NetDragon Websoft Holdings Ltd (STU:3ND) (H1 2026) Earnings Call Highlights: AI-Driven ...

Q & A Highlights

Q: How does the company view the recovery outlook for the overseas education technology market in the second half of the year, and do we see any customer demand rebound from our order book? A: Dr. Simon Leung (Group Vice Chairman) stated the company is "cautiously optimistic." While there are signs of movement and budget releases in the US, the Middle East recovery is expected to be slow due to ongoing conflicts, and Europe's recovery is highly dependent on key countries like Germany. He emphasized that 2027 is expected to be the year of recovery for the education business.

Q: What is the company's new AI Workforce OS strategy, and how does it differentiate from other AI offerings? A: Dr. Simon Leung (Group Vice Chairman) explained that the AI Workforce OS is a platform born from internal AI adoption, designed to deploy "AI employees" for various business verticals. The key differentiation is not the frontier AI models themselves, but the accumulated domain expertise and industry knowledgethe "data flywheel"which provides a competitive moat. The go-to-market strategy focuses on internal adoption in gaming and education first, then expanding to B2B and B2G sectors.

Q: Can you elaborate on the "Sovereign Large Language Model" initiative and its target markets? A: Dr. Simon Leung (Group Vice Chairman) detailed that the Sovereign LLM is designed for regions with limited internet access, such as African countries. It runs on a low-cost GPU PC (around USD 5,000) to support an entire school, leveraging open-source models like Qwen, DeepSeek, or Kimi. This initiative is not limited to developing nations; it is also being piloted in four schools in Hong Kong, positioning it as a key future growth driver for the education business.

Q: What were the key financial drivers behind the improved profitability in the first half of 2026? A: Mr. Hak Kin Lau (Group Interim CFO) reported that total revenue was RMB2.1 billion, down 7% year-over-year. Despite the decline, the gaming segment showed signs of stabilization with half-over-half growth of 3%. Profit attributable to owners was RMB56 million, up 30% year-over-year. Excluding a RMB115 million impairment provision and lower run-off service payments, adjusted profit was RMB254 million, down only 8% year-over-year, demonstrating stability. The company declared an interim dividend of HKD 2.5 per share.

Q: How is the AI strategy impacting the cost structure of the gaming segment? A: Mr. Hak Kin Lau (Group Interim CFO) highlighted that the gaming segment's operating expenses decreased by 40% year-over-year due to the cost-saving impact of the AI strategy. While R&D expenses increased by 23% to support AI deployment, selling and marketing expenses decreased by 9% and administrative expenses by 5%. This efficiency gain led to an improvement in core segmental profit half-over-half, demonstrating business stabilization.

Q: What is the financial performance and outlook for the Mind.ai (education) segment? A: Mr. Hak Kin Lau (Group Interim CFO) stated that Mind.ai revenue was RMB505 million, down 21% year-over-year due to delayed industry-wide demand recovery. However, the segmental loss narrowed significantly to RMB126 million from RMB195 million in the prior year, supported by a 29% reduction in operating expenses. Dr. Simon Leung added that the company is on track to achieve EBITDA positivity in the second half of the year, driven by continued cost optimization and seasonal buying peaks.

Q: What is the significance of the new AP10 and APLE product launches for the education business? A: Dr. Simon Leung (Group Vice Chairman) explained that the AP10 is a critical premium product designed to support all future SaaS businesses, including deploying AI directly on the panel. The APLE is aimed at the value market, primarily outside the US. These launches are crucial for expanding the SaaS revenue stream, which is seen as the future as hardware becomes commoditized, and for addressing different market segments effectively.

Q: How is the company leveraging its installed base of over a million classrooms for future growth? A: Dr. Simon Leung (Group Vice Chairman) described the million-plus classrooms as a "million classroom agile socket" and a great user base for deploying AI services. The strategy is to deploy AI services into these sockets to create a significant SaaS revenue stream going forward, which is a key part of the company's long-term growth plan.

Q: What are the main challenges and opportunities for deploying AI in the US and European education markets? A: Dr. Simon Leung (Group Vice Chairman) noted that deploying AI services in the US is more tricky due to data privacy issues, which also applies to Europe. However, the company has found ways to navigate these challenges and remains optimistic. The focus is on deploying AI in customer support and backend services to continue cost optimization while waiting for the market recovery.

Q: What is the company's overall outlook for the second half of 2026? A: Dr. Simon Leung (Group Vice Chairman) concluded that the company is "cautiously optimistic" about the second half. The gaming business is expected to continue its growth trajectory with the AI-driven initiatives. The education business is expected to benefit from cost optimization and signs of market recovery in North America. The company believes it will achieve EBITDA positivity in the second half of 2026, driven by the AI Workforce OS and Sovereign LLM initiatives.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .