Core Viewpoint - Dongwu Securities expects Net Profit attributable to shareholders of NetDragon (00777) to be 400 million, 670 million, and 680 million RMB for 2025-2027, with corresponding PE ratios of 13.6, 8.1, and 8.0 times. The target market capitalization is set at 8.5 billion RMB, translating to a target price of 17.59 HKD per share. The firm is optimistic about the company's stable operation of existing games, the benefits from the education business due to equipment upgrade cycles, and the comprehensive empowerment of AI in gaming education, leading to performance growth from diversified investments [1]. Gaming Sector - The company has established a solid performance foundation through long-standing IPs in the MMORPG sector, such as "Magic Domain," "Conquest," and "Spirit of Heroes," which exhibit strong user stickiness and long-term operational capabilities. The flagship IP "Magic Domain" has maintained high operating profit margins over nearly two decades. The company is implementing an "AI + Gaming" strategy, with AI integrated into art production, code writing, and multilingual localization, enabling rapid global market expansion and cost-effective development of mobile versions from PC games. In the first half of 2025, R&D expenses in the gaming and application services segment are expected to decrease by 26.7% year-on-year, indicating potential profit growth from AI-driven cost reductions [2]. Education Sector - Mynd.ai, a subsidiary, is a leader in global educational interactive display devices, with cumulative sales of 1.37 million units from 2016 to 2024, capturing nearly 16% of the global market share in 2024. The next replacement cycle for educational equipment is anticipated as devices purchased during the pandemic begin to expire, indicating a broad long-term market opportunity. In the first half of 2025, the company's SaaS ecosystem is taking shape, with "Explain Everything" continuing its growth trend. The acquisition of Merlyn Mind introduces an AI voice assistant to enhance user interaction with hardware and link software resources with SaaS tools, reinforcing the "hardware + SaaS" barrier and accelerating the transition to a high-margin subscription model, which is expected to improve profitability [3]. Strategic Investments - The company is focusing on a dual-core business strategy with strategic investments in AI, AR, and the broader entertainment sector, creating multiple potential growth drivers. AI technology is expected to enhance intelligent interactions in gaming and generate personalized educational content, improving the quality and efficiency of both core businesses. AR hardware will enhance immersion in gaming and the appeal of educational products, while the broader entertainment sector will aggregate traffic and incubate IPs, contributing to user growth and brand value, thus closing the "technology-scenario-user" loop [4]. - The company has made strategic investments in ROKID, Chuangqisi, and Shuaiku Network to strengthen its ecosystem in AI, AR, and the entertainment sector. In AI, Chuangqisi has partnered with Zhongke Wenge to become the exclusive overseas platform and commercialization partner, developing several AI large model products. In AR and the metaverse, the investment in ROKID aims to explore new applications in education and gaming. In the entertainment sector, the investment in Shuaiku Network positions the company in the group broadcasting sector, expected to contribute to performance growth and provide new channels for IP promotion in gaming and user outreach in education. Additionally, the company is joining the Open-Q ecosystem to lay the groundwork for AI computing power and high-quality educational content [5].