Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Capital Markets

<div>Our base case value of Waterdrop is $4.6 billion or $11 per share. This is essentially at the mid-point of the IPO valuation range. Given the limited upside, we would pass on this IPO deal.</div><div></div><div>Our valuation of $4.6 billion is based on EV/S multiple of 5.8x using our estimated sales of $670 million (4.3 billion RMB) in 2021. Our EV/S multiple of 5.8x is based on the median valuation multiple of our comparable companies in 2021. This valuation multiple is also close to the average EV/S multiple of 6.1x for the two China online insurance/healthcare related stocks including ZhongAn Online P&amp;C insurance and Ping An Good Doctor. According to our valuation sensitivity analysis, the IPO valuation ranges from $8.4 per share to $13.9 per share. </div><div></div><div>Given that the mutual aid platform has been one of the key generators of user traffic, discontinuing this operation would result in a major change in the company's business operations and its ability to generate sufficient sales and customers growth. As such, we believe this is a major risk factor for the company. </div>

Our base case value of Waterdrop is $4.6 billion or $11 per share. This is essentially at the mid-point of the IPO valuation range. Given the limited upside, we would pass on this IPO deal.Our valuation of $4.6 billion is based on EV/S multiple of 5.8x using our estimated sales of $670 million (4.3 billion RMB) in 2021. Our EV/S multiple of 5.8x is based on the median valuation multiple of our comparable companies in 2021. This valuation multiple is also close to the average EV/S multiple of 6.1x for the two China online insurance/healthcare related stocks including ZhongAn Online P&amp;C insurance and Ping An Good Doctor. According to our valuation sensitivity analysis, the IPO valuation ranges from $8.4 per share to $13.9 per share. Given that the mutual aid platform has been one of the key generators of user traffic, discontinuing this operation would result in a major change in the company's business operations and its ability to generate sufficient sales and customers growth. As such, we believe this is a major risk factor for the company. 

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<p>The leading Chinese insurance and healthcare platform <a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a>  has set the terms for its US IPO. According to iResearch, Waterdrop was ranked the largest independent third-party insurance platform in China in terms of life and health insurance first year premiums (FYP) distributed in 2020.</p><p>The company plans to issue 30m ADS’ at an indicative price range of US$10-12 per ADS. Each ADS represents 10 ordinary shares of the company and the offer represents about 7.6% of the company’s total outstanding shares post IPO. At the midpoint of the IPO price of US$11 per ADS, Waterdrop will raise net proceeds of US$301.6m (assuming over-allotment option is not exercised) at a market capitalisation of US$4.3bn and a post-money EV of US$3.7bn.</p><p>A number of cornerstone investors have agreed to subscribe for at least US$210m worth of ADS’ offered at the IPO and these investors include Boyu Capital, HOPU Investments and Kevin Sunny Holdings. Waterdrop plans to use approx. 50% of the net IPO proceeds on enhancing and expanding its healthcare service and insurance business, 30% of the net IPO proceeds on R&amp;D and the remainder will be used for general corporate purposes.</p>

The leading Chinese insurance and healthcare platform Waterdrop Inc (WDH US)  has set the terms for its US IPO. According to iResearch, Waterdrop was ranked the largest independent third-party insurance platform in China in terms of life and health insurance first year premiums (FYP) distributed in 2020.The company plans to issue 30m ADS’ at an indicative price range of US$10-12 per ADS. Each ADS represents 10 ordinary shares of the company and the offer represents about 7.6% of the company’s total outstanding shares post IPO. At the midpoint of the IPO price of US$11 per ADS, Waterdrop will raise net proceeds of US$301.6m (assuming over-allotment option is not exercised) at a market capitalisation of US$4.3bn and a post-money EV of US$3.7bn.A number of cornerstone investors have agreed to subscribe for at least US$210m worth of ADS’ offered at the IPO and these investors include Boyu Capital, HOPU Investments and Kevin Sunny Holdings. Waterdrop plans to use approx. 50% of the net IPO proceeds on enhancing and expanding its healthcare service and insurance business, 30% of the net IPO proceeds on R&amp;D and the remainder will be used for general corporate purposes.

Waterdrop IPO: Attractive at the Lower End of the IPO Pricing

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div><p><a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a>, a technology platform for insurance and healthcare services in China, aims to raise up to US$360m in its US IPO. <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> owned 22.1% and <a href="https://www.smartkarma.com/entities/swiss-re-ag-1f83dcbc-730e-46fa-82f2-bfe7e8e361a1" target="_blank" data-smartkarma-citation="entities:27914:1" rel="noopener">Swiss Re AG (SREN SW)</a> owned 5.7% of the company prior to its listing.</p></div><div><p>In our previous note, <a href="https://www.smartkarma.com/insights/waterdrop-pre-ipo-the-positives-fast-growth-strong-backers" target="_blank" rel="noopener">Waterdrop Pre-IPO - The Positives - Fast Growth, Strong Backers</a>, and <a href="https://www.smartkarma.com/insights/waterdrop-pre-ipo-the-negatives-scandals-shutdowns-competing-with-giants-regulation" target="_blank" rel="noopener">Waterdrop Pre-IPO - The Negatives - Scandals, Shutdowns, Competing with Giants, Regulation</a> we spoke about the positive and negative aspects of the deal. </p></div><div><p>In this note, we’ll run the deal through our ECM framework and talk about valuations.</p></div>

Waterdrop Inc (WDH US), a technology platform for insurance and healthcare services in China, aims to raise up to US$360m in its US IPO. Tencent Holdings (700 HK) owned 22.1% and Swiss Re AG (SREN SW) owned 5.7% of the company prior to its listing.In our previous note, Waterdrop Pre-IPO - The Positives - Fast Growth, Strong Backers, and Waterdrop Pre-IPO - The Negatives - Scandals, Shutdowns, Competing with Giants, Regulation we spoke about the positive and negative aspects of the deal. In this note, we’ll run the deal through our ECM framework and talk about valuations.

Waterdrop IPO - Valuation Has Nearly Tripled over the past Year

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<div><p><a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a> is the largest independent third-party insurance platform in China as measured by life and health insurance first-year premiums (FYP) distributed in 2020, according to iResearch. Waterdrop is backed by <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/swiss-re-ag-1f83dcbc-730e-46fa-82f2-bfe7e8e361a1" target="_blank" data-smartkarma-citation="entities:27914:1" rel="noopener">Swiss Re AG (SREN SW)</a> and <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>.</p></div><div><p>At the mid-point of the proposed IPO price range of $10.00-12.00 per ADS, Waterdrop will have a market cap of $4.3 billion. At the mid-point of the IPO price range, the net proceeds are $301.6 million. New and existing shareholders have indicated on $210 million of the IPO, including Boyu Capital ($100 million), HOPU Investments (at least $80 million), and Kevin Sunny Holding ($30 million). The indications of interest represent 63.6% of the ADSs on offer at the mid-point of the IPO price range.</p></div><div><div><div class="content-highlight"><p>In <a href="https://www.smartkarma.com/insights/waterdrop-ipo-initiation-going-for-brokers" target="_blank" data-smartkarma-citation="insights:50610" rel="noopener">Waterdrop IPO Initiation: Going for Brokers</a>, we opined that as a leading online third-party insurance broker, Waterdrop is well-positioned to benefit from favourable industry trends. The key unknown is whether the changing regulations will throw a spanner in the works. Notwithstanding the regulatory overhang, we concluded that Waterdrop is worth a look. Our analysis suggests that the IPO price range is full at the high-end but has some upside at the low-end. </p></div></div></div>

Waterdrop Inc (WDH US) is the largest independent third-party insurance platform in China as measured by life and health insurance first-year premiums (FYP) distributed in 2020, according to iResearch. Waterdrop is backed by Tencent Holdings (700 HK), Swiss Re AG (SREN SW) and Meituan (3690 HK).At the mid-point of the proposed IPO price range of $10.00-12.00 per ADS, Waterdrop will have a market cap of $4.3 billion. At the mid-point of the IPO price range, the net proceeds are $301.6 million. New and existing shareholders have indicated on $210 million of the IPO, including Boyu Capital ($100 million), HOPU Investments (at least $80 million), and Kevin Sunny Holding ($30 million). The indications of interest represent 63.6% of the ADSs on offer at the mid-point of the IPO price range.In Waterdrop IPO Initiation: Going for Brokers, we opined that as a leading online third-party insurance broker, Waterdrop is well-positioned to benefit from favourable industry trends. The key unknown is whether the changing regulations will throw a spanner in the works. Notwithstanding the regulatory overhang, we concluded that Waterdrop is worth a look. Our analysis suggests that the IPO price range is full at the high-end but has some upside at the low-end. 

Insurance & Central Asia-focused Analyst, KT Capital Group

Alec Tseung

Insurance & Central Asia-focused Analyst

<ul><li>Three major concerns/questions I'd ask regarding the potential IPO of <a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener">Waterdrop Inc (WDH US)</a>:</li></ul><ol>
<li>
<a href="https://www.smartkarma.com/entities/waterdrop-inc" target="_blank" data-smartkarma-citation="entities:33018:1" rel="noopener"></a><strong>Single monetization channel</strong>: as the company seeks further growth, can it really compete against the distribution channels of the tech and insurance giants in China?</li>
<li>
<strong>Insurance/product development potential</strong>: does the company have the expertise to develop its own products without just having to rely on the distribution channels?</li>
<li>
<strong>Valuation</strong>: if the investment thesis is to ride the growth of healthcare and medical insurance spending in China, isn't it more direct to invest in an online (or even traditional) insurer, which is at a much lower valuation?</li>
</ol>

Three major concerns/questions I'd ask regarding the potential IPO of Waterdrop Inc (WDH US):

Single monetization channel: as the company seeks further growth, can it really compete against the distribution channels of the tech and insurance giants in China?

Insurance/product development potential: does the company have the expertise to develop its own products without just having to rely on the distribution channels?

Valuation: if the investment thesis is to ride the growth of healthcare and medical insurance spending in China, isn't it more direct to invest in an online (or even traditional) insurer, which is at a much lower valuation?


Waterdrop Inc: Can the Water Keep Flowing After Its IPO?

United States

Waterdrop Inc. is an insurtech platform headquartered in China. Founded in 2016, with coverage of Waterdrop Insurance Marketplace and Medical Crowdfunding, Waterdrop offers insurance and healthcare service through technology.

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Waterdrop Inc (WDH US)

Waterdrop IPO Valuation Analysis

Our base case value of Waterdrop is $4.6 billion or $11 per share. This is essentially at the mid-point of the IPO valuation range. Given the...

Douglas Kim

Waterdrop IPO: Attractive at the Lower End of the IPO Pricing

Waterdrop plans to issue 30m ADS’ at an indicative price range of US$10-12 per ADS. At the midpoint of the IPO price, Waterdrop will raise net...

Shifara Samsudeen, FCMA, CGMA

Waterdrop IPO - Valuation Has Nearly Tripled over the past Year

Waterdrop, a technology platform for insurance and healthcare services in China, aims to raise up to US$360m in its US IPO. Tencent owned 22.1% and...

Sumeet Singh

Waterdrop IPO: Valuation Insights

Waterdrop has launched its IPO to raise net proceeds of $301.6 million at the mid-point of the price range of $10-12. The price range is full at...

Arun George

Waterdrop Inc: Can the Water Keep Flowing After Its IPO?

Waterdrop Inc is an interesting company with good intentions. But these are the three major concerns one should pay particular attention to when...

Alec Tseung

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