Core Insights - The Chairman and controlling shareholder of NetDragon intends to increase his shareholding through open market transactions within 12 months, indicating confidence in the company's long-term development [1][2][3] Group 1: Company Strategy and Vision - NetDragon is advancing towards becoming a global leader in AIGC (AI-Generated Content) creation, reflecting a new strategic direction and long-term investment value [2] - The company will continue to focus on its "AI+" core strategy to strengthen its business presence and enhance operational efficiency, aiming for sustainable growth and stable returns for shareholders [3][4] - NetDragon is committed to building a massive user community in the new AI era through a dual-focus strategy of "AI+Gaming" and "AI+Education" [4] Group 2: Company Background and Achievements - Established in 1999, NetDragon is a reputable online game developer in China, known for successful titles such as Eudemons Online and Conquer Online [4] - The company's overseas edtech business, Mynd.ai, is a global leader in interactive technology, with its products used in over 2 million learning and training spaces across 126 countries [5]

Core Viewpoint - NetDragon Websoft Holdings Limited reported a surprising financial performance for the year 2025, with total revenue of 4.48 billion RMB, a year-on-year decline of 26.0%, and a net profit attributable to shareholders of 151 million RMB, down 51.45%, marking the lowest performance since 2018, prompting investors to reassess the company's transformation prospects [1][7]. Group 1: Business Performance - The revenue decline was attributed to a "double hit" in its core business segments, with the gaming and application services generating 3.28 billion RMB, accounting for 73.2% of total revenue, down 16.8% year-on-year [2][8]. - The education segment, particularly the Mynd.ai business, saw a dramatic drop in revenue to 1.20 billion RMB, a decrease of 43.2%, representing 26.7% of total revenue, primarily due to the sale of the Singapore early education business and ongoing adjustments in industry demand [2][8]. Group 2: Profitability and Cash Flow - The significant drop in net profit to 151 million RMB, down from 311 million RMB in 2024, was attributed to cryptocurrency impairment losses and one-time expenses related to employee optimization, reflecting short-term pain in asset allocation and personnel optimization [3][9]. - Operating cash flow for 2025 was 378 million RMB, a substantial decline of 64.07%, while investment cash flow was -1.093 billion RMB, worsening from -875 million RMB the previous year, indicating a challenging period of declining revenue and tight cash flow [3][9]. Group 3: Shareholder Returns - In response to the declining performance, the company announced a substantial shareholder return plan, proposing a final dividend of 0.50 HKD per share, totaling 1.00 HKD for the year, and committing to distribute at least 600 million HKD over the next 12 months through dividends and share buybacks [4][10]. - As of December 2025, the company had a net cash and liquid investment reserve of 1.98 billion RMB, which supports ongoing dividends but raises concerns about a focus on dividends over research and development, as R&D expenses decreased by 33.2% year-on-year [4][10]. Group 4: Future Outlook and AI Transformation - The chairman stated that the company has begun to implement AI organizational changes and aims to become a leading AIGC creative enterprise, with expectations that cost optimization will fully materialize in 2026, laying a solid foundation for long-term value growth [5][11]. - There is a divide in market sentiment regarding whether AI can truly become a turning point for performance, with optimists believing that AI integration in game development and recovery in overseas education could lead to a turnaround in 2026, while skeptics point to increased macroeconomic uncertainty and intensified industry competition as challenges [5][11].

Financial Data and Key Metrics Changes - In 2025, the company's revenue was RMB 2.4 billion, a decrease of 26% year-over-year [9] - Operating profit grew by 47% year-over-year to RMB 164 million in the second half of 2025, with an operating margin of 7.9% [8] - Operating expenses (OpEx) in the second half dropped 38% year-over-year to RMB 1.3 billion, demonstrating effective cost-saving initiatives [8][10] Business Line Data and Key Metrics Changes - Revenue from gaming and application services decreased by 30% to RMB 3.3 billion, attributed to the optimization of flagship IP [9][11] - The MY business revenue declined by 43% to RMB 1.2 billion, primarily due to the disposal of the Singapore early education business [12] - Despite revenue declines, the gross margin for gaming and application services remained high at 67% [11] Market Data and Key Metrics Changes - The company is optimistic about growth opportunities in Africa and Asia, indicating a focus on expanding its addressable market [6][12] - The management noted challenges in the U.S. market due to economic uncertainties, impacting overall performance [5] Company Strategy and Development Direction - The company is focusing on leveraging AI for growth and cost optimization, transitioning from optimization to execution [4][6] - Plans to introduce native AI games and expand product lines to capture new market opportunities [5][17] - The company aims to maintain profitability while committing to shareholder returns, including a dividend of no less than HKD 1 [23][32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about market recovery in 2026, contingent on geopolitical stability, particularly in the Middle East [16][27] - The company is committed to aggressive cost optimization and expects to return to growth by the end of 2026 [26][30] Other Important Information - The company received an ESG rating of A, reflecting its commitment to sustainable practices [26] - The introduction of the AP10 product is expected to enhance service deployment capabilities [17] Q&A Session Summary Question: What is the company's progression with overseas business expansion with Zhongke WengAI? - The partnership is progressing well, with new products expected to be announced soon [51][54] Question: Is there any CapEx plan for AI-related development? - The company plans to double its CapEx in the AI area, expecting RMB 300 million in 2025 [53][54] Question: What is the latest development of the Thailand project? - The project is advancing, focusing on using AI to teach and assess capabilities, with strong support from the local government [56][58]

Financial Data and Key Metrics Changes - In 2025, the company achieved an operating profit of RMB 164 million, representing a 47% year-over-year growth and a 41% half-over-half growth [9] - The operating margin improved to 7.9%, an increase of almost 3 percentage points year-over-year and half-over-half [9] - Full-year revenue for 2025 was RMB 2.4 billion, down 26% year-over-year, with gaming and application services revenue decreasing by 30% to RMB 3.3 billion [10] - Gross profit was RMB 3.1 billion, down 30% year-over-year [10] - Operating expenses (OpEx) in the second half dropped 38% year-over-year to RMB 1.3 billion, demonstrating effective cost-saving initiatives [9][10] Business Line Data and Key Metrics Changes - The gaming and application services segment saw a revenue decline of 30% to HKD 3.3 billion, but maintained a gross margin of 67% [12] - The Mynd.ai business experienced a 43% revenue decline to RMB 1.2 billion, primarily due to the disposal of the Singapore early education business [13] - Despite the revenue decline, the gross margin for the Mynd.ai business remained stable at 35% [13] Market Data and Key Metrics Changes - The company noted challenges in the global economy and uncertainty in U.S. policies affecting its largest market [5] - The management expressed optimism about growth opportunities in Africa and Asia, indicating a focus on expanding market presence in these regions [6] Company Strategy and Development Direction - The company is focusing on leveraging AI for growth and cost optimization, transitioning from optimization to execution of costs [4][6] - There is a commitment to enhance shareholder returns, with a dividend of no less than HKD 1 per share planned for 2026 [25] - The company aims to maintain profitability while applying AI and expects to return to growth towards the end of 2026 [29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging macro environment but highlighted a meaningful recovery in the second half of 2025 [9] - The outlook for 2026 is cautiously optimistic, with expectations of market recovery and growth opportunities in AI and education sectors [6][32] - The company is committed to aggressive cost optimization to ensure EBITDA breakeven and maintain cash flow [34][35] Other Important Information - The company won the Company of the Year award at BETT, a significant recognition in the education sector [20] - The management is working on a sovereign education large language model to cater to the needs of developing countries [30][31] - The company received an ESG rating of A, reflecting its commitment to environmental, social, and governance standards [28] Q&A Session Summary Question: What is the company's progression with overseas business expansion with Zhongke WengAI? - The company is on the verge of announcing new products for both Hong Kong and overseas markets, with positive progress in the partnership with Zhongke WengAI [46][47] Question: Is there any CapEx plan for AI-related development or investment? - The company plans to double its CapEx in the AI area, expecting to reach RMB 300 million in 2025 [45] Question: What is the latest development of the Thailand project and other national-level projects? - The Thailand project is progressing well, focusing on using AI to teach people how to use AI tools, with expectations for continued collaboration with the government [48][49]

Financial Data and Key Metrics Changes - In the second half of 2025, operating profit grew 47% year-over-year to RMB 164 million, with an operating margin of 7.9%, up nearly 3 percentage points year-over-year [9] - Full year revenue for 2025 was RMB 2.4 billion, down 26% year-over-year, with gaming and application services revenue decreasing by 30% to RMB 3.3 billion [10] - Operating expenses in the second half dropped 38% year-over-year to RMB 1.3 billion, demonstrating effective cost-saving initiatives [9][10] Business Line Data and Key Metrics Changes - Gaming and application services revenue decreased by 30% to HKD 3.3 billion, but gross margin remained high at 67% [12] - MY business revenue declined 43% to RMB 1.2 billion, primarily due to the disposal of the Singapore early education business [13] - Despite revenue declines, the core segmental profit margin for gaming increased by 3.9 percentage points to 27.4% [12] Market Data and Key Metrics Changes - The company is optimistic about growth opportunities in Africa and Asia, leveraging AI technology to enhance market presence [7][8] - The education sector faces challenges due to global economic uncertainties, particularly in the U.S. market [6] Company Strategy and Development Direction - The company aims to leverage AI for growth, transitioning from cost optimization to execution [5] - A focus on developing native AI games and expanding product lines to capture a larger addressable market is emphasized [5][7] - The introduction of the sovereign education large language model aims to cater to local needs in both developed and developing countries [27][28] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about market recovery in 2026, contingent on geopolitical stability, particularly in the Middle East [16][26] - The company plans to maintain profitability while applying AI to optimize costs and enhance growth [25][26] Other Important Information - The company committed to a dividend of no less than HKD 1 for 2026 and plans to return no less than HKD 600 million to shareholders [23][34] - The company received an A rating for its ESG efforts, indicating a strong commitment to sustainability [25] Q&A Session Questions and Answers Question: What is the company's progression with overseas business expansion with Zhongke WengAI? - The company is on the verge of announcing new products for both Hong Kong and overseas markets, with positive progress in the partnership with Zhongke WengAI [42][43] Question: Is there any CapEx plan or guidance for AI-related development? - The company plans to double its CapEx in the AI area, expecting to reach RMB 300 million in 2025 [41] Question: What is the latest development of the Thailand project and other national-level projects? - The Thailand project is progressing well, focusing on using AI to teach and assess capabilities, with expectations for continued collaboration with the local government [44][46]

Opening Remarks Dr. Simon Leung NetDragon Websoft Holdings Limited Stock Code: 777 HK 2025 Annual Earnings Presentation March 27, 2026 Disclaimer This presentation is prepared by NetDragon Websoft Holdings Limited (the "Company", together with its subsidiaries referred to as the "Group" in this presentation) solely for information purposes and is not to be construed as a solicitation of an offer to buy or sell any securities of the Company in any jurisdiction. Information is given in summary form and does n ...

Core Insights - NetDragon's transformation and focus strategy on "AI + Education" and "AI + Gaming" has attracted significant attention from top-tier international capital, with BlackRock increasing its stake to over 5% [1] Group 1: AI Strategy - The company is implementing a dual-driven strategy of "AI + Education" and "AI + Gaming" [1] - In the gaming sector, NetDragon has established an AI production center that enhances collaboration and automatic content generation across different game teams, significantly improving efficiency [1] - The flagship IP "Magic Domain" is set to launch multilingual versions to expand into new overseas markets with the help of the AI production center [1] Group 2: Education Sector - In the education sector, NetDragon is leveraging its first-mover advantage in AI to capture market share both domestically and internationally [1] - The Mynd.ai business serves as the core operational entity for overseas classroom technology, integrating AI voice assistant technology with interactive display hardware to enhance product competitiveness [1] Group 3: Technological Investments - The company's strategic layout in cutting-edge technology and AI ecosystems is becoming increasingly valuable, with recent investments leading to the launch of a new generation of AI glasses [2] - NetDragon's subsidiaries are expanding their influence in cultural creativity and IP operations, enhancing their commercialization capabilities [2] - Future strategic investments will focus on AI, XR, robotics, and blockchain technologies, reinforcing synergies with the company's main business [2]

Core Viewpoint - The company is experiencing a decline in revenue for 2025, but its overall profitability is improving due to cost optimization measures and a focus on enhancing operational efficiency [1][2]. Group 1: Financial Performance - In 2025, the company achieved a revenue of 2.38 billion RMB, a year-on-year decrease 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 were reduced to 1.35 billion RMB, a year-on-year decrease of 15.6%, reflecting the effectiveness of cost optimization initiatives [1]. - The company has a solid financial position with net cash of approximately 2.3 billion RMB and holds 12,000 Ethereum as digital asset reserves [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 gaming business's operating profit margin rebounded to 28.8%, nearing historical normal levels [2]. - The education business, Mynd.ai, reported revenue of 640 million RMB in the first half of 2025, primarily impacted by tightened customer budgets [2]. - The company is actively exploring emerging markets to seek new growth opportunities amid challenges in traditional markets [2]. Group 3: Future Outlook - The company has adjusted its target price to 20.24 HKD, maintaining a buy rating, based on the robust development of gaming IPs and the potential of the education market [3]. - The expected growth from the gaming business and successful expansion into overseas markets, along with the promotion of tablet products, is anticipated to drive future performance [3].

Group 1: Company Overview - NetDragon's revenue for the first half of 2025 was RMB 2.38 billion, a year-on-year decline of 28%[5] - The gross profit was RMB 1.7 billion, down 24.7% year-on-year, but the gross margin improved by 2.9 percentage points to 69.5%[5] - The company has a net cash position of approximately RMB 2.3 billion and holds 12,000 Ethereum as digital asset reserves[5] Group 2: Business Segments - The gaming and other businesses generated RMB 1.74 billion in revenue, a decrease of 18% year-on-year, but only a 4% decline compared to the second half of 2024, indicating stabilization[6] - The education segment, Mynd.ai, reported revenue of RMB 640 million, impacted by tightened customer budgets, with ongoing cost optimization efforts[7] Group 3: Financial Projections - The target price for NetDragon is set at HKD 20.24, representing a 71% upside from the last closing price[8] - The adjusted EPS for 2025 is projected at HKD 1.004, a decrease of 25% from previous estimates, while 2026 EPS is expected to be HKD 1.175, down 22%[2] Group 4: Market Strategy - The company plans to return at least HKD 600 million to shareholders through dividends and share buybacks over the next year[5] - New game titles and expansion into overseas markets are expected to drive future growth, with several products in the pipeline for release[6]

Core Viewpoint - Citic Securities maintains a "Buy" rating for NetDragon (00777), projecting growth in the gaming business after core IP optimization and recovery in Mynd.ai business following tariff policy implementation, with a target price of HKD 16 for 2025 [1] Financial Performance - For the first half of 2025, the company is expected to achieve revenue of HKD 2.38 billion, with adjusted net profit reaching HKD 280 million after excluding impairment losses and one-time employee severance compensation [1] - The gaming and application services segment is projected to generate revenue of HKD 1.74 billion, with a gross margin of 86.2%, and a significant reduction in R&D, sales, and administrative expenses by 14.7% year-on-year [1] Earnings Forecast - Citic Securities forecasts EPS for 2025-2027 at HKD 0.64, HKD 1.10, and HKD 1.82 respectively, with a net profit estimate of HKD 690 million for the gaming and application services business in 2025, applying a 9x PE valuation [2] - The Mynd.ai business is expected to generate revenue of HKD 1.72 billion in 2025, with a valuation of HKD 900 million based on a 0.7x PS multiple [2] Strategic Developments - The company has made significant advancements in the technology and AI sectors, including a strategic partnership with Zhongke Wenge to promote leading AI models and applications outside mainland China [3] - Recent investments in AI edge device companies have led to the successful launch of a new generation of AI glasses, marking a key breakthrough in the consumer market [3]