The company recently announced that the spin-off of the overseas education business has been approved, that the merged entity will be officially listed on the NYSE around December 13, and the company's AI+ education process is expected to accelerate. We maintain the company's 2023-25 EPS forecast at HK$1.59/1.87/2.39, referring to the company's historical five-year average valuation level (12xPE), and the 2024 valuation level of comparable companies in the education industry and game industry (Shiyuan Shares 15xPE, Kangguan Technology 12xPE, Century Huatong 17xPE, Perfect World 18xPE, all of which are wind's unanimous expectations). We gave the company 11 times PE in 2024, corresponding to the target price of HK$21, maintaining the “buy” rating.
The spin-off of the overseas education business has been approved, and the merged entity will be officially listed on the NYSE around December 13. In April 2023, NetDragon announced the spin-off of its core overseas education business and a merger with GEHI. The consolidated entity is valued at $800 million. According to the company's recent announcement, the transaction has been approved: on December 7, 2023, GEHI received approval from the New York Stock Exchange for the listing application of its valued shares, and will begin trading on the New York Stock Exchange under the new name “Mynd.ai, Inc.” around December 13, 2023, and the new stock code is “MYND.”
Release the valuation of overseas education business and reduce regulatory risks. 1) This transaction will provide a new financing platform for the company's overseas education business, which is expected to attract overseas investors and fully release the valuation of the company's overseas education business. 2) While the company's overseas education business is listed separately, GEHI will also divest its original business in China to fully avoid regulatory risks and reduce market concerns about data security issues in the AI & education industry.
Outlook: The AI+ education process accelerates and continues to drive the growth of education business. The new main company will focus on the field of AI and apply AI technology to the teaching screen. Teachers will continuously improve course preparation and teaching efficiency based on data fed back from big models. At the same time, AI will also play a role in course content recording, notes, and homework guidance to reduce teachers' workload. The company plans to launch a software subscription service combined with existing tablets by the end of the year. It is expected to bring considerable subscription revenue to the company in the future and continue to drive the growth of the education business.
Risk factors: macroeconomic pressure; game development falling short of expectations; rising raw material prices; changes in overseas education policies; orders falling short of expectations, etc.
Profit forecast, valuation and ratings: The company recently announced that the spin-off of the overseas education business has been approved, that the merged entity will be officially listed on the NYSE around December 13, and the company's AI+ education process is expected to accelerate. We maintain the company's 2023-25 EPS forecast at HK$1.59/1.86/2.39, referring to the company's historical five-year average valuation level (12xPE), and the 2024 valuation level of comparable companies in the education industry and the game industry (Shiyuan Shares 15xPE, Kangguan Technology 12xPE, Century Huatong 17xPE, Perfect World 18xPE, all as unanimously anticipated by Wind). We gave the company 11 times PE in 2024, corresponding to the target price of HK$21, maintaining the “buy” rating.