Zheshang Securities has released its inaugural coverage report on NETDRAGON (00777), highlighting the company’s dual-core gaming and education businesses showing strong performance since H2 2025, with multiple milestones exceeding expectations. The new game *Project MY* leverages technological breakthroughs to enhance existing gaming operations, while IP expansion is expected to boost user monetization.

In education, North America’s device replacement cycle and NETDRAGON’s leading international market share are poised to drive business recovery. Additionally, the group live-streaming (团播) segment—backed by IP monetization and idol-creator ecosystems—outperforms traditional live-streaming in revenue potential, supported by content supply chain efficiency, platform synergies, and talent cultivation systems.

Zheshang assigns a target market cap of HK$13.46 billion and a price target of HK$25.25, citing three key upside surprises:

1. **Group Live-Streaming Defies Skepticism**: Contrary to market concerns about saturation, the bank argues: - Female-centric interactive formats expand paying audiences and spending. - IP-driven monetization (e.g., derivatives, idolization) surpasses traditional models. - Regulatory risks are mitigated by platform self-regulation, unlike banned talent shows.

2. **Gaming IP Resilience**: While reliant on legacy IP like *Conquer Online*, *Project MY*’s AI and graphical upgrades are set to deepen user loyalty and spending.

3. **Education Recovery Catalysts**: North America’s device refresh cycle and subsidiary Promethean’s global market dominance counter post-pandemic demand weakness.

**Core Strengths in Group Live-Streaming**: - **Content Efficiency**: Shuai Ku’s 400-member team enables rapid data-driven iteration. - **Platform Synergies**: Douyin’s traffic support lowers customer acquisition costs. - **Talent System**: Long-term training reduces reliance on top streamers and boosts engagement.

**Financials & Valuation**: 2025–27E revenue is projected at RMB4.67/4.88/5.10 billion (-22.77%/+4.45%/+4.47% YoY), with net profit at RMB415/650/725 million (+33.52%/+56.49%/+11.63% YoY). At 15.16x/9.69x/8.68x 2025–27E PE, the SOTP-based valuation applies 14x PE to gaming, 1x PS to education, and 15x PE to Shuai Ku, deriving the HK$13.46 billion target.

NETDRAGON’s HK$1.5 billion cash reserves and commitment to return HK$600 million to shareholders within 12 months (～10% yield at current price) further underpin the "Buy" call.