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. 

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. 

Fintech & EM-focused Analyst, KT Capital Group

Alec Tseung

Fintech & EM-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?

<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><div><div class="content-highlight"><p>Waterdrop is pre-marketing an NYSE IPO with a placeholder amount of $100 million. 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. In this note, we present our forecasts and take the first look at Waterdrop's potential valuation range. </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).Waterdrop is pre-marketing an NYSE IPO with a placeholder amount of $100 million. 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. In this note, we present our forecasts and take the first look at Waterdrop's potential valuation range. 

Equity Bottom-Up

ZhongAn Online P&C Insurance C / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/zhongan-online-p-c-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:23681:1" rel="noopener">ZhongAn Online P&amp;C Insurance (6060 HK)</a> and <a href="https://www.smartkarma.com/entities/lemonade-inc" target="_blank" data-smartkarma-citation="entities:29163:1" rel="noopener">Lemonade Inc (LMND US)</a> are two widely known Insurtech companies in the world's two largest property &amp; casualty (P&amp;C) insurance markets</li>
<li>Based on the comparison in the following article, ZhongAn is preferred to Lemonade, both in terms of the valuation and company development</li>
<li>ZhongAn further showed encouraging signs in 2020 as it shifted the product mix towards the health segment, thanks to the pandemic, and its combined ratio was at the lowest since it started operations  </li>
</ul>



ZhongAn Online P&amp;C Insurance (6060 HK) and Lemonade Inc (LMND US) are two widely known Insurtech companies in the world's two largest property &amp; casualty (P&amp;C) insurance markets
Based on the comparison in the following article, ZhongAn is preferred to Lemonade, both in terms of the valuation and company development
ZhongAn further showed encouraging signs in 2020 as it shifted the product mix towards the health segment, thanks to the pandemic, and its combined ratio was at the lowest since it started operations  


ZhongAn Vs. Lemonade: Which One Is a Better Insurtech Bet?

China

ZhongAn Online P & C Insurance Co., Ltd. operates as an insurance company. The Company develops and sells health, airline, and automotive insurance, and other products. ZhongAn Online P & C Insurance also offers online consumer finance services.

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ZhongAn Online P&C Insurance C (6060 HK)

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: 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

Waterdrop IPO: Valuation First Look

Waterdrop is pre-marketing an NYSE IPO with a placeholder amount of $100 million. In this note, we present our forecasts and take the first look at...

Arun George

ZhongAn Vs. Lemonade: Which One Is a Better Insurtech Bet?

With encouraging signs shown in 2020, ZhongAn Online is preferred to Lemonade, both from the perspectives of the valuation and company development.

Alec Tseung

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