SPDB International has issued a research report highlighting that NetDragon (00777) is achieving operational stabilization through continued AI-driven cost reduction and efficiency enhancements. The company's total operating expenses declined by 17.8% year-over-year in 1H26, while net profit attributable to shareholders increased by 20% during the same period.

The company has distributed an interim dividend of HK$0.5 per share and committed to distributing no less than HK$600 million in total within 12 months starting from March 26, 2026, corresponding to a dividend yield of approximately 13.5%. The brokerage maintains its "Buy" rating with a target price of HK$12.

Revenue has shown quarter-on-quarter stabilization, with 1H26 group revenue reaching RMB 2.09 billion, flat sequentially but down 12.2% year-over-year. Within the segment breakdown, Mynd.ai business revenue decreased 21.2% year-over-year, while gaming and application services revenue totaled RMB 1.59 billion, reflecting an 8.8% year-over-year decline. Despite revenue pressure, the company's ongoing AI cost reduction and operational efficiency measures have driven the 17.8% reduction in total operating expenses and the 20% growth in attributable net profit.

The gaming and application services segment posted 3.1% quarter-on-quarter revenue growth in the first half, with operating segment profit reaching RMB 461 million, up 10.3% sequentially. Core intellectual property continues to recover, with Eudemons Online benefiting from 20th-anniversary content updates and user ecosystem optimization, driving MAU beyond 3 million, representing 15.8% quarter-on-quarter growth, while revenue increased 3.7% sequentially. The company continues to leverage AI for operational efficiency, with AI employees now accounting for 35%-40% of total workload contribution. Gaming business is expected to maintain relative stability in the second half of the year.

Education demand appears poised for an inflection point. While Mynd.ai business revenue declined 21.2% year-over-year in the first half, primarily due to delayed recovery in European and American edtech demand, profitability has shown marked improvement. Gross margin expanded from 25.4% to 27.7%, operating expenses fell 29.6% year-over-year, and net loss narrowed by 30.8% to RMB 164 million. Meanwhile, services and SaaS revenue maintained year-over-year growth, reflecting continued improvement in the revenue mix. With early signs of market recovery and budget release, the Mynd.ai business is expected to return to positive revenue growth in the second half, driving further loss reduction.

NetDragon's interim results reveal four key highlights: gaming business revenue has stabilized, overseas subsidiary Mynd has significantly reduced losses, Myu AI is establishing a new growth trajectory, and the company continues to deliver on its full-year HK$600 million shareholder return commitment. Following the results, institutions including China Securities and SPDB International have issued "Buy" ratings with target prices ranging from HK$11 to HK$12. The interim dividend of HK$0.5 per share goes ex-dividend on September 9, 2026, before market open. Factoring in all dividends since listing, cumulative distributions have reached nearly HK$20 per share.