NETDRAGON (00777) has received a research report from CITIC Securities, China's largest brokerage by revenue and profit scale. The report indicates that looking ahead to the company's business development in the second half of the year, NETDRAGON's gaming business is expected to achieve growth following core IP optimization, while the Mynd.ai business is anticipated to see substantial recovery after tariff policy implementation. Combined with the company's numerous advances in the AI sector, CITIC Securities maintains its "Buy" rating and assigns a 2025 target price of HK$16 for the company.
CITIC Securities noted that for the 2025 interim period, the company recorded revenue of 2.38 billion yuan, with adjusted net profit reaching 280 million yuan after excluding impairment losses (the company holds approximately 12,000 ETH, which is expected to be reversed in the second half based on current prices) and one-time employee severance compensation. Moreover, in absolute terms, the company's sales, administrative, and R&D expenses decreased by 4.6%, 14.0%, and 22.4% year-over-year respectively, showing significant optimization.
In 1H25, the company's core gaming and application services business generated revenue of 1.74 billion yuan, with performance stabilizing quarter-over-quarter. This business segment achieved a high gross margin of 86.2%, while combined R&D, sales, and administrative expenses decreased by 14.7% year-over-year, demonstrating significant cost-saving effects from the AI+ strategy.
CITIC Securities maintains its EPS forecasts for the company for 2025-2027 at HK$0.64/1.10/1.82, employing a sum-of-parts valuation approach: ① For the gaming and application services business, with a projected 2025 net profit of 690 million yuan, referencing industry comparable companies' current 2025 valuation levels (37 Interactive Entertainment at 16x PE, GAMEONE at 23x PE, both based on consensus forecasts), the firm assigns a 2025 PE multiple of 9x to the company's gaming and application services business, corresponding to a market value of 6.19 billion yuan; ② For the Mynd.ai business, the firm expects 2025 revenue of 1.72 billion yuan, referencing industry comparable companies' current 2025 valuation levels (CVTE at 1.2x PS, CONCORD at 1.0x PS, both based on CITIC Securities Research Department forecasts), assigning a 2025 PS multiple of 0.7x to the company's Mynd.ai business (the company held a 74.1% stake as of June 30, 2025), resulting in a valuation of 900 million yuan for the company's Mynd.ai business (valuation discount considers the company's listed shareholding).
Additionally, considering the company's active dividend policy and strong focus on shareholder returns, the firm assigns a valuation of 1.04 billion yuan to the company's 2025 net cash position (2.07 billion yuan), corresponding to 0.5x PS for 2025.
CITIC Securities also pays close attention to the company's forward-looking initiatives in the technology and AI sectors, such as subsidiary JumpStart's exclusive strategic partnership with PKUFLY to promote leading Chinese AI models and applications in regions outside mainland China, as well as the company's recent investment in an AI edge device company that successfully launched a new generation of AI glasses, marking a key breakthrough in consumer market applications.