CITIC Construction Investment Research Report: Initiating coverage with a "Buy" rating for Waterdrop, AI implementation is expected to further unleash profit potential

According to Zhitong Finance, recently, CITIC Securities released a research report on Waterdrop Inc. (WDH.US). In the second quarter, Waterdrop achieved double-digit growth in both revenue and net profit attributable to shareholders year-on-year. The CITIC Securities report pointed out that Waterdrop has been profitable for several consecutive quarters, and the implementation of AI is expected to further release profit potential. The current valuation still has a certain discount, and it has been given a "Buy" rating in its initial coverage. In the second quarter of 2025, Waterdrop achieved net revenue of 838 million yuan and a net profit attributable to shareholders of 140 million yuan, marking 14 consecutive quarters of profitability; operating expenses accounted for 38.7% of revenue, a decrease of 6.4 percentage points year-on-year. Insurance-related revenue was 739 million yuan, a year-on-year increase of 28.7%, with first-year premium income reaching 3.204 billion yuan, an increase of 80.2%. Short-term and long-term insurance businesses grew by 95% and 45.4%, respectively. Revenue from digital clinical trial services showed growth, increasing by 34.2% year-on-year. Since announcing the stock repurchase plan in September 2021, as of August 31, 2025, Waterdrop has repurchased approximately 55.7 million ADS from the open market. The CITIC Securities report noted that Waterdrop's "All in AI" strategy has been fully implemented, reshaping the entire value chain of insurance. Waterdrop's AI strategy is not just a conceptual idea but has achieved quantifiable results throughout the entire business process, becoming a key component of its core competitiveness. Waterdrop invests nearly 300 million yuan annually in technology research and development, has accumulated over 100 technology patents, and has submitted 60 patent applications related to large language models, of which 9 are international patent applications. Currently, AI has been implemented across the entire business process of Waterdrop with quantifiable results. In the sales and customer acquisition phase, Waterdrop has formed an AI-driven growth engine. Its self-developed "Waterdrop Water Guardian" AI insurance expert, with its multimodal interaction capabilities, has gradually matched the service efficiency of entry-level human agents, with the AI insurance expert's premium contribution increasing by 155% quarter-on-quarter in the second quarter; in the service and operation scenarios, the company launched the AI customer service "Bao Xiaohui," which has achieved 100% coverage of online business, providing round-the-clock responses; in the underwriting and risk control phase, the company introduced the industry's first AI underwriting expert "KEYI.AI," which shortened the processing time for complex underwriting issues by 80%, achieving an underwriting accuracy rate of 99.8%; in product innovation, AI and big data analysis are key to creating personalized insurance solutions, with customized products accounting for over 92% of the company's offerings in 2024, accurately covering the "blue ocean" market that traditional insurance finds difficult to reach, such as the elderly and those with pre-existing conditions. As a leading insurance and health service technology platform in China, Waterdrop has developed a business system comprising "fundraising + insurance + pharmaceuticals" over the years, with high synergy and mutual promotion among various business segments. In addition, Waterdrop is also accelerating its exploration of overseas markets, having established offices in Hong Kong, Singapore, the United States, and other locations, and will continue to focus on user pain points and technology empowerment opportunities in the overseas insurance market in the future