Group 1 - The core strategy of the company is a dual-driven approach combining product development and technological innovation, focusing on SLG games and AI applications to unlock new growth opportunities [1][4] - The company has been actively transforming its product lineup by emphasizing high-potential SLG games and mini-program games, which are expected to provide stable revenue streams [2][4] - The launch of LayaIdea, a commercial AI game engine tool, marks a significant advancement in the company's technological capabilities, enhancing efficiency in game development and positioning the company favorably in the "AI + gaming" sector [3][4] Group 2 - The company has established partnerships with leading firms like NVIDIA and Blue Box to explore the application of AIGC in game development, indicating a strong commitment to innovation [3] - The company’s proactive investments and collaborations, such as those with Animoca and WEBZEN, are aimed at enhancing growth flexibility and expanding business boundaries [4] - The future development path of the company is increasingly clear, with a focus on launching new SLG titles and mini-games, alongside the commercialization of AI tools to improve research and development efficiency [4]

机构：第一上海 2025 中期业绩承压：网龙2025 年上班年实现营收23.8 亿元，同比下滑28%，毛利为人民币17 亿元，同 比减少24.7%，毛利率同比提升2.9 个百分点至69.5%，反映公司整体盈利能力增强。经营开支为13.5 亿 元，同比降低15.6%，集团推行的成本优化和效率提升措施已初步显现成效，预计将在2025 年下半年进 一步充分体现。公司当前财务状况稳健，账面净现金规模约为23 亿元人民币，并持有12,000 枚以太币 作为其数字资产储备。与此同时，公司宣布派发中期股息每股0.5 港元，并承诺在未来一年内通过股息 及股份回购等方式，向股东提供总额不低于6 亿港元的回报。 游戏业务主动调整：2025 年上半年，公司游戏及其他业务实现收入17.4 亿元，同比下降18%，但相较 2024 年下半年仅环比微降4%，显示出企稳回升的态势。其中，《魔域》MAU 同比增长11%，手机版收 入也实现环比增长，反映用户活跃与留存水平有所提升，玩家体验持续优化。通过持续推进降本增效， 该业务经营利润率环比回升至28.8%，已接近历史常态水平。产品储备方面，《代号MY》已于8 月启动 小规模测试，预计明年正式 ...

Group 1 - The core strategy of the company is a dual-driven approach of "products + technology," focusing on SLG games and mini-games while embracing AI advancements to open new growth opportunities [1][4] - Since its establishment in 2004, the company has maintained competitiveness through a "research and operation integration, quality first" model, adapting to industry changes by restructuring its product lineup towards SLG and mini-program games [2][4] - The company has accelerated the development and launch of new SLG projects, such as "Code H" and "Code S," which are expected to provide significant revenue support due to their high user engagement and long lifecycle [2][4] Group 2 - The company has established partnerships with firms like NVIDIA and Blue Box to explore AI applications in game development, marking a significant step towards integrating AI into its processes [3][4] - The launch of LayaIdea, a commercial 3D game AIGC development tool, represents a breakthrough in China's gaming industry, enhancing the company's capabilities in interactive advertising, game prototyping, and lightweight 3D production [3][4] - The company is focused on expanding its investment and collaboration efforts, enhancing growth flexibility and business boundaries, while aiming for a clear development path in the new cycle with a focus on SLG and AI applications [4]

Core Insights - In 2023, generative AI began to gain traction in the gaming market, with major domestic companies establishing independent AI departments to enhance 3D asset production and development efficiency [1] - By 2024, the gaming industry recognized AI as a clear monetization path, with 49% of game developers admitting to using generative AI in their daily work [3] - The emergence of AI-native games and the integration of AI features into existing products are expected to accelerate by 2025, with significant advancements in AI technology [3][4] Group 1: AI Development in Gaming - Major companies like Tencent and NetEase have set up dedicated AI labs to explore AI applications in gaming [1] - Smaller firms are forming AIGC research teams, often consisting of fewer than 10 members, to experiment with AI technologies [1] - The academic community contributed to the concept of AI-native games, exemplified by Stanford's "Smallville" project, which showcased AI-driven NPCs in a virtual community [1] Group 2: Market Trends and Future Projections - The gaming industry is expected to see a significant shift towards AI-native games and AI-enhanced gameplay by 2025, with new tools and engines being developed [3][4] - The introduction of AI tools is anticipated to improve efficiency in game development, with reports of up to 50% efficiency gains in art production and community management [18][22] - The integration of AI into user-generated content (UGC) platforms is seen as a way to enhance player creativity and extend game lifecycles [20][25] Group 3: Emotional Companionship and Player Engagement - AI-driven emotional companionship is viewed as a promising direction for game development, though challenges remain regarding technology and compliance [5][7] - The market for AI companionship products is divided, with male-oriented products facing regulatory challenges, leading to a predominance of small companies in this space [8][11] - AI companionship products are still largely in the testing phase, with no clear commercial model established yet [17][18] Group 4: Perspectives from Industry Professionals - Industry professionals express optimism about AI's potential in gaming, with larger companies taking a cautious approach while smaller teams are more willing to experiment [26][28] - There is a divide in opinions regarding the concept of AI-native games, with some believing in its potential while others view it as a challenging proposition [32][33] - The future of AI in gaming is seen as a blend of creativity and technology, with the possibility of creating dynamic, evolving game worlds driven by AI [28][34]

Investment Rating - The industry rating is "Outperform the Market" [9] Core Insights - The integration of AI in gaming enhances the entire production process, leading to significant improvements in efficiency and content quality [2][3][4][5][6] - AI tools facilitate creative processes, including content generation, interactive design, gameplay optimization, and narrative production, resulting in faster and more effective game development [3][4] - The use of AI in art and modeling accelerates creative workflows, reduces repetitive tasks, and enhances visual quality, contributing to a more immersive gaming experience [4][5] - AI programming tools streamline game development and testing, allowing for rapid prototyping and bug detection, thus improving overall development efficiency [6] Summary by Sections AI in Game Planning - AI empowers the game planning phase by enabling rapid generation of creative content, including world-building and character dialogues, which enhances production efficiency [3] AI in Game Art - AI significantly accelerates the art creation process by generating diverse design concepts and optimizing visual elements, thus improving the overall aesthetic quality of games [4] AI in Game Modeling - AI tools enhance the efficiency of modeling and animation processes, allowing for quick completion of complex tasks and integration into existing production pipelines [5] AI in Game Programming - AI solutions in programming enable developers to create gameplay mechanics without extensive coding, while also automating testing processes to identify and resolve issues quickly [6] Investment Recommendations - The report suggests focusing on companies such as Giant Network, G-bits, K-Young Network, Perfect World, and others for potential investment opportunities in the AI gaming sector [7]

Group 1 - The gaming sector is experiencing a strong performance, driven by new product release expectations and industry recovery, with the gaming ETF (159869) rising over 2% [1] - Key stocks in the gaming ETF include Kaiying Network, which surged nearly 7%, and Giant Network, which increased by nearly 5%, indicating robust investor interest [1] - The average net profit of the gaming sector is projected to grow significantly by 118.64% year-on-year in the first half of 2025, highlighting the resilience of leading companies [1] Group 2 - AI applications are beginning to show transformative impacts across various industries, with significant commercial progress observed in the media sector [2] - The gaming market has maintained high levels of activity since the summer of 2024, with major game developers launching successful new titles [2] - The gaming sector is expected to benefit from multiple catalysts, including AI, content, and changes in commercialization models, suggesting potential growth opportunities for the gaming ETF (159869) [2]

Core Viewpoint - The company is experiencing a decline in revenue and profit for the first half of 2025, but shows signs of operational improvement and cost optimization, particularly in its gaming segment, while the education business faces short-term challenges [1][2][3] Group 1: Financial Performance - In the first half of 2025, the company achieved revenue of 2.38 billion RMB, a year-on-year decline of 28%, with a gross profit of 1.7 billion RMB, down 24.7% [1] - The gross margin improved by 2.9 percentage points to 69.5%, indicating enhanced overall profitability [1] - Operating expenses decreased by 15.6% to 1.35 billion RMB, reflecting the effectiveness of cost optimization measures [1] - The company maintains a solid financial position with net cash of approximately 1.5 billion RMB and holds 12,000 Ethereum as digital asset reserves [1] - A mid-term dividend of 0.5 HKD per share has been announced, with a commitment to return at least 600 million HKD to shareholders through dividends and share buybacks over the next year [1] Group 2: Business Segments - The gaming and other businesses generated revenue of 1.74 billion RMB in the first half of 2025, down 18% year-on-year, but only a slight decline of 4% compared to the second half of 2024, indicating signs of stabilization [2] - The monthly active users (MAU) of "Magic Domain" increased by 11% year-on-year, and mobile revenue showed a quarter-on-quarter increase, reflecting improved user engagement and retention [2] - The operating profit margin for the gaming business rebounded to 28.8%, nearing historical normal levels [2] - New product developments include "Code MY" which began small-scale testing in August, and plans to launch "Magic Domain" and "Code Alpha" in overseas markets [2] - The education segment, Mynd.ai, reported revenue of 640 million RMB, impacted by tightened customer budgets, with ongoing efforts to optimize costs and explore emerging markets for growth [2] Group 3: Investment Outlook - The target price has been adjusted to 17.27 HKD, maintaining a buy rating based on the robust performance of the gaming business and the potential market space in education [3] - The steady development of gaming IPs and expansion into overseas markets, along with successful tablet product promotions, are expected to drive future growth [3] - The valuation method remains unchanged, with a projected 55% upside from the last closing price [3]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 17.27, representing a potential upside of 55% from the current price of HKD 11.14 [6][7]. Core Insights - The company's gaming business shows stable growth, with a focus on cost reduction and efficiency improvements, while the education segment faces short-term challenges due to budget constraints [3][7]. - The company has a solid financial position with net cash of approximately RMB 1.5 billion and digital asset reserves including 12,000 Ethereum [7]. - The gaming segment's revenue for the first half of 2025 is projected to be RMB 1.74 billion, down 18% year-on-year, but showing signs of stabilization with a slight quarter-on-quarter decline [7]. - The education business, particularly Mynd.ai, reported revenue of RMB 640 million, impacted by tightening customer budgets, but the long-term digitalization trend in education remains intact [7]. Summary by Sections Financial Performance - Total revenue for the fiscal year ending December 31, 2023, was RMB 7.1 billion, with a projected decline of 19.13% in 2025 [7][8]. - Adjusted net profit for 2025 is estimated at RMB 480 million, reflecting a significant recovery of 105.28% compared to the previous year [7][8]. - The company plans to distribute an interim dividend of HKD 0.5 per share and aims to return at least HKD 600 million to shareholders through dividends and share buybacks over the next year [7]. Business Segments Gaming Business - The gaming segment's revenue is expected to stabilize, with MAU for "Magic Domain" increasing by 11% year-on-year, indicating improved user engagement [7]. - New game launches and expansions into overseas markets are anticipated to drive future growth [7]. Education Business - The education segment is under pressure due to reduced budgets in traditional markets, but the company is exploring emerging markets for growth opportunities [7]. - The long-term outlook for digital education remains positive despite short-term fluctuations [7].

Core Viewpoint - First Shanghai maintains a "buy" rating for NetDragon (00777), highlighting the stability of the company's gaming business and the potential of its education business market space [1] Group 1: 2025 Mid-Year Performance - NetDragon is projected to achieve revenue of 2.38 billion RMB in the first half of 2025, with a gross profit of 1.7 billion RMB, reflecting a gross margin increase of 2.9 percentage points to 69.5% year-on-year [2] - Operating expenses are expected to be 1.35 billion RMB, a decrease of 15.6% year-on-year, indicating the effectiveness of the company's cost optimization and efficiency improvement measures [2] - The company has a solid financial position with net cash of approximately 1.5 billion RMB and holds 12,000 Ethereum as digital asset reserves [2] - A mid-term dividend of 0.5 HKD per share has been announced, with a commitment to return at least 600 million HKD to shareholders through dividends and share buybacks over the next year [2] Group 2: Gaming Business - In the first half of 2025, the gaming and other businesses generated revenue of 1.74 billion RMB, showing signs of stabilization compared to the second half of 2024 [3] - The Monthly Active Users (MAU) of "Magic Domain" increased by 11% year-on-year, with mobile revenue also showing a quarter-on-quarter increase, indicating improved user engagement and retention [3] - The operating profit margin for the gaming business has rebounded to 28.8%, nearing historical normal levels [3] - Upcoming product launches include "Code MY" which began small-scale testing in August, and plans to expand "Magic Domain" and "Code Alpha" into multiple overseas markets [3] Group 3: Education Business - The Mynd.ai business generated revenue of 640 million RMB in the first half of 2025 [4] - In response to challenges from reduced global education technology spending, the company will continue to pursue cost optimization [4] - Despite weak performance in traditional markets in Europe and the US, the company is actively exploring emerging markets for new growth opportunities [4] - While short-term pressures from fluctuations in overseas education budgets remain, the long-term logic of increasing global education digital penetration remains unchanged [4]

Core Viewpoint - First Shanghai maintains a "buy" rating for NetDragon (00777), highlighting the robustness of the company's gaming business and the potential market space for its education business. The steady development of gaming IPs and the expansion into overseas markets, along with the successful promotion of tablet products, are expected to drive new performance growth for the company. The target price is set at HKD 17.27, indicating a 55% upside from the previous closing price [1] Group 1: 2025 Mid-Year Performance - NetDragon is projected to achieve revenue of RMB 2.38 billion in the first half of 2025, with a gross profit of RMB 1.7 billion and a gross margin increase of 2.9 percentage points to 69.5%, reflecting enhanced overall profitability [1] - Operating expenses are expected to be RMB 1.35 billion, a decrease of 15.6% year-on-year, indicating the effectiveness of cost optimization and efficiency improvement measures [1] - The company has a solid financial position with net cash of approximately RMB 1.5 billion and holds 12,000 Ethereum as part of its digital asset reserves [1] - A mid-term dividend of HKD 0.5 per share has been announced, with a commitment to return at least HKD 600 million to shareholders through dividends and share buybacks over the next year [1] Group 2: Gaming Business - In the first half of 2025, the gaming and other businesses generated revenue of RMB 1.74 billion, showing signs of stabilization and recovery compared to the second half of 2024 [2] - The Monthly Active Users (MAU) of "Magic Domain" increased by 11% year-on-year, with mobile revenue also showing a quarter-on-quarter increase, indicating improved user engagement and retention [2] - The operating profit margin for the gaming business has rebounded to 28.8%, nearing historical normal levels, due to ongoing cost reduction and efficiency enhancement efforts [2] - Upcoming product launches include "Code MY" which began small-scale testing in August, and plans to launch "Magic Domain" and "Code Alpha" in multiple overseas markets in the second half of the year [2] Group 3: Education Business - The Mynd.ai business generated revenue of RMB 640 million in the first half of 2025 [3] - In response to challenges from reduced global education technology spending, the company will continue to pursue cost optimization [3] - Despite weak performance in traditional markets in Europe and the US, the company is actively exploring emerging markets for new growth opportunities [3] - While short-term pressures from fluctuations in overseas education budgets remain, the long-term core logic of increasing digital penetration in global education remains unchanged [3]