Recently, NetDragon (00777) held a 2024 ** meeting, and the management gave a detailed interpretation of the company's development and the issues raised by investors and **.
At the end of last year, the spin-off and listing of the overseas education business was completed, and it successfully landed in the United States and changed its name to "Mynd."AI" (*mynd), "AI + education" has entered the fast lane of development in an all-round way. The company's education business accounts for half of the revenue share, and the spin-off and listing maintains a controlling position and is consolidated as a non-wholly owned subsidiary.
At the meeting, the management pointed out three main reasons for the spin-off: first, most of the overseas education income is in the United States, and local investors better understand and convey the company's value; Second, the spin-off and listing will help increase the company's stock price and market capitalization, and bring more returns to shareholders; The third is to unleash the company's potential and continue to move forward towards the corporate visionAI is a SaaS company for the global education market. Mynd has become an independent listing and financing platform for the company's overseas education, attracting strategic investors around the world and further boosting the development of the education business, and the release of performance will also feed back to the parent company.
"AI" is promoting the comprehensive upgrade of education informatization, which is expected to empower the long-term sustainable development of overseas education software and hardware business, which will also further drive the valuation level of NetDragon.
Overseas education: IFPD is a global leader, and AI is reshaping the industry space.
Zhitong Financial APP learned that NetDragon's layout in education began in 2015 with the acquisition of the interactive tablet brand Promethean, and it has started a soaring mode, with a continuous increase in revenue share, and on a par with the game business, constituting its two-wheel drive strategy. From 2018 to 2022, the compound growth rate of education business revenue will reach 1401%。
The Company's education revenue is basically the largest in overseas education, with Promethean as the core, mainly producing interactive teaching products, including ActivPanel interactive LCD screen, Activinspire interactive instructional design software and ClassFlow ** teaching cloud platform. Its products cover 150 countries around the world, more than 1 million classrooms, 20 million students, and the global market share of K12 interactive tablets exceeds 20%, ranking first for many years.
Promethean's shipments have maintained a higher growth rate than the market, and the interactive tablet (IFPD) market position is solid, ranking first in many countries, such as the United States, Germany, the United Kingdom, Italy and the United Arab Emirates. In May last year, the company launched the cost-effective interactive tablet ActivPanel LX into the low-to-mid-end market, and it expects that the low-end market will account for 40-50% of the entire interactive tablet market.
The sales of hardware products are good, and the market share is far ahead of its peers, mainly because NetDragon has built a competitive advantage in the field of hardware, software and content integration.
The hardware is mainly the Promethean interactive tablet brand, the software is mainly the learning platform "Edmodo" and SaaS and other services, and the content side is cut into AI courseware and other learning solutions. With schools as the target market, the software and hardware well meet the needs of teachers and students, and Promethean's global layout has built a wide range of channels, which can integrate the advantages of hardware and software content to complete the output of products in one stop.
From the perspective of the industry, the scale of the global education informatization market continues to expand, according to the Guotai Junan research report, countries around the world attach great importance to education informatization, among which the United States, Japan, China and some European countries occupy an important position, and the global market size will exceed 2 in 20205 trillion yuan, China more than 04 trillion yuan, maintaining steady growth on an average year-on-year basis. As an upgraded product of education informatization, IFPD can not only reduce the pressure of teaching, but also enable online teaching to achieve face-to-face effects, and is accelerating the replacement of MR equipment.
It is worth mentioning that the progress of artificial intelligence technology and the maturity of application scenarios have made education informatization products usher in upgrades again, and AI hardware and software will reshape the industry space.
NetDragon has deployed AI technology in 2016, launched the first AI teaching assistant in China in April 2018, Promethean began to invest heavily in AI in 2022, and will soon launch SaaS software services to obtain sustainable income at scale, during which it also launched AI interactive courseware in Egypt. In August, NetDragon appointed Tang Yu as the CEO of AI Digital Human; By 2023, the company will launch an innovative public smart education platform, EDA, which is clearly well-prepared for AI-enabled education business opportunities.
Performance impact: Accelerate the deployment of AI + education and release ROE levels.
The overseas education business was independently spun off and listed under the name of MyndThe new look of AI shows investors that NetDragon's business and financial performance indicators will have varying degrees of impact in the short and long term.
mynd.In the future, AI can obtain more development funds directly from the outside world through independent financing, and in terms of business, in the short term, it will position itself in the direction of AI + education, and the impact on performance will be small, but in the medium and long term, the ability of business expansion will be strengthened. The company is deeply engaged in educational AI products, and its continuous investment in AI education will significantly enable the expansion of global business. As mentioned above, the global education informatization market has exceeded one trillion yuan, and AI has upgraded its informatization hardware and software capabilities on the basis of IFPD, and AI software SaaS services will become a new growth pole.
At the meeting, the management talked about the company's three competitive advantages in AI + education, namely technological advantages, industrial advantages and resource advantages. In terms of technical advantages, the company is one of the first education companies to introduce AI, and the AI layout for many years has been commercialized, and the AI education platform EDA, which will be launched in 2023, actively integrates AI technology into educational products such as Promethean interactive tablet, 101 education PPT, central hall virtual experiments and future experiments; In terms of industrial advantages, the whole system of digital education ecology has been initially constructed, including the layout of digital education towns, teaching and research cooperation and brand cooperation. In terms of resource advantages, it has the ability to integrate global educational resources, with products covering 192 countries and regions around the world, and the scale of users exceeds 1500 million households.
In the short term, it can increase cash and current assets through financing, reduce the debt ratio, and myndIn the future, AI will not need to rely on the parent company to obtain development funds from outside, and financing will be more convenient. In the medium and long term, as an overseas financing platform, on the one hand, it can bring more global investors and continue to increase brand awareness, and on the other hand, it can flexibly adjust the financing (equity and bonds) in the primary and secondary markets, and make full use of equity leverage to release ROE levels.
In addition, myndThe biggest benefit of the AI spin-off is that the cash flow can be significantly improved, the gross profit margin of the business platform is stable, but the high investment in R&D leads to certain fluctuations in operating profits, which makes the operating cash flow unstable and has limited contribution to investment expansion. NetDragon vs MyndAI has an absolute controlling stake, and the latter's short-, medium- and long-term performance in terms of performance indicators will be fully consolidated in the former's financial report.
In 2022, NetDragon's education business revenue share exceeded 50%, and in the first half of 2023, Promethean's business revenue share will also be close to 50% due to the adjustment of industry demand. Promethean is expected to accelerate its growth at scale through SaaS services in AI + education in 2024 after independence, and its business share will steadily increase as it is still fully consolidated, and NetDragon is expected to improve profitability under economies of scale, which also greatly optimizes NetDragon's profitability.
Valuation Dialysis: The two-round strategy has not changed, and the long-term value is high.
The independent development of the overseas education business will not change NetDragon's two-wheel strategy of "game + education", and the company's game business is based on classic IP, with a series of IP products such as "Demon Domain", "Conquest", "Heroic Soul Blade" and "Final Oath", which have the significant characteristics of high growth and high profit margin. In the first half of 2023, the gross profit margin and operating margin of the gaming business remained at a high level, reaching 97% and 57%, respectively, contributing to the core profit.
NetDragon's investment in AI is also fully applied to the game business, and its game users are all over the global market, and it has a good foundation for the commercialization of AI+ games. The company has launched several AIGC projects to enhance the player experience with artificial intelligence, including non-player characters (NPCs) and AI companionship, including guided AI and adversarial AI to meet player needs through new technologies.
AI+ education and AI+ games have become the company's future growth path, and AI will enable the sustainable growth of the dual main businesses, but in the short to medium term, the game business still contributes the main profit and core cash flow.
It is worth mentioning that NetDragon pays dividends every year, and the dividend payout ratio is relatively stable, and this year it announced a special dividend payout of more than 100%, and TTM dividend yield of more than 15%. The company's management also has high confidence in the company's development, and adopts an active repurchase strategy, with repurchases and cancellations reaching 13.5 billion yuan. The independent listing of overseas education is conducive to the development of the education business and helps to drive the company's valuation.
Major investment banks have also expressed optimism about the independent listing of overseas education, such as Bank of China**, which believes that the spin-off and reorganization of the education business will help the company expand its education business and increase investment in AI+ education; Guotai Junan believes that NetDragon's overseas education business has completed the spin-off and listing, and the valuation of overseas education has been released and the new growth of AI + education has been fully focused, giving a ** rating with a target price of 22HK$49, a high market price of HK$1063%。
NetDragon's market capitalization has been on an upward trend for a long time, and its market value has increased by 6% since 20116 times, if you hold it until now, it is equivalent to an average annual return of 55%. Recently, affected by the policy and the general market environment, the company's valuation has retreated, and has now fallen back to the technical consolidation support line, with strong bottom support, and the current valuation is very low, PB is only 07 times, it is expected to get *** funds, left and long-term investors to scramble.
In the long run, under the performance expectation + low valuation + high dividend yield, the company is likely to continue to be favored by the market, and the annual trend will continue to strengthen.