CITIC SEC: Reiterates "buy" rating on NETDRAGON (00777) and significantly raises target price to 21 Hong Kong dollars, investment business reaps period of harvest.

CITIC SEC has released a research report stating that NETDRAGON's core business has passed its bottom, and the investment business in forward-looking layouts is entering a period of harvest. The current stock price of the company has a high safety margin. In addition, the company focuses on shareholder returns, previously announcing a HKD 600 million shareholder return plan, with a current dividend yield (TTM) close to 9%, making it highly attractive. The recommendation to "buy" is reiterated, and the company's target price for 2026 is raised to HKD 21. Key points from the report: 1) The company's core business is operating well, with the core IP "Eudemons Online" in the gaming business stabilizing and improving. In the Mynd.AI business, the company expects the industry to gradually improve from the fourth quarter of this year to next year, with the profit elasticity of Mynd.AI continuously released in the industry's recovery process. 2) In the investment business, the company is strategically positioning itself in the group broadcasting and AR glasses tracks. The investment in Hangzhou Shuaiku Network (with a 46% stake, the largest shareholder) and Rokid glasses (a strategic investment of USD 20 million in 2023) has shown continuous high growth in revenue and sales. Additionally, the company's subsidiary, Chuqisi, recently cooperated with Rokid in advancing Chinese AI technology internationally. Gaming business: Expected to stabilize and improve After a strategic adjustment to "Eudemons Online" (which accounts for about 90% of its gaming revenue) in 4Q24, the revenue of the IP has shown a gradual stabilization and rebound trend. The company expects this trend to continue into 2026, with the new reset version of "Code MY" using cutting-edge art and technology to recreate the original numerical environment. The report predicts that this new game has the potential to bring additional incremental revenue to the company. Overall, the report forecasts that revenue from the IP of "Eudemons Online" will continue to improve from 2H25 to 2026, combined with the rapid growth trends of the company's other two major IPs and cost reduction measures, with the expectation of a good profit growth in the company's gaming business in 2026. Mynd.AI business: Focus on reducing losses, continued promotion of AI + education In 2025, the company's Pumi brand launched Active panel 10, with good MOM growth in the SaaS business. The company further integrated AI voice assistant technology Merlyn Mind, creating a convenient voice-assisted system for classroom interaction between teachers and students. Looking ahead, the report expects the company's revenue to achieve good growth in 2026, with the gradual entry of large screens in the US education market and the steady progress of the company's software subscription business. According to the company's mid-term performance announcement, the report predicts that Mynd.AI business will achieve EBITDA breakeven in 4Q25 and profitability at the EBITDA level in 2026. Investment business: Strategic layout in emerging tracks expected to bring additional increments In 2023, NETDRAGON announced its investment in Hangzhou Shuaiku Network Technology Co., Ltd., with a 46% stake, becoming its largest shareholder. Since its establishment, Shuaiku Network has achieved significant success in the entertainment content layout driven by influencer brand incubation and marketing, with monthly total stream revenue exceeding $10 million and total fans reaching 2.5 billion. In November 2023, NETDRAGON acted as the lead investor in Rokid's equity financing, investing $20 million strategically in Rokid (Lingban Technology) and signing a 5-year strategic cooperation agreement. Rokid, established in 2014, is a globally renowned AR technology company focused on the development of AR glasses and the ecosystem built around the YodaOS operating system. Rokid's smart glasses became the top-selling product category during the 2025 Singles' Day sales, with a 1000% YoY increase in sales through JD channels and an 800% overall growth on all platforms, surpassing sales of 50 million RMB. In August 2025, NETDRAGON announced that its subsidiary, Chuqisi, will exclusively cooperate with CooTek outside mainland China to promote AI services. With CooTek's investment in Chuqisi and the injection of AI technology resources, both parties will jointly develop and introduce products and solutions for overseas markets in public services, finance, healthcare, and commerce. Profit forecast and valuation Considering the stabilization of the company's gaming business, the active reduction of losses in the education business, and the rapid growth trend in the investment business, the report has raised the company's EPS forecast for 2025-2027 to HKD 0.78/1.45/1.77. Using a segmented valuation, the report assigns a value of HKD 8.3 billion to the gaming and application services business for 2026, based on a PE of 8x, and HKD 1.08 billion to the Mynd.AI business for 2026, based on a PS of 0.7x, considering the company's Hong Kong stock listing. Additionally, with the company's active dividend policy and focus on shareholder returns, the report assigns a value of HKD 1.6 billion to the cash component of HKD 3.2 billion in 2026 (corresponding to 0.5x in 2026).