Group 1 - The Hong Kong stock market experienced a collective rise, with the Consumer Theme Index increasing by 0.74% as of May 20 [1] - The Hong Kong Consumer ETF (159735) rose by 1.1% with a turnover rate of 2.25%, driven by significant gains in stocks such as Li Auto and Xiaomi [1] - In April, the total retail sales of consumer goods reached 37,174 billion yuan, marking a year-on-year growth of 5.1%, while retail sales excluding automobiles grew by 5.6% [1] Group 2 - Open Source Securities emphasizes the importance of "emotional consumption" and suggests focusing on leading companies with enhanced brand power and competitiveness [2] - Four investment themes are highlighted: (1) Gold and jewelry brands with differentiated product offerings; (2) Retail enterprises adapting to trends; (3) High-quality domestic beauty brands in growing segments; (4) Medical aesthetics companies with unique product lines [2]

Group 1 - The core viewpoint of the article highlights a decline in Hong Kong's technology sector, with significant drops in popular concepts such as automobiles, industrial machinery, computers, and robotics, while the Hong Kong Technology ETF (513020) fell nearly 1.5% [1] - Foreign capital has significantly increased its holdings in Hong Kong's internet leaders, with Bridgewater Associates reporting a purchase of over 5.4 million shares of Alibaba, marking a 21-fold increase, making it the fourth largest holding [1] - Bridgewater's total assets under management reached $21.6 billion, reflecting a quarter-over-quarter increase of 1.47% [1] Group 2 - Shenwan Hongyuan maintains a positive outlook on Hong Kong stocks compared to A-shares, suggesting that Hong Kong is at the forefront of China's asset revaluation, particularly in the AI industry chain, new consumption, and innovative pharmaceuticals [1] - The Hong Kong Technology ETF (513020) tracks the CSI Hong Kong Stock Connect Technology Index, which includes core technology sectors such as the internet, new energy vehicles, and biomedicine, representing the overall investment value of Chinese technology assets [1] - The Hong Kong Stock Connect Technology Index is more balanced in its technology sector allocation compared to the Hang Seng Technology Index, allowing for better investment opportunities in growth sectors [1]

Core Insights - The eighth Digital China Construction Summit was successfully held in Fuzhou, with NetDragon participating as a strategic partner for the eighth consecutive year [1][3] - NetDragon showcased its digital technology advantages in the fields of digital culture and tourism, and digital education, becoming one of the most popular exhibition areas at the summit [1][5] Digital Culture and Tourism - NetDragon focused on creating a "Digital Culture and Tourism Demonstration Zone" and a "Digital Education Experience Zone," presenting over ten innovative applications and solutions that integrate AI, VR, and AR technologies [2] - The company aims to leverage its technological strengths to enhance the digital transformation of the cultural and tourism industry in Fujian, promoting the integration of gaming and cultural tourism [5][12] - A special plan titled "Digital Mountain and Sea: New Life for Fujian Tourism through Gaming" was initiated to establish a digital cultural tourism model in Fujian [8][10] Digital Education - NetDragon has expanded its digital education footprint globally, covering over 200 million classrooms and benefiting more than 150 million users [16] - The company is actively responding to the "Belt and Road" initiative by promoting international cooperation in vocational education, with projects successfully launched in countries like Thailand and Singapore [16][17] - During the summit, NetDragon showcased various advanced digital education products and solutions, emphasizing its commitment to integrating education with industry [18][21]

Core Viewpoint - The "Game + Cultural Tourism" theme event at the 8th Digital China Construction Summit aims to explore the integration of digital technology with the cultural tourism industry, promoting a new model for digital cultural tourism in Fujian [1][4]. Group 1: Event Highlights - The event attracted approximately 130 industry elites and experts, focusing on the latest trends in the "Game + Cultural Tourism" sector [1]. - A special plan titled "Digital Mountain and Sea: New Life for Fujian's Cultural Tourism through Games" was officially released, which will promote cross-industry cooperation in Fujian [1][2]. - The plan aims to cultivate new business formats, enhance cultural influence, and showcase a new image of Fujian [1]. Group 2: Industry Insights - NetDragon's Senior Vice President Lin Chen highlighted the company's efforts since 2004 to integrate traditional Chinese cultural elements into games, facilitating the global outreach of Chinese culture [2]. - Experts discussed the potential of music tourism as a new avenue for cultural tourism, emphasizing its role in enhancing tourism quality [4]. - The integration of digital technology in cultural tourism is seen as a means to achieve high-quality development, focusing on aspects such as production efficiency, cultural value, sustainability, and user experience [4][6]. Group 3: Future Directions - The 25th anniversary of "Digital Fujian" marks significant advancements in the digital economy, with a call for leveraging technological advantages to upgrade Fujian's cultural tourism [6]. - The deep integration of "Game + Cultural Tourism" is expected to drive innovation in the cultural tourism economy and support the transmission of traditional culture, achieving synergistic value [6].

Core Insights - The "AI + Education" sector is experiencing a significant value reassessment driven by technological advancements and policy support, particularly with the introduction of DeepSeek, which reduces the cost of AI model development and deployment [1] - The Ministry of Education and other departments have issued guidelines to accelerate digital education, focusing on integration, intelligence, and internationalization, which is expected to stimulate the application of AI in education [1] Company Developments - NetDragon has been a pioneer in the "AI + Education" field, having invested in AI research since 2017 and successfully commercializing various AI educational products [1][2] - The company aims to establish the largest global education content production center in Hong Kong, enhancing the efficiency and quality of interactive educational games [2] - NetDragon's AI education content unit, "Photosynthesis," was showcased at the Global Smart Education Conference in September 2024, highlighting the company's innovative capabilities [2] Strategic Partnerships - NetDragon is collaborating with Thailand's Ministry of Higher Education to launch an online AI education platform, providing vocational training in sectors like new energy vehicles, aligning with national policies for developing skilled talent in emerging markets [2] - The company has formed a strategic partnership with Hong Kong Polytechnic University to integrate advanced AI and vocational training content into its education platforms [2] Technological Integration - NetDragon's subsidiary, Mynd.ai, has been independently listed and is set to launch new SaaS products that will incorporate AI technology, enhancing the educational experience for users [3] - The company is a technical service partner for the National Smart Education Public Service Platform, which has over 163 million registered users, indicating its significant role in the national education framework [3][4] Market Positioning - NetDragon has established a strong foundation in educational technology, with over a decade of experience in content, software, and hardware, positioning itself to benefit from the dual support of technological advancements and favorable policies [4] - The company has been recognized for its collaboration with educational institutions to develop modern industry colleges, showcasing its commitment to integrating education with industry needs [5] Financial Performance - NetDragon's gaming sector is also benefiting from AI applications, with popular games like "Heroes of the Storm" integrating AI features to enhance player experience [6] - The company has a history of consistent dividend payments, with a proposed annual dividend of 0.9 HKD per share for 2024, reflecting a dividend yield of over 9% [6]

Financial Performance - The company reported a 19.1% year-on-year increase in pre-tax profit, reaching RMB 756 million[12]. - Revenue for 2024 was RMB 6,047 million, a decrease of 14.8% year-over-year[29]. - Revenue from gaming and application services was RMB 3,938 million, accounting for 65.1% of total revenue, down 6.0% year-over-year[30]. - Revenue from Mynd.ai business was RMB 2,106 million, representing 34.8% of total revenue, a decrease of 27.6% year-over-year[29]. - Gross profit for 2024 was RMB 3,942 million, a decline of 10.4% compared to the previous year[29]. - Operating profit for 2024 was RMB 745 million, a decrease of 9.3% year-over-year[29]. - Profit attributable to the company's owners was RMB 311 million, down 43.5% from RMB 550 million in 2023[29]. - Cash flow from operating activities was RMB 1,100 million, a decrease of 5.7% year-over-year[29]. - Basic earnings per share for 2024 was RMB 58.60, compared to RMB 103.00 in 2023[24]. - Adjusted EBITDA loss was RMB 172 million, compared to a loss of RMB 78 million in 2023[43]. Cash and Investments - Operating cash flow remained stable at RMB 1.1 billion, supporting the ongoing "AI+" strategy[16]. - The net cash increased by 13.3% to RMB 2.1 billion, providing a solid foundation for future growth[16]. - Cash balance at the end of 2024 was RMB 541 million, down from RMB 650 million at the end of 2023[43]. - Interest-bearing debt decreased by RMB 148 million by the end of 2024[43]. - The company plans to invest RMB 50 million in Wuxi Benge New Materials Technology Co., Ltd., acquiring approximately 2.27% equity[153]. Dividends - The board declared a final dividend of HKD 0.5 per share, a 25.0% increase compared to the previous year[16]. - The final dividend for 2024 is set at HKD 0.50 per ordinary share, reflecting a year-on-year increase of 25.0%[34]. - The interim dividend of HKD 0.40 per share was paid on October 31, 2024, and a final dividend of HKD 0.50 per share is proposed, expected to amount to approximately RMB 246 million[121]. AI and Technology Initiatives - The company successfully implemented an AI production line for gamified educational content, enhancing operational efficiency[14]. - The company aims to deepen the deployment of advanced AI tools across business segments to enhance organizational efficiency[14]. - The "AI+" strategy has led to a reduction in employee costs by nearly RMB 100 million[14]. - The company is actively exploring "AI-native" gaming and interactive educational games to capture new business opportunities[15]. - The company is collaborating with Thailand's Ministry of Higher Education to develop online AI education platforms for vocational training[14]. Market and Competitive Landscape - The company faces increasing competition in the online and mobile gaming industry, with significant players like Electronic Arts and Tencent Holdings posing challenges to market share and talent retention[109]. - The company relies on consumer spending from gamers, which may be affected by economic uncertainties, including inflation and liquidity crises in major economies, potentially impacting financial performance[111]. Employee and Talent Management - The company has successfully attracted 478 outstanding talents from the gaming and education sectors in 2024, including 97 senior elite talents, enhancing the talent structure[70]. - The total number of full-time employees as of December 31, 2024, is 4,593[71]. - The company emphasizes a "people-oriented" management philosophy, focusing on employee experience and providing various welfare programs throughout the employee lifecycle[75]. - The company has initiated large-scale campus recruitment activities, attracting 27,145 resumes from graduates, ultimately hiring 86 outstanding candidates[70]. Governance and Compliance - The board includes independent directors with significant legal and investment experience, ensuring robust governance and oversight[88][86]. - The company is committed to maintaining strong corporate governance through its various committees, including the remuneration and audit committees[88]. - The company strictly adheres to various laws and regulations regarding employee rights and data protection, ensuring compliance with local and international standards[115]. Strategic Partnerships and Collaborations - The company signed a term sheet with Beijing Zhongke Wenge Technology Co., Ltd. for exclusive cooperation in promoting AI services outside mainland China, with a potential investment of RMB 75 million[39]. - The company has established partnerships with educational authorities and institutions to improve educational services[95]. Future Outlook and Plans - The company plans to launch the sequel to its flagship IP "Magic Domain" in 2025, with the new MMORPG mobile game "Code - Dragon" also set for overseas release[38]. - The company is expanding its online education business overseas, covering a wide range of educational fields[95]. - The company is committed to innovation in educational technology, particularly in AI and cloud computing[94]. Risks and Challenges - The group may face significant adverse tax consequences if the tax authorities determine that the contractual arrangements are not established on an arm's length basis[190]. - The group may incur additional tax liabilities if the tax authorities impose penalties for any unpaid taxes[190]. - There are significant risks associated with the contractual arrangements, including potential non-compliance with Chinese laws, which could adversely affect the company's ability to operate[185].

Core Viewpoint - First Shanghai Securities maintains a "Buy" rating for NetDragon (00777) with a target price of HKD 15, highlighting the stability of its gaming business and the potential market space for its education business [1] Group 1: 2024 Performance - NetDragon is expected to achieve a total revenue of CNY 6.05 billion and a net profit of CNY 310 million in 2024, with performance pressure stemming from adjustments in its two core businesses [2] - The gaming business revenue is projected at CNY 3.94 billion, with a decline in income due to the company's proactive reduction of payment thresholds to expand its user base [2] - Despite revenue challenges, net profit is expected to increase by 17.4% year-on-year, reflecting effective cost control, and the gross margin is anticipated to rise by 3.3 percentage points to 65.2% [2] Group 2: Gaming Business Adjustments - The main IP, "Magic Domain," experienced a revenue decline, but the overall Monthly Active Users (MAU) grew by 10.1%, with the "Magic Domain Interconnected Version" MAU significantly increasing by 37.5%, indicating effective user engagement strategies [2] - The company launched "Magic Domain Rebirth" this year and plans to release a series of new games, including the MMORPG mobile game "Code-Dragon," to enrich its product matrix [2] - The AI + gaming strategy is beginning to show cost reduction and efficiency improvements, suggesting a potential stabilization and recovery in the gaming business [2] Group 3: Education Business Challenges - The education business generated revenue of CNY 2.11 billion, showing a year-on-year decline due to a cyclical adjustment in the overseas education information market [3] - The demand for Interactive Flat Panel Displays (IFPD) has shown temporary weakness, although gross margin improved by 1 percentage point to 26% due to optimized material and transportation costs [3] - While there are short-term pressures from fluctuations in overseas education budgets, the long-term logic of increasing global digital penetration in education remains unchanged, with potential for profitability improvement post-market adjustment [3]

Investment Rating - The investment rating for the company is downgraded to Neutral [2][3]. Core Insights - The company's revenue growth in gaming and education is facing uncertainty in the short term, with a target price adjustment from HKD 14.00 to HKD 10.20, reflecting a potential decline of 2.7% [2][3]. - The company is focusing on the improvement of the education market in Europe and the US, as well as the anticipated recovery in gaming revenue in the second half of the year [2][8]. Financial Performance Summary - **2024 Performance**: Total revenue is expected to decline by 15% to RMB 6,047 million, with gaming and Mynd.ai revenues decreasing by 6% and 28% respectively [7][8]. - **2025 Forecast**: Revenue is projected to further decline to RMB 5,241 million, with gaming revenue at RMB 3,555 million and Mynd.ai at RMB 1,685 million, both showing a decrease of 10% and 20% respectively [6][8]. - **Profitability Metrics**: Adjusted net profit is expected to drop to RMB 530 million in 2025, down 26% from the previous year, with a net profit margin of 10.1% [6][8]. Revenue Breakdown - **Gaming and Applications**: Revenue is forecasted to be RMB 3,555 million in 2025, down from RMB 3,938 million in 2024 [8]. - **Mynd.ai**: Expected revenue for 2025 is RMB 1,685 million, a significant drop from RMB 2,106 million in 2024 [8]. Cost and Expense Management - The company is implementing cost-saving measures, particularly in operational expenses, which are projected to decrease from RMB 3,351 million in 2024 to RMB 2,878 million in 2025 [8][14]. - Adjusted operating profit is expected to decline to RMB 577 million in 2025, with an operating profit margin of 11.0% [6][8]. Market Position and Valuation - The company's market capitalization is approximately HKD 5,565.61 million, with a 52-week high of HKD 12.78 and a low of HKD 9.47 [5][8]. - The stock's average trading volume is 1.83 million shares per day, indicating moderate liquidity [5].

Investment Rating - The investment rating for the company is downgraded to Neutral with a target price reduced from HKD 14.00 to HKD 10.20, indicating a potential downside of 2.7% [2][3][11]. Core Insights - The company's performance in the short term is under pressure, particularly in its gaming and education segments, with revenue growth facing uncertainties. The AI+ strategy is expected to optimize operational costs, but short-term profits may still decline. The focus is on the improvement of the education market in Europe and the US, as well as the anticipated recovery in gaming revenue in the second half of the year [2][7][8]. Financial Performance Summary - **2024 Performance**: Total revenue is projected to decline by 15% year-on-year to RMB 6,047 million, with gaming and Mynd.ai revenues expected to decrease by 6% and 28% respectively. Adjusted net profit is forecasted to drop by 25% to RMB 718 million [7][8]. - **2025 Forecast**: Revenue is expected to further decline to RMB 5,241 million, with gaming revenue at RMB 3,555 million and Mynd.ai at RMB 1,685 million, reflecting a 26% reduction in both segments. Adjusted net profit is anticipated to be RMB 530 million, a 56% decrease [6][14]. - **Profitability Metrics**: The adjusted operating profit margin is projected to decrease significantly from 19.1% in 2024 to 11.0% in 2025, while the adjusted net profit margin is expected to drop from 16.9% to 10.1% [6][14]. Market Position and Trends - The company is navigating a challenging environment, with strategic adjustments in its gaming operations and a focus on cost reduction to mitigate profit pressures. The anticipated launch of new games in the second half of 2025 is expected to support a recovery in gaming revenue [2][7][8].

Core Viewpoint - Citic Securities maintains a "Buy" rating for NetDragon (00777) with a target price of HKD 16, projecting 2024 revenue and net profit at CNY 6.05 billion and CNY 310 million respectively, with expectations for recovery in the Mynd.ai business due to increasing global education informationization penetration [1] Overall Performance - In 2024, the company reported revenue and net profit of CNY 6.05 billion and CNY 310 million, respectively, impacted by a one-time non-cash deferred tax expense of approximately CNY 450 million; excluding this, net profit increased by 17.4% year-on-year [2] - The gross margin for the year was 65.2%, up by 3.3 percentage points; the expense ratios for sales, administration, and R&D were 12.5%, 19.3%, and 20.1%, respectively, increasing by 1.1, 2.4, and 3.4 percentage points year-on-year; the pre-tax profit was CNY 760 million, up by 19.1% [2] Gaming and Application Services Business - In 2024, the gaming and application services business generated revenue of CNY 3.94 billion, with a decline attributed to a strategic adjustment to lower the entry barrier for new users; the gross margin was 86.3% [3] - The expense ratios for R&D, sales, and administration were 31.2%, 12.4%, and 17.9%, respectively, increasing by 2.9, 1.3, and 2.4 percentage points year-on-year; the operating profit margin was 23.5% [3] - The company has proposed an "AI + Gaming" strategy in Q4 2024, aiming to reduce costs and improve efficiency, which is expected to stabilize profitability in the gaming business [3] Mynd.ai Business - In 2024, the Mynd.ai business reported revenue of CNY 2.11 billion, primarily due to the ongoing adjustment cycle in the overseas education informationization sector; the gross margin was 26.0%, up by 1.0 percentage point [4] - The expense ratios for R&D, sales, and administration were 9.6%, 12.6%, and 17.2%, respectively, increasing by 2.9, 1.4, and 8.0 percentage points year-on-year [4] Profit Forecast, Valuation, and Rating - For the gaming and application services business, a net profit of CNY 690 million is projected for 2025, with a valuation of 9x PE, leading to a market cap estimate of CNY 6.19 billion [5] - The Mynd.ai business is expected to generate revenue of CNY 1.72 billion in 2025, with a valuation of 0.7x PS, resulting in an estimated value of CNY 900 million [5] - Considering the company's active dividend policy and focus on shareholder returns, a valuation of CNY 940 million is assigned to the net cash of CNY 1.88 billion for 2025; the comprehensive target price is set at HKD 16, maintaining a "Buy" rating [5]