Company Update: NetDragon Websoft 20204Q

20204Q: Is their two engine ready for warp drive?

Ok, for the uninitiated, NetDragon Websoft (ND) does not build spaceship or the event entertainment space.

To understand more about ND, please read our initial investment thesis (18th October 2020) and the subsequent update on our thoughts on the online education industry - (16th November 2020) and (4th February 2021).

We had started buying NetDragon Websoft (ND) at HKD 17.42 and had proceeded to average down till HKD 16.58. We have taken our foot off the pedal since .

Our investment thesis is that if you can value ND base on its slow growing gaming division and then value the education division using the venture capital money they had raised for the education division.

Coupled with a catalyst (possibly a sale/IPO of the online Education before 2025) and a huge discount to intrinsic value, it is worth taking a look.

This following company is place in the Super Portfolio.

Catalyst: Improvement in revenue/profit growth through monetisation of the education division

Holding Period: 5 years from 10th November 2019 (the fifth anniversary from the Bond Issue Date)

It is a report of two engines of the company.

The one making money (gaming division) and the one losing (education division).

The focus of this report will continue to focus on the education segment. The education business recorded a revenue growth of 2% to RMB2,443.9 million. *Yawn*

For all the investors who are expecting faster revenue growth… The game ND is playing is very different. They are selling at the government level and growth will be slow, steady and sticky!

We are talking about a country rollout with a multi-pronged revenue model such as selling hardware to power online learning, software revenue in the form of SaaS, subscription or licensing, as well as long-tail revenue in the form of contents and services.

Currently, 101 Education has an installed base of 1.5m teachers in China and One Stop Learning platform has a Monthly Average Users (MAU) of 2m teachers.

Political Risk:

Since Ant disastrous IPO, we had included political risk into our assessment of China’s listed company.

Other than cracking down on Big Tech, the Chinese government is also trying to ease pressure on schoolchildren. Private education companies had been receiving end from the Chinese government.

What about ND?

Another major milestone achieved during the year is the Group’s successful pilot carried out for Virtual Lab platform across 6 provinces in partnership with the National Center for Educational Technology, a unit directly affiliated to China’s Ministry of Education. The virtual experimental teaching platform was well received by the participating teachers and students, and the Group expect to roll out the solution across the country to start generating SaaS revenue in 2021.

It seems that ND is fully align with the China’s Ministry of Education in term of the digitalisation of education and is ready to charge them!


The ramp up in revenue for education for 20202Q did not materialise. ND had onboarded a lot of customers but have yet to charge them.

Selling and marketing expenses for the education business had decreased most likely due to the pandemic. The rest of the expenses as expected are going much higher. Instead of hoping for flatlining in expenses, the best hope is that ND start charging their customers and improve the gross margin.

Growth in administrative expenses for the education business had increased by RMB40m. 120 new staffs are being recruited in the in the accounting, finance and general administration. Maybe we will be seeing an IPO or a split soon?

No major insights from reading the 20204Q financial results. Having little insights also means that we are really comfortable (hopefully not complacent) with our positions. ND still trades at the lower range of our valuation and we are as comfortable to buy at HKD 19.58 as we are at HKD 16.58.

And that is what we are doing…

"To boldly go where no man has gone before."

-- Captain James T. Kirk

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