Maintain the “increase in holdings” rating and maintain the target price of HK$22.49. The company's overseas education business completed the spin-off and listing, released overseas education valuations, and comprehensively focused on new growth in AI+ education. Considering that the GEHI employee incentive plan has a one-time impact on net profit, but does not affect non-HKFRS net profit, we maintain our profit forecast and forecast HKFRS net profit of RMB 8.42/9.43/1,120 billion yuan in 2023-2025, PE 9X/8X/6X, maintaining the “increase in holdings” rating.
Incident: On December 12, the company announced that GEHI, a listed entity after the spin-off and merger of the overseas education business, has received listing approval from the NYSE and is expected to begin trading on the NYSE on or around December 13, 2023; due to the completion of secondary sales, the company will hold about 58.6% of GEHI's shares through its direct wholly-owned subsidiary ND (BVI), and the financial results of GEHI and its subsidiaries will be incorporated into the company's comprehensive financial statements.
The group focuses on games and Chinese education, and overseas education valuations are released. The company signed a merger agreement with GEHI in April 2023 to merge the overseas education business with GEHI through a subsidiary.
GEHI was originally engaged in the education business in China and Singapore. It will complete the sale of all businesses other than the education business in Singapore, but after the merger transaction is completed, it will focus on the education business in Singapore, including early childhood services, student care services, and educational content innovation. The business is profitable and is expected to continue to generate stable cash flow. After the merger of physical transactions is completed, NetDragon will focus on gaming and education business in China. The original GEHI name was changed to MYND.AI. Among them, NetDragon's overseas education business is valued at US$750 million, MYND is valued at US$800 million, and overseas education business is estimated to be released.
Build a financing platform for overseas education and explore new growth in AI+ education. After the transaction is completed, the overseas education business will enter the Singapore market through MYND and accelerate the exploration of national projects in other regions. MYND will also become the Group's independent financing platform, attracting investors from around the world for the overseas education business and further boosting business development. Furthermore, the name change to MYND.AI reflects the strategic direction of AI+ education. MYND will accelerate the implementation of practical applications of AI in the classroom teaching field, software subscription services are expected to be launched by the end of the year and explore potential cooperation opportunities in the field of large language models, AI interactive tablets are also expected to gradually be implemented, and AI+ education products will open up new growth.
Risk warning: changes in industry regulation; increased competition in overseas markets; declining performance of flagship games.