, with first-year premiums hitting 3.204 billion yuan, surging 80.2% year-over-year. Short-term and long-term insurance businesses grew by 95% and 45.4% respectively. The digital clinical trial business resumed its growth trajectory with a 34.2% year-over-year increase.

Since announcing its share repurchase program in September 2021, Waterdrop Inc. has cumulatively repurchased approximately 55.7 million ADS (American Depositary Shares) from the open market as of August 31, 2025.

This quarter, Waterdrop Inc.'s profit margins improved year-over-year, primarily due to enhanced profitability in the insurance business segment, highlighting the cost reduction and efficiency gains achieved through AI-enabled operations.

Under its "All in AI" strategic direction, Waterdrop leverages AI large models to empower its insurance business, covering core areas including underwriting, customer service, quality control, product innovation, sales, and marketing. The AI medical insurance expert's premium contribution increased 155% quarter-over-quarter.

In customer service scenarios, the AI customer service system "Bao Xiaohui" has achieved 100% user coverage, with AI resolution rates exceeding 95.5% in product service scenarios. In underwriting, Waterdrop Inc. pioneered the industry's first AI underwriting expert "KEYI.AI," achieving 99.8% underwriting accuracy and 260 times faster response speed. In quality control, the "AI Large Model Insurance Quality Control Solution" achieves 100% coverage across all scenarios, reducing costs by over 50% compared to manual operations.

Additionally, Waterdrop Inc. is accelerating its exploration of overseas markets. Management indicated that the company is in the early stages of overseas market exploration, having already commenced insurance business operations in Hong Kong. Over the past two years, it has established a mature and comprehensive insurance brokerage service system and partnership network in Hong Kong. Moving forward, the company will leverage its mainland business experience to explore innovations in both product and operational aspects.

Looking ahead, Waterdrop will further develop its international business, continuously focusing on overseas insurance market pain points and technology enablement opportunities. Based on mature commercial judgment, the company will also actively explore additional overseas innovative businesses.

UOB Kay Hian believes that the strong performance results, raised net profit expectations, and solid shareholder returns will help enhance investor confidence in Waterdrop Inc. and drive its valuation re-rating. Simultaneously, UOB Kay Hian has also raised Waterdrop Inc.'s earnings forecasts for 2025 to 2027, reflecting enhanced profitability from AI efficiency improvements and rapid premium growth outcomes.