Core Insights - NetDragon's transformation and focus on AI have attracted significant attention from top-tier international capital, with BlackRock increasing its stake to over 5% [1] - The company is implementing a dual-driven strategy of "AI + Education" and "AI + Gaming," enhancing operational efficiency and market reach [1] Group 1: AI + Gaming Strategy - NetDragon has established an AI production center to integrate different game teams under the same IP, significantly improving cross-version content collaboration and automatic generation capabilities [1] - The flagship IP "Magic Domain" is set to launch multilingual versions efficiently, expanding into new overseas markets [1] Group 2: AI + Education Strategy - The company is leveraging its Mynd.ai business as the core operator for overseas classroom technology, embedding AI into educational hardware [1] - AI voice assistant technology is being deeply integrated with interactive display hardware to enhance product competitiveness and market share [1] Group 3: Investment in Frontier Technologies - NetDragon's strategic investments in AI edge devices have led to the successful launch of a new generation of AI glasses, marking a breakthrough in consumer market applications [2] - The influence and commercialization capabilities of NetDragon's invested companies in cultural creativity and IP operations are expanding [2] - Future strategic investments will focus on AI, XR, robotics, and blockchain technologies, reinforcing synergies with the company's core business [2]

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]

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]