NETDRAGON(HK:00777)2024-04-10 16:00Investment Rating - The report maintains a "Buy" rating for the company with a target price of 16 HKD [5][3]. Core Insights - The company successfully spun off its education business, which is now listed on the NYSE as MYND.AI, holding a 74.4% stake. The education business generated revenue of 2.9 billion RMB in 2023, accounting for 41% of total revenue, but saw a 26% year-on-year decline due to reduced government subsidies post-pandemic [2][3]. - The gaming business showed resilience with a revenue increase of 7% year-on-year to 4.2 billion RMB, supported by effective operational strategies and a strong performance from the core IP "Magic Domain," which grew 14% to 2.9 billion RMB [3][2]. - The company is increasing its investment in AI applications, with R&D spending rising by 13% year-on-year, particularly in gaming where AI-generated content usage reached 58% in Q4 2023 [2][3]. Financial Performance Summary - Total revenue for 2023 was 7.1 billion RMB, a 10% decline from the previous year, while net profit attributable to shareholders was 550 million RMB, down 34% year-on-year [4][3]. - The gaming segment's gross margin improved to 89%, up 2.6 percentage points, while the education segment's gross margin rose to 25%, an increase of 1.3 percentage points [2][3]. - The company forecasts a revenue recovery in 2024, projecting a 7.4% increase to 7.6 billion RMB, with net profit expected to rebound significantly by 91.2% to 1.04 billion RMB [4][3].