Daily Brief Equity Bottom-Up: NETDRAGON (777 HK): Getting Schooled on AI !!! and more

• Netdragon Websoft (777 HK) stock has begun to rerate on the back of its deal with with Zhongke Wenge to integrate and launch AI applications outside of China.
• NetDragon will integrate Wenge’s LLM, YaYi, with its education products.  In August 2025, Cherrypicks and Wenge jointly launched AI applications, including social listening and multimodal content creation tools globally.
• NetDragon has consistently enhanced shareholder returns through substantial dividends and since its earnings announcement in August has begun buying back shares in the market.

• Context: This Insight follows up on previously highlighted relative value opportunities, using a statistical methodology based on mean-reversion to identify opportunities in paired securities.
• Highlights: Currently ten pair trade opportunities across four markets and four sectors persist.
• Why read: Statistical analysis offers a unique perspective on relative value. Gain insights into actionable statistical pair trade opportunities and monitor performance of previously highlighted pairs.

• IPO catalyst already priced in – Tekscend Photomask IPO (¥300 bn base case) crystallizes hidden value, but with TOPPAN at ~¥3,900, the upside to bull case (~¥4,100) is limited.
• Core execution the swing factor – Information & Communication (~54% sales) and BPO/Digital DX must expand margins (target 10% by FY2030 vs. ~5% today) for further re-rating.
• Balanced risk–reward – Strong balance sheet and shareholder returns (2.5% equity cancelled FY25) support valuation, but high capex and legacy print drag keep FCF and ROE volatile.

• Netdragon is a prominent player in China’s online gaming and mobile internet sectors, with a growing international presence in the education technology market.
• The company is strategically pivoting towards the integration of Artificial Intelligence (AI) in both its gaming and education segments, aiming to enhance user experience and operational efficiency.
• Despite recent revenue declines and market volatility, Netdragon maintains a strong dividend yield and has an active share buyback program, signaling management’s confidence in its long-term strategy.

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• Scarce exposure to EUV photomasks – one of only three global leaders (with Hoya, DNP) in a concentrated oligopoly.
• IPO at ¥250–400 bn (Oct 16, 2025) implies ~12–16× EV/EBITDA, offering rare pure-play access.
• Execution risks – capex intensity turns FCF negative; overhang from Integral (~14% post-IPO) may weigh.

• NAV crystallization from Tekscend IPO – ~¥108 bn cash proceeds plus a ~14% residual stake; base NAV ~¥150–160 bn vs. ¥129 bn market cap (15–20% discount).
• Upside capped without payout shift – modest base case (¥3,900–4,100/share, flat to +7%); bull case (¥4,400, +15–20%) requires high-end IPO pricing and explicit return policy.
• Persistent structural discount – low dividend (~0.9% yield), no buyback track record, and opaque residual portfolio (e.g., Golf Digest) keep holdco discount entrenched.

• We visited two manufacturing plants of Nelcast Ltd (NELC IN) located in the southern part of India. In this insight we present the key takeaways from visit.
• Specifically the Pedapariya plant which was facing low capacity utilization is seeing signs of steep ramp up.  Insights on this are provided in the note.
• With no significant capex coming up, the ramp of capacity could make Nelcast Ltd (NELC IN)a dark horse in terms of investor returns. We highlight our projections in this note.

• Clarity Pharmaceuticals Ltd (CU6 AU) entered into a commercial manufacturing agreement with SpectronRx for 64Cu-SAR-bisPSMA. SpectronRx is capable of producing up to 400K patient-ready doses of 64Cu-SAR-bisPSMA annually.
• Clarity’s Targeted Copper Theranostic products and clinical development programs will remain unaffected by the U.S. imposed 100% tariff on imports of branded pharmaceutical products.
• In July, Clarity completed A$203M institutional placement, resulting in a pro-forma cash balance of approximately A$288M. This will help fund ongoing clinical trial programs, including the pivotal Phase 3 trials.

• Roborock’s margins are expected to bottom-out after a tough four quarters of strategically prioritizing market share at the cost of margins. 3Q-4Q25 will mark the start of new margin cycle.
• Margins stabilizing at the new normal of 12-14% NPM will mean earnings will track revenue growth going forward. Meanwhile, revenues can surprise on the upside with >25% CAGR in medium-term.
• HK-Listing into 2H25/ 1H26 is a strong catalyst which can bring in fresh money, and improve disclosure standards – a key concern. We expect 70% upside in our bull case.

• Genky Drugstores is one of three hybrid food & drug chains, all of which target the discount end of the market. 
• Unlike rivals, Genky’s blends in-house control of both store and product development, and logistics.
• This level of control and discipline is making Genky a growing threat to competitors in central Japan.