CITIC Securities released a research report stating that NETDRAGON (00777) has moved past the trough in its core business, with its forward-looking investment initiatives now entering a harvest phase. The current stock price offers a high margin of safety. Additionally, the company emphasizes shareholder returns, having previously announced a HK$600 million shareholder return plan, with a trailing dividend yield nearing 9%, making it highly attractive. The firm reiterated its "Buy" rating and raised the 2026 target price to HK$21.
Key highlights from the report: 1) **Core Business Performance**: The company’s core operations are stable, with its flagship game IP *Conquer Online* showing steady revenue recovery. In its Mynd.AI business, management expects industry conditions to gradually improve from Q4 2025 onward, with profit elasticity expected to materialize during the recovery.
2) **Investment Business Growth**: NETDRAGON has strategically invested in emerging sectors. It holds a 46% stake in Hangzhou Shuaiku Network (its largest shareholder), which has demonstrated strong revenue growth in influencer branding and entertainment marketing. The company also invested $20 million in AR glasses maker Rokid in 2023, signing a five-year strategic partnership. Rokid’s smart glasses ranked first in sales during the 2025 Double 11 shopping festival, with sales exceeding RMB 50 million.
**Gaming Business: Stabilization and Sequential Improvement** After strategic adjustments to *Conquer Online* (accounting for ~90% of gaming revenue) in Q4 2024, the IP’s revenue has shown signs of stabilization and recovery. The trend is expected to continue into 2026. A remastered version, *Project MY*, is ready for launch pending regulatory approval and could provide additional revenue growth. Overall, CITIC forecasts sustained improvement in *Conquer Online* revenue in H2 2025–2026, supported by cost optimization and growth in other IPs.
**Mynd.AI Business: Loss Reduction and AI+Education Expansion** In 2025, NETDRAGON’s Promethean brand launched the *ActivePanel 10*, while SaaS subscriptions grew sequentially. The integration of AI voice assistant *Merlyn Mind* aims to enhance classroom interactions, enabling teachers to control screens via voice commands. As U.S. education displays enter a replacement cycle and software subscriptions expand, Mynd.AI is projected to achieve EBITDA breakeven in Q4 2025 and profitability in 2026.
**Investment Business: Emerging Sectors Driving Growth** NETDRAGON’s subsidiary *Cherrypicks* partnered with *WengeTech* to promote AI services overseas, with WengeTech providing technical support for solutions in public services, finance, and healthcare.
**Earnings Forecast and Valuation** Given the stabilization in gaming, loss reduction in education, and rapid growth in investments, CITIC raised its 2025–2027 EPS forecasts to HK$0.78/HK$1.45/HK$1.77. Using a sum-of-the-parts valuation: - **Gaming & Apps**: 2026 net profit of RMB 870 million, valued at 8x PE (HK$8.3 billion market cap). - **Mynd.AI**: 2026 revenue of RMB 1.95 billion, valued at 0.7x PS (HK$1.08 billion, discounted for Hong Kong listing). - **Cash Holdings**: HK$3.2 billion in 2026 cash reserves valued at HK$1.6 billion (0.5x).
The report underscores NETDRAGON’s shareholder-friendly policies and diversified growth drivers as key investment merits.
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