CITIC Securities released a research report stating that while maintaining NetDragon's (00777) “buy” rating, the 2024-2025 EPS forecast was raised to HK$2.04/2.4, and the 2026 EPS forecast was added to HK$2.55, taking into account the optimization of the company's sales & management expenses ratio. Furthermore, considering that the company has spun off its overseas education business and went public, a segmented valuation method was used, and a target price of HK$18 was given.
According to the report, in terms of game and application service business, the company's revenue in 2023 was 4.19 billion yuan/+6.6% YoY, and the recovery trend is good. In 2023, the company's game and application service business achieved revenue of 4.19 billion yuan/ +6.6%, accounting for 59.0% /+9.0pcts of the company's revenue; gross margin increased slightly by 2.6 pcts to 88.5%, mainly due to the company optimizing server costs to achieve cost reduction and efficiency. Operating margin 33.4% /+1.9pcts.
Specifically, by region ①: Domestic game business revenue +10.5% YoY, mainly due to post-pandemic industry recovery, which rebounded driven by players' spending capacity and will; overseas game business revenue +4.5% YoY. ② By platform: PC/mobile revenue was +11.1%/+2.0%, respectively. ③ IP score: “Magic Domain” IP performance continued to be impressive, with revenue of +12.4% to 3.4 billion yuan. Among them, the mobile game “Magic Domain” revenue was 2.9 billion yuan/+14% year over year, and the number of monthly active users of “Magic Domain” (mobile game) increased +50.4% year over year; “Ghost Blade” IP returned to growth, with revenue +5.8% year over year.
Looking forward to the future, NetDragon's game business is expected to grow steadily, and the overseas education business is expected to recover. 1) Game and application service business: The bank expects the company's game business to maintain steady growth. Among them, ① in terms of old games, the bank expects the company to continuously optimize the game experience and increase players' stickiness and willingness to pay; ② in terms of new games, according to the company's performance conference, the company's core IPs such as “Magic Domain”, “Hero Blade”, and “Conquest” will all launch new games in the second half of 2024. In addition, several new IPs will be released on 2H24, which will continue to drive the growth of the company's game business. 2) Mynd.AI: The bank expects the company's education business to return to steady growth in 2024. On the one hand, it will seize the low-end tablet hardware market share through the ActivPanel LX product line, and on the other hand, it will obtain software subscription revenue by launching the Explain Everything Advanced SaaS solution.