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

NETDRAGON (00777) has been continuously promoting AI cost reduction and operational efficiency optimization, resulting in a 17.8% year-on-year decrease in overall operating expenses for the first half of 2026, while the net profit attributable to the parent company increased by 20% year-on-year. The company has declared a mid-term dividend of HKD 0.5 per share and committed to distributing a total of no less than HKD 600 million within 12 months from March 26, 2026, corresponding to a dividend yield of approximately 13.5%. It continues to emphasize its "buy" rating and target price of HKD 12. Revenue stabilizes quarter-on-quarter: In the first half of 2026, the group's revenue was RMB 2.09 billion, remaining flat quarter-on-quarter and down 12.2% year-on-year. In the segment, Mynd.ai business revenue decreased by 21.2% year-on-year; revenue from games and application services was RMB 1.59 billion, down 8.8% year-on-year. Despite revenue pressures, the company achieved a 17.8% year-on-year decrease in overall operating expenses in 1H26 through ongoing AI cost reduction and operational efficiency optimization, while net profit attributable to the parent company grew by 20% year-on-year. Core game IP continues recovery: Revenue in the games and application services sector increased by 3.1% quarter-on-quarter in the first half of the year, with operating segment profit reaching RMB 461 million, marking a 10.3% quarter-on-quarter increase. In terms of core IP, "Magic Domain" benefited from 20th-anniversary content updates and user ecosystem optimization, with monthly active users (MAU) surpassing 3 million, a quarter-on-quarter increase of 15.8%, and revenue growing by 3.7% quarter-on-quarter. At the same time, the company continues to enhance efficiency through AI, with the workload share of AI employees increasing to 35%-40%. It is anticipated that the company's gaming business will maintain relative stability in the second half of the year. Education demand is expected to reach a turning point: Mynd.ai business revenue in the first half of the year decreased by 21.2% year-on-year, mainly impacted by the delayed recovery of education technology demand in Europe and the United States, but significant improvements were seen on the profit side: gross margin increased from 25.4% to 27.7%, operating expenses decreased by 29.6% year-on-year, and net loss narrowed by 30.8% year-on-year to RMB 164 million; meanwhile, service and SaaS revenue maintained year-on-year growth, with a continued improvement in the revenue structure. With signs of market recovery and budget release, it is expected that Mynd.ai business revenue will see positive growth in the second half of the year, further improving the business loss. NETDRAGONMyndAI6China Securities Co., Ltd.11-12NETDRAGON0.5202699NETDRAGON20