The Zhitong Finance App learned that Goldman Sachs recently released a research report covering Water Drop Company (WDH.US) for the first time and gave it a “buy” rating. The target price for 12 months is 11 US dollars, with 33% potential room for growth.

Goldman Sachs believes that as one of the largest independent third-party insurance platforms in China, Waterdrop has strong growth prospects. Goldman Sachs predicts that through new traffic acquisition and the transformation of existing customers into long-term insurance products, Shuidi's first-year premium (FYP) from 20 to 23 will have a compound annual increase of 36%, with a compound annual revenue growth rate of 45%. Goldman Sachs gave Water Drop a target price of $11 per ADS, which is equivalent to 4.1 times P/S of 2022E.

Goldman Sachs also predicts a compound annual growth rate of 41% in sales and marketing expenses for FY20-23, with a large increase in FY21/22, as the company will implement a more aggressive large-scale customer acquisition strategy in the short term. However, Goldman Sachs believes that sales and marketing expenses as a share of revenue will gradually decline due to internal customer conversion.

In its research report, Goldman Sachs believes that promoting the development of long-term insurance products is Shuidi's most important strategic goal in the next 3-5 years. If successful, this would help mitigate the potential impact of falling commission rates on short-term insurance products while increasing their appeal to insurer partners. Goldman Sachs conservatively predicts that in 2024, the first-year premium of Waterdrop Insurance will increase to 13 billion yuan, accounting for 26%.

In the long run, Goldman Sachs sees an opportunity for Water Drop to be a part of the healthcare ecosystem, connecting its insurance customers with healthcare service providers. In fact, Waterdrop has launched its drug benefit management service, Waterdrop Medicine (Waterdrop Medicine), in 29 provinces and has served more than 30,000 patients.

Although the Shuidi Pharmaceutical payment model is still in its early stages for Shuidi, Goldman Sachs believes that as Shuidi explores healthcare services, health-related products and services will account for 8% of revenue by 2023. At the same time, considering that Water Drop will continue to invest more in technology to expand its business scale, Goldman Sachs expects its R&D expenses to grow at an annual rate of 40% in 20-23.

Goldman Sachs's target price meant 4.1 times/2.9 times the price-earnings ratio for the 22/23 fiscal year, while the average price-earnings ratio of American insurance technology companies (GoHealth and SelectQuote) was 2.3 times/1.8 times, and the Chinese healthcare service platforms (JD Health, Ping An Good Doctor, and Ali Health) were 7.5 times/5.4 times.