Puyin International: NETDRAGON (00777) core business is gradually stabilizing, with a shareholder return rate of up to 13.5%, target price of HKD 12.

Puhui International released a research report stating that NETDRAGON (00777) has achieved a year-on-year reduction of 17.8% in overall operating expenses for the first half of 2026 through continuous promotion of AI cost reduction and operational efficiency optimization, while net profit attributable to shareholders grew by 20% year on year. The company has distributed an interim dividend of HKD 0.5 per share and committed to distributing a total of no less than HKD 600 million within 12 months starting from March 26, 2026, corresponding to a dividend yield of approximately 13.5%. It continues to emphasize its "Buy" rating and a target price of HKD 12. Key points from Puhui International are as follows: Revenue stabilized sequentially: In the first half of 2026, the group's revenue was RMB 2.09 billion, remaining flat sequentially but down 12.2% year on year; within the segments, Mynd.ai's business revenue fell by 21.2% year on year, while revenue from games and application services was RMB 1.59 billion, down 8.8% year on year. Despite revenue pressure, the company has achieved a year-on-year reduction of 17.8% in overall operating expenses for the first half of 2026, with net profit attributable to shareholders increasing by 20% year on year. Continued recovery of core game IP: The revenue from the games and application services segment increased by 3.1% sequentially in the first half of the year, with operating profit of RMB 461 million, up 10.3% sequentially. In terms of core IP, "Magic Domain" benefited from 20th anniversary content updates and user ecosystem optimization, with MAU surpassing 3 million, a sequential increase of 15.8%, and revenue increasing by 3.7% sequentially. Meanwhile, the company has continued to enhance productivity through AI, with the proportion of AI employee workload rising to 35%-40%. It is expected that the company's gaming business will remain relatively stable in the second half of the year. Education demand may welcome a turning point: Mynd.ai's business revenue fell by 21.2% year on year in the first half, mainly affected by the delayed recovery of educational technology demand in Europe and the U.S., but there was a notable improvement in profitability: gross margin increased from 25.4% to 27.7%, operating expenses declined by 29.6% year on year, and net losses narrowed by 30.8% to RMB 164 million; at the same time, revenue from services and SaaS continued to grow year on year, with revenue structure improving continuously. With signs of a certain market recovery and budget releases, it is expected that Mynd.ai's business revenue will likely see positive growth in the second half, further improving business losses. Zhitong noticed that NETDRAGON's interim performance showcased four major highlights: stable revenue from gaming business, significant reduction of losses in the overseas subsidiary Mynd, the onset of a new growth trajectory for AI, and continuous fulfillment of the annual HKD 600 million shareholder return commitment. Institutions such as China Securities Co., Ltd. and Puhui International have issued "Buy" ratings after the earnings report, with a target price range of HKD 11-12. NETDRAGON's interim dividend of HKD 0.5 will go ex-dividend on September 9, 2026, and considering all dividends since NETDRAGON's listing, the actual cumulative dividend per share has approached HKD 20.