NetDragon announced that the education business was spun off and reorganized. The New York Stock Exchange of the United States has approved the listing application submitted by GEHI, and the listing has moved to the NYSE American (NYSE American). It is expected that trading will begin on or around December 13, 2023 under the stock code MYND. The spin-off and listing will help the company expand its education business and increase investment in AI+ education; actively deploy new technologies and take the lead in strategic investment in Rokid. Maintain the buy rating.
Key points to support ratings
The education business was spun off and the place of listing changed. On December 7, NetDragon announced that the previously planned education business spin-off and restructuring has been implemented. The New York Stock Exchange of the United States has approved the listing application submitted by GEHI. The listing location has been transferred from the New York Stock Exchange (NYSE) to the New York Stock Exchange (NYSE). It is expected that trading will begin under the new name Mynd.ai, Inc., on or around December 13, 2023. The new stock code is MYND.
NetDragon remains the controlling shareholder after the spin-off and restructuring. NetDragon, Best (a non-wholly owned subsidiary held by NetDragon indirectly), GEHI and their subsidiaries signed a merger agreement: 1) register ElmTree as a wholly-owned subsidiary of Best and transfer Best's overseas education business to ElmTree; 2) Best will redeem Best interests held by all of its existing shareholders (except one common share held by NetDragon's direct wholly-owned subsidiary ND (BVI)) in exchange for ElmTree common stock; 3) ElmTree merged with GEHI, which GEHI would own after merger 100% equity interest in ElmTree. ElmTree's equity is worth approximately $7.5 billion. After all transactions are completed, NetDragon's direct wholly-owned subsidiary ND (BVI) will hold approximately 72.9% or 61.3% of GEHI's shares (depending on whether ACP bonds and equity incentives are realized).
It helps the company expand the scope of education business and increase investment in AI+ education. ElmTree will own the spin-off business through four wholly-owned subsidiaries of Promethean/Edmodo/Elenity Thailand/Sky Knight. GEHI mainly engages in early childhood services and student care services in China and Singapore. Until the merger is completed, GEHI will no longer carry out any business in China, but the Singapore business will continue to operate. After the spin-off and listing, the company is expected to accelerate the development of national projects in Southeast Asia; enhance independent financing capabilities for overseas education business, focus on developing AI+ education strategies, and is currently developing AI tablet products integrating software and hardware; the remaining groups focus on game business and Chinese education business.
NetDragon is actively deploying new technologies such as AI and AR. The **** art pipeline in the game has gradually implemented AIGC technology, which can improve efficiency by more than 30% in the original 2D character drawing process; in addition, the company is exploring technologies such as intelligent NPCs, guided AI, and adversarial AI. In terms of education, the company is developing a customized education language model that is deeply integrated with tablet devices. On November 20, NetDragon announced a strategic investment of 20 million US dollars as a lead investor in the latest round of equity financing for leading AR manufacturer Rokid. At the same time, the two sides signed a five-year strategic cooperation agreement.
valuations
Considering that transaction-related expenses, ElmTree employee equity incentives, etc. will have a one-time impact on NetDragon's GAAP net profit, but there will be no impact on the non-GAAP net profit; in addition, the launch of AI tablet products was slower than expected, we adjusted our previous profit forecast. It is estimated that the company's net profit for 2023/24/25 will be 6.06/11.36/1,335 billion yuan, corresponding to PE 11.08/5.91/5.02 times, maintaining the purchase rating.
The main risks faced by ratings
Product orders fell short of expectations; game performance fell short of expectations; content regulation exceeded expectations; industry competition intensified.