NetDragon Websoft Holdings Limited

Dear investors, good morning. Thank you for joining NetDragon Websoft Holdings Limited to our 2025 annual results presentation. 各位投资界的朋友早安,欢迎各位参加网络网络有限公司2025年全年业绩发布会。 Before the start of our presentation, please allow me to introduce the management who are joining us today. 首先,请让我为大家介绍今天出席的管理层。 Dr. Simon Lepp, Group Vice Chairman and Executive Director. 梁燕坚博士,集团副董事长兼执行董事。 Mr. Woodlapp, Group Interim CFO. 刘克健先生,集团代理首席财务官。 Mr. Lin Zhen. Group Senior Vice President, Mr. Lin Kun, Group Senior Vice President. Now, let's pass our time to Dr. Fan Leng to host our presentation today. Thank you.

Good morning, good afternoon, good evening, depending on where you are. It's that time of the year, so great to have everybody on the call. We're going to go through the same thing. Frankly, I'm going to talk a little bit about the highlights and then what's going to take us through the financials, and then we'll go through gaming with Linton. I'll talk about mine and education a little bit, and then I'm going to wrap it up with the outlook, and then we'll go into very active, hopefully, Q&A. So today's theme is, besides going through all the businesses, the progress and all that, I think you're going to hear a lot about AI. I mean, we've been kind of talking about and praising AI. I mean, we coined a term called AI now. So you will see what's going on in 2025, but more importantly, what's going to happen in 2026. If you look at the AI technology, 2026 is an inflection year. It really, because of the coming of AIGC, is actually going to make a huge difference. Before, AI was there to assist you, but now AI is going to do things for you. Vincent is going to talk a little bit about that, how it's going to help us to the future growth, and I'm going to talk about the education side, how does it create more opportunity for us. As far as we're concerned, we're going to take advantage of that transition or inflection. I would say we're going to go from optimization of our costs. Now, by the way, we're going to continue to optimize our costs, but more importantly, how do we leverage AI for growth? So with that, I'm going to go into the highlights. Start with gaming. As you can hear, we spend a lot of time optimizing our gaming business. I'm not going to steal Vincent's thunder by going on all the details. If you look at a lot of our key statistics, MAU and all those different things that grow is that it's there. So while we are optimizing our call structure, which is actually quite difficult, my analogy is that you're flying a plane and you're changing the engine at the same time. So congratulations to our intern's team by making it happen. But I think more importantly is how do we create native AI games going forward. So again, the intern is going to talk about it. The next one I'm going to talk about, frankly, is education rather than just on mine. The good news is that we're making progress on mine. It is, frankly, a challenging environment because of the worldwide economy, the uncertainty of some of the policies in the U.S., U.S. given our biggest market. And by coming into 2026, we felt optimistic. at the beginning of the year, which is January. And then all of a sudden we are seeing a war in Iran. So what we're going to do is actually we're going to continue with our cost optimization. AI is going to play a key role in that. I'll talk about our outlook for 2026 for mine. At the same time, we expanded our profit line so we can expand our addressable market. And then again, that's leveraging our big in surveys over a million classrooms around the world so we can maintain our revenue. We've seen growth. And then we are also going to be looking at how we can get back to profitability very quickly. And really encouraging. We are seeing a lot of country opportunities for us, both in Africa and in Asia, which I will go into a little bit more detail later on. And some specific opportunity for us leveraging the AI technology which is developing around the world, and the AI expertise that we have is going to give us a lot of great opportunities in those markets.

With that, I'm going to turn it over to Wood to go through the financials. Thank you, Simon. Good morning, everyone. Let me walk you through our financial highlights in tool 2.5. Despite a challenging background environment and a rough new situation, we still achieved a meaningful recovery second half of 2025. In this half, probability includes significance. You can see both operating profit growth 47% YOY to 164 million German B, and half over half is also growth 41%. Our operating margin in 2025 second half growth to 7.9%, almost 3% percentage point YOY over H. And more importantly, our OPEX in the second half dropped 38% worldwide and 7% H over H to 1.3 billion. And this demonstrates our cost-saving initiative and operates efficiency improvement that will transform into our margin recovery. And now turning to the full-year performance. Represents for 2025 was 4.5 billion. down 26% worldwide. In this fund, gaming and application services decreased by 30% to 3.3 billion. And this is due to the optimization of our flagship IP to support its long-term development and sustainability. And mine became by 45% primarily due to the disclosure of the Singapore early education business in the second half of 2024, and as well as a prolonged demand adjustment cycle But, as mentioned by Simon, once the market conditions stabilize and improve, we will expect a customer demand to gradually recover. Cost profit was 3.1 billion RMB, down 37% worldwide. And on our off-test night, both selling and marketing expense decreased by 30% due to the proactive measure to tighten our marketing spending, and administrative expense down and the R&D expense down 29% to 1 billion due to the foreign organization adjustment to back the line with the AI. And when you see the bottom line, the point of touch will go to the owners of the company and 2025 is 151 million. And bear in mind, we have one more adjustment here. One is the even impairment and 2025 was about $59 million and worth the disposal fee in the 2024. And another one of the service payment in 2025 is amounting to $220 million. And this pays the rate of our cost savings, office savings. And they excluded this item that's just the corporate HFO to owner actually was higher than that. And turning to the segmental performance, The gathering and application services, the revenue is down 70% to 3.3 billion. And however, our gross margin is still hit at a high level at just 57%. And our gross segmental profit is only decreased 3% to about $697 million. And due to the note, we have suffered the lower revenue, but at the same time, we are largely offset by the cost savings. So the core segmental profit margin increased by 3.9% to 27.4%. And talking about the op-ed, the segmental op-ed expenses became 22% YOY2. About 22% is due to our AI strategy to fully capturing the cost-saving benefits. Overall, you can see our gaming application services is still highly profitable and cash-generated. And talking about in my business, the revenue becomes 43% to 1.2 billion due to the exposure of the Singapore early-age key business and the prolonged demand adjustment. And the cost margin will still keep stable at 25% this year. while, you know, the core developmental loss at large too, about 315 million RMB. But our operating expenses declined 21% YOY. So the market is at a better position for the growth in the next few years. And in summary, WOW 2025 was a year of the revenue adjustment. We have been successful. We saw probability and momentum in the second half of this year. and to the cost optimization and the strategic focus. And our gaming business is remain profitable and highly cash generating while my business is at a better position for them once the market position is improved and stable. So now I turn over to Lincen talking about the gaming business.

Lincen. Hello everyone, I am Lincen. I am very happy to introduce the performance of the online game in 2025. First of all, in the game industry, we maintain the long-term IP strategy to build healthy operations. From the MMO category of the game, the user activity, user feedback, and the user acceptance of new content are the most important MMO observation indicators for us. We are very happy to see that for a long-term MMO game, these data are very positive in 2025. We also took the initiative to make some adjustments to the user's reputation and acceptance. This is a good foundation for our long-term operation in the future. Since this year, it has been the 20th anniversary of the overall MoYu. As a long-term operation game, we are very confident that MoYu IP will be able to play a greater role in the future. Next slide. In this year, we are very happy to see that we took the initiative to make some adjustments, especially in terms of both payment thresholds and return thresholds. In terms of our core exchange, whether it is our annual sales or national total sales, we are very happy to see that with the decrease in some thresholds of our users, the purchase rate of users is significantly increased. At the same time, we have also reduced We can see that the number of users has improved a lot. This has also been of great help to our long-term users. Next slide, please. In terms of the long-term content marketing of MMO games, with the help of AI, this year, not only do we publish new content in each video, We have the ability to optimize our existing systems on our long-term cloud. We can launch new content, and launch a combination of content and culture. This is a big help to the long-term stability of our game and the ecosystem of our users. Next slide, please. As you can see, on our government IP, we actually we took the initiative to optimize and adjust. This is a very timely feedback from our operating data. This proves that the accumulation of our MMO track can be reused and is verifiable. The first thing we will see is that the content of the game is out of the sea. This is also a big strategy that our entire country has pushed. With the east wind of the country's IP and the east wind of culture, the Chinese content has been pushed to many countries around the world. This has led to a similar growth in overseas income, and has overcome some of the difficulties of exchange rates. At the same time, in terms of MMOs, our MMOs plus leisure combinations have also been recognized by users. We have separated these games into a single game, AlphaCode. In the previous period, we had a very positive feedback from Egypt, Indonesia, and other countries, which has driven our income growth. In the next step, in more regions, we will also work with some local agents to better bring these games to more countries. So you will see that the growth rate on the conquer IP will be greater in the second half of the year. As we promote these strategies, we will continue to have a very good development trend this year. OK, next page. Next is our soul IP, which is the layout of our magic track. Actually, three years ago, we took advantage of the long-term operation strategy to optimize our entire content strategy. We are also very happy that we have achieved this year's income increase of the entire InfoN IP under the guidance of content and design. This is not only part of our content marketing, but at the same time, our entire commercialization has been improved. From the ARPPU, you can clearly see that our commercialization content to be loved by more and more players. In the early stages of the game, we also laid the groundwork for our users to improve their acceptance of IP, and to build a good foundation. We hope to continue to expand this trend and continue to do so until next year. Next, we continue to insist on making games a cultural product, and we are constantly expanding our content. Whether it's games plus culture, games plus craftsmanship, or games plus art, in the past, we have actually made a lot of money on a single point. This year, it is very important that we make games plus culture into a series of works. Last year, with the help of the government, we integrated and obtained 10 literature IPs in the whole of Fujian Province. This year, we have the opportunity to make it into a complete series to promote the expansion and development of our entire IP users. We are also very happy that in the Spring Festival this year, Fujian's literature has a very obvious improvement in terms of both income and energy consumption. It also proves that the cultural content that we set up is no problem. At the same time, with the development of the offline economy, it can also drive the O2O connection of our entire game to expand our IP influence. At the same time, with the help of AI productivity, whether it is the eye-catching products of the IP, AI comics, or AI interactive games, we can introduce more and better game products based on these cultural content. Next slide. The second is our most important investment in AI. The first point is that we are very happy to see that we actually have a layout and overall transformation for AI since last year. At the last conference, we actually mentioned that our goal is to achieve 15% of AI efficiency, and the goal is 25%. In fact, we also achieved this goal very well in 2025. We will see that whether it is our profit rate or our R&D investment, in our entire long-term operation, to achieve the expected goal from the data. At the same time, I think another key point is that before or last year, in 2025, AI exists as a tool. It has more advantages in the so-called efficiency. In the second half of last year, our focus was to build our AI production center. The AI production center is no longer a tool for AI, but an agent for AI, or an employee for AI, to build AI capabilities for our future AI organizations. This year, there will be a very important change. This year, more than 200 AI employees or AI agents have been launched. We are confident that this year, we will be able to do more than 1,000 or even 5000. At this time, the AI workload can be increased to 50% compared to the whole development. And under the AI trend, we are confident that we can increase this ratio next year. What does this mean for us? It means that this will be a great innovation for us in the development of the entire game. We will be able to have a team of two to three people who can do the entire development in the new game. Within a month, we will be able to complete a high-speed delivery capability. At the same time, based on some of our long-term channels, especially MMOs and MOBA channels, we have a lot of opportunities to put some of the know-how in the combination of leisure and RPG to a larger range to expand more market opportunities. In the future, whether it's the entire group or the game industry, the most important thing is to move towards this AI organization. to fully play out our competitiveness on AI. Because the layout of this thing started two years ago, we now have a very good advantage and position. Okay, next page. I'll give you a simple example. In fact, in the past, we have also set up games such as Lojolike or 3jia. Such a game requires tens of thousands of people to invest in the traditional mode. It may take three months to develop a demo. In fact, in the second half of last year and the second half of this year, we have achieved one to two main creators. With the help of more than ten AI agents, we can produce a playable demo in two to three weeks. This is unimaginable. This is at least 10 times more efficient. We will see a producer who is known for his art. He can design AI systems, AI system values, and AI frames in our AI Creative Center. He can discuss how to design a 3D game in the natural language. Through the interaction between the producer and the AI, AI can produce a satisfying project. And these cases can directly enter our AI production center to generate our art resources and our code, and eventually produce a playable demo. And if this is linked to our AI operation center's AI launch system this year, it can form a complete loophole to accelerate our entire AI landing process and commercialization. In my opinion, this is a process from quantity change to quality change. When the penetration rate of our R&D is 50% to 70%, it will immediately be a great advantage and help for us. Next slide. In addition to the improvement of AI for our entire R&D performance, another thing we really value in AI is the optimization and improvement of player experience. Currently, AI is divided into two dimensions. The first one is that it can do some compensation through reverse-hanging to greatly reduce the player's negative experience. This has already been achieved and verified through some technology. We also have a very important point, which is our smart PC. In the past, we developed it with a smart ability. For example, how can it communicate better with players? How to interact better? Last month, we put 1,000 smart NPCs into our single MMO server. These NPCs have transformed our original intelligence into our interactive behavior. We are also very happy to say that with the addition of 1,000 NPCs, players are very willing to interact with these NPCs and even have some unexpected and interesting experiences outside of design. For us, this is very important for the optimization of NPCs, including better income benefits in the second half of the year. In conclusion, the entire promotion of AI in this year's 2026, its effect is a continuous expansion process. We also hope to achieve a great commercialization assistance after the whole creation of Bitcoin. Divide it into two dimensions. The first is for our long-term IP operations. Regardless of the continuous effect of our content development or the improvement of our experience, it is a great help. Especially for smart NPCs, in the second half of this year, we are very confident to turn it into an improvement in our actual flow and commercialization. At the same time, the third is also an extremely imaginative content. This is also the whole development method. When we make our operating creativity, our research capabilities and our operating capabilities a wall, then AI can be a system of self-transformation. It can, through the latest AI's collection of information, content and production, bring creative content to our games. I believe that with the help of AI, the income and profits of our strong operating games in the second half of this year will definitely be a big help. Next, in the exploration of new opportunities, AI has brought us two very important dimensions. The first one is that it can greatly expand the expansion of our ideas on the already existing track. For example, why do we try the Three Gorges and Six Gorges track? That is to say, the new and heavier game modes, whether it's the game of the industry, the legend, or all kinds of games, it all proves that a front end which is very suitable for players to play leisurely. The mature commercialized mode at the back is already a track that has been verified by the market. With the help of AI, we can quickly and continuously replace the combination of these leisure and heavy-duty games to provide our new product opportunities. At the same time, AI can also allow us to expand the IP of our original online game history At the same time, as for AI PCs, with AI's native games and AI's production capabilities, we will have a significant improvement in the exploration capabilities of the new game channels. To sum up, through the strategy of the new game IP, we are confident in maintaining the constant stability and healthy development of the basic game. With the help of AI, in the second half of this year, through AI's Okay, thank you, Linton.

Now you know what I meant by AI everywhere and AI now. Like HH and Linton talked about AI a lot. I would imagine he'd probably work with AI in the morning and then sleep with AI at night. I think that's what he does. So what I'm going to do is actually I'll go through mine and education a little bit and talk about our AI Now initiative, some of our commitment, and then we'll go through the outlook of the year. So this is actually the financials. Not pretty, but it's encouraging because we're improving year over year. We're going to be taking very aggressive cost cutting both on the optimization of people and using ai leveraging ai exactly in a way is no different from what we've been doing with with gaming so we're going to do it exactly the same with mine and with education going forward while we're waiting for the market to recover it will recover we're going to see some movement in 2026 if the middle east situation improves i think we'll be even more obvious growth coming back. Next. While we are doing a lot of optimization, we also bring our new product. Our flagship AP10 came out last year, so this year is going to be the first full year that we have AP10 in action, which is actually very encouraging news. The reason we spend so much time on AP10, et cetera, again, is related to AI. In order to deploy AI services on the panel, you cannot rely on the old architecture because it's actually Android-based, really limited. So what we did is we unbundled the architecture from, or we unbundled the OPS from the panel. So we have flexibility of either putting in an Android OPS or a PC or even a Mac to allow us to deploy services on the panel to help students and teachers teaching and learning along the way. So again, that's AI everywhere. Next. To address the low-end market, so help us to expand the market, we brought our two things. One is the LE, which is the lowest end that we have, so we can bring it into Asia Pacific, Africa, and those emerging countries. And also, we brought in a digital signage that we can complement our to go into the school because there's some requirement for digital signage in different schools in the developed market. Next. Well, another very encouraging news at BAT, one of the largest education show in the world. It's actually that was held in London every year. We won the company of the year award. So that's very encouraging to the team. And also we have the best show award at ISC, which is in the US. we continue to get recognition from the industry. Next. Okay, let me change gears and talk about some of the company-wide, at the group level, the initiative. Next. The first one is related to education, but also related on some of the opportunities that I talk about, either in Africa or in Asia Pacific. I'm going to give you two examples. I think you heard of one of them, or maybe you have heard of both of them before, but I'll go into a little bit more detail. So it's moving really fast. So in Thailand, you know, we've been working with the higher education ministry to provide training, to help them to expand their industry focus. We have them to move into EV, to move into semiconductor. While they are changing the government, we never stop. We are working with them in... creating new learning for them. The big one is actually is helping young people in Thailand to learn how to use AI, which is actually very important. So I think everybody knows about AI, but how do you use the different tools? How do you use it to apply to your day-to-day work? More importantly, we are also helping them to assess your learning because it's like, I mean, after taking a course, how do you know you're progressing? So assessment and keeping track of your improvement is very important. And ultimately, how do we help you after learning all the AI tools to help your career is an important element. So not only we work with the ministry, but we also work with big corporations in Thailand. Because the hiring is quite different now. Before you hire, of course, according to your job span, But now a lot of people are looking for candidates with the right quality. And then you bring them in and then you put them into different jobs so they can flourish because with all the AI capabilities that they have. The next one is actually is Cameroon, which I personally attended. This is the opening of one of the intelligent classrooms. What they struggle with in Cameroon because being a developing country, It's actually teacher quality, its ability to bring software and features into the more remote area. So this whole idea of intelligent classroom, it started in Egypt, and we're now bringing it into Cameroon. So actually, I'm in the picture, you may not see it. It's very satisfying sitting there looking at the teacher, telling the prime minister who sat right next to me, how are they leveraging our technology to address one of the key needs they have, which is education. I talk a little bit more about the new concept that we have on how to have them even address that education need further in Cameroon and in other emerging countries. Next. So this is a company-wide we call it AI employee, which this is kind of like a workflow. This is actually the workflow for our AI content manufacturing, if you will. So it's actually how do we leverage AI to do a lot of the work for us. This applies both in education and also in what Vincent was talking about. But just to give you an idea of how we approach everything as a company. Next. Okay, let's talk about Outlook a little bit. So I know you want us to do that. So next page. We'll continue to commit to enhance the shareholder return with all of the assets and with the trust that you have in us. So we'll commit to provide a dividend of no less than $1 a year. I think we announced 50 cents for last year, the second half. to go forward. We're going to commit the same, if not more. The core segment is actually we're going to maintain our profitability while we are applying AI, and we'll return to growth exactly towards the end of the year. We're going to maintain our net cash. Between dividend and also buyback, I'm going to return no less than $600 million to shareholders. The last one is actually we have been investing in different companies. We are seeing the possibility of us realizing some of those returns. I put X in hindsight, I should put $511X. I think it was more or less sexy from that standpoint. So we're expecting hundreds of millions of return in that one. Cannot come in, but it's actually a line in sight. Okay, next one. Another very encouraging news is actually every company is trying to strive to, which is ESG. So we got rated A, which is very, very encouraging and we are very happy for that. Next. Okay, last but not least, I'll make some comments from a directional standpoint. I think we talked a lot about the event. So we believe we're going to continue to apply API to help us to optimize our costs and to position us to grow towards the end of the second half of the year. So that's very important. From education, for mine, we're expecting a pretty even year. That's through very aggressive cost optimization. And also, we're only assuming a slight market recovery. We know the Middle East is actually in uncertainty. So that's why we are using very aggressive cost optimization direction to make sure we go into an even situation. We optimize our hardware product portfolio by going deeper and wider, i.e. companion product with our panel. We talk about AI. The key is actually how do we bring new services into our classroom solution, i.e. leveraging our AP10. to put services into so we can build our SaaS revenue stream. We are, I think, our country's strategy, like Cameroon, like Thailand. I can assure you those are not the two countries that we're working on. Last but not least, I want to touch on only a little bit. I want to tee it up. to take everybody through the entire strategy going forward, both the investor community and also the PR community or the media, which is what we call a sovereign education large language model. The reason for that is actually twofold. One, education is actually every country's asset going forward. So most countries want to be in control. Not everybody can own his own such as GPT or Gemini or DeepSeq or Chenwen and all that. So having their own is important. So we're going to leverage the open source, large language model, but we localize it, either for the country or even for the school. I think that's the other important message. Going back to some of the developing countries, because they don't have the telecom infrastructure, having a local large 22-inch model, i.e., like a deep-sea thing on a PC, to support the whole school is going to be very, very powerful. So we're moving towards that, and actually we're working with Cameroon on that one to address one of the key elements or problems that they have, which is the lack of infrastructure. Now, this also applies to a... developed country or area. Hong Kong just announced a, I think it's 2.5 billion Hong Kong dollar initiative on AI. It's actually each school will get maybe 500,000. So having a large language model for each individual school catered to their individual needs is going to be very powerful. So we are looking at how do we take this not only to the developing countries, but also to the more developed, either region, countries, or whatnot. So this is really a global initiative that we're working on. So to sum it up, so we did a lot of work in 2025. We'll continue to do a lot of work leveraging our commitment and our knowledge of AI. The change in 2026 is not only we use AI to optimize our costs, but more importantly, to use AI to leverage AI for growth. So with that, thank you so much. I think it's time to open it up. Thank you.

Thank you, Dr. Lan and management. Now it's time for our Q&A section. You're welcome to raise questions in two ways. First, if you would like to raise questions through the teleconferencing system, you may press star 1, star 1 on your keypad, and our operator will work you through. Second, if you would like to raise questions via our webcast platform, please enter your questions by clicking the Q&A button at the bottom of your screen. 感谢梁博士和各位观看。 现在我们进入问答环节。 欢迎各位以以下两种方式问。 如您希望透过电话系统提问,请按听音。 We welcome questions in both English and Chinese. So let's welcome our first question. Okay, I'll answer the first one, the easy one, then I would answer the next one.

If you can put the chart back up. uh the one with uh all the commitment to i think this is how we do it so it's actually i i committed to you let me reiterate 2026 dividend is no less than one dollar okay it's actually the total return will be no less than 600 million hong kong dollars so exactly kind of the same commitment as last year. And how to be funded is actually if you look at the other three columns. So it's actually we maintain our segmental profit in gaming. We're going to EBITDA Big Event in mind. It's actually we continue to optimize our cost. So it's actually because of that, we expect to maintain our cash flow if not doing better. the last one is actually is the upside right so we we expect now i don't know whether it's going to be next year because that's why we said next 12 months so we just because now we're in march so we will see some of the our some of the investment that we have made uh in most likely in the ai area that will come into fruition so so that's what i uh i committed so i kind of anticipated that question is going to come up uh do you have any other comment to add to the cash flow?

Yes, you can. As you can see, our third quarter of this year is more than 300 million yuan. Some investors may be worried about what to do with the share of 1 billion yuan. But you can imagine that, first of all, we still have a core of 9 billion yuan in our game. That means we still have 9 billion yuan. This is a very profitable and cash-generating category. So this technology can support us to do corporate actions in Hong Kong. For example, with some of Simon's comments, In the past, we used the distribution of shares and the purchase of shares to carry out our 6 billion Hong Kong dollars share return plan. That's why we are still confident this year that we will continue to commit to doing this 6 billion share return plan. Because our main source is that we still have a very high profit, and our game business is still cash-generated, which can bring us a lot of support. So even if we don't like our other sound, there may be some upside here, but in other aspects, we still have enough money to do what we want to do. Thank you.

Thank you. Thank you. Next question, our next question. The next question is from Mr. Wang Shizhen, the first Shanghai engineer. He has four questions in total. I'll ask two first. The first one is how much space will we have this year to reduce cost and efficiency? How will it be reflected in finance? The second one is the negative energy of our AI in the game. Will it have an obvious effect in the second half of the year? If we look at the data of the game as a whole, how much do we expect to grow throughout the year?

Thank you. Lin Cheng, please answer the second question first. Because the first question is related to the entire company. Okay, let me introduce it first.

First, let's look at the effect of AI. Last year, we achieved 15%, and last year, we achieved 25%. But this year, we expect to achieve 50%. From this ratio, we can see that there will be a significant change this year. From the perspective of AI technology, it is also a very fast-growing trend. Especially in the first line, for example, in the AI programming, with the progress of the big model, the AI programming may help us in the real-time version. But as long as the big model is updated, the data will immediately become 30 to 40. So you can see why we are very confident in the second half of the year. With the increase in the use of AI and the improvement in AI skills of all students, including the construction of AI employees, there will be a trend of acceleration in the second half of the year. In particular, the quality of the game needs to break through a certain threshold value, and its effect will be doubled. In the past, we have seen some originalization of AI, and users may not pay so much for it, because it may be a little less than the standard value. So the players think that the quality of what you do with AI is not careful. But if we use AI very carefully, once this thing breaks through the threshold, the player will actually have a process of change in the content of the content of the existing AI. So in the game, no matter how effective the data is, in the second half of the year, you can see that there will be at least a 10% to 15% growth effect. It may be equivalent to last year's ratio. And in terms of quality acceptance, we are also very confident that in the second half of the year, once the quality of AI's rapid development breaks through the threshold, the acceptance of users will be doubled. I think this is what we expect in the second half of the year from the cost structure of the development and the financial structure.

The financial part may ask Wood to make a reply in advance. I would like to add one more thing. AI has two important links for us. The first one is cost optimization. But the other one is more important, which is how to help us grow. So I hope everyone will pay attention to that. So I have been looking for ways to use AI to help us reduce costs. But on the other hand, we will also invest in AI to help us develop in the future. We take a balance. In terms of education, the game is faster than us. Education is faster. So we learn from the experience of the game. So I think in education, our space is bigger than the game. Do you have any other comments?

Yes, from the financial aspect, as mentioned earlier, in 2015, our total office was about 6 billion. If we look at it from a different perspective, if we continue to increase our sales, as Mr. Lin mentioned, it may be a double-digit increase in sales. It's probably like this. But if we look at the profit of the game, there are two levels. AI does help us in the second half of the year, especially in the second half of the year, we see that there are opportunities. But as I mentioned, we have to change some games. It will indeed affect our revenue in 2026. So this is a positive side and a negative side. So it's hard to say. So if it's fast, it's probably like this.

Or to be specific, for example, in Mind, why can we go to the big event? Although the market is still challenging, it's not just us. All the other manufacturers are. It's all about us fully embracing AI, whether it's in the customer side, our development, and some finance in the background, those who are fully utilizing AI in the personnel aspect. Especially now, as I said, it's the era of AI technology in 2020, so we will make full use of the multi-agent technology, so we can move towards that goal. Thank you, both of you.

Next, let's move on to the next two questions from Yiyi Shanghai. The next question is, what will be the situation of the education business in the United States this year? And then, just now, Simon answered the second question a little bit. He wants to ask, now, the big models of various AI agents for our education business, are they specifically formed as a competition relationship or a promotion of a promotion relationship? I'm talking here. I can't hear you. Specifically, will it form a competition competition with our education? AI? Or you say it's... can leverage our entire Elevate.

Okay, I understand. Maybe I didn't make it clear. AI can definitely help us. That's why I said a lot of things. Not only can it help us reduce costs, but it can also help us develop. The biggest advantage we have in the US is that we have a stock base of more than 1 million people in the world, especially in the US. So we can put the AI service into the classroom to help the teacher teach and help the students learn. And then move the service to the home. So at home, it also helps the students to learn at home. But it also helps the parents to learn with the students. So this is our... to sell it for a very, very good chance to transform. So you see why our entire company says we embrace AI like this. And the American market will definitely come back, because they need new technology for two reasons. One is what we call the replacement cycle, because we know very well how many old big companies are in there. Of course, there are some political issues, but they will definitely come back. But on the other hand, we can't say that it will definitely come back. It will definitely come back. We don't do things. The answer is why SLF AI is taking advantage of the opportunity. We use AI to reduce costs. But our goal is to say that our service will not be reduced, the cost will be reduced. So we are doing that now. Thank you, Simon.

Thank you. So our next question comes from the platform, which are English questions. So first of all would be, how is the company's progression with our overseas business expansion with our partner, Zhongke Wenge? Wenge? Yeah, our partnership with Zhongke Wenge. Okay. And the second question is also related to AI. Is there a CAPEX plan or CAPEX guidance for our AI-related development or investment?

What do you want to take to CapEx?

First, yeah. Of course, we know we are AI now, so we keep our CapEx in the AI area. And when you look at the 2025, our CapEx is about 115 RMB. So we were honest to bubble our investment including the AI area. So we expect to have 300 million RMB in two, the CapEx including the AI area.

Okay, I'll go back to the first one. So number one is actually it's going really well. First of all, we're in the verge of announcing a few new products, not only for Hong Kong, but for overseas. So I'm not going to steal a cherry-picked thunder. So when that happened, which is imminent, by the way, so I invite you to join us in some of the conferences and all that. The other one is actually when I talk about the sovereign large language model, which is actually is a localized large language model. So I did use an example of maybe DeepSeq, but definitely Wenka's large language model is part of the consideration. So we're very happy with the progress, and we are very excited about the prospect. I'll probably describe it at the high level right now because I don't want to steal the thunder from cherry picks. So I can rest assured that our relationship is going to be coming to fruition sometime this year.

Thank you, Simon. Thank you, Wood. Our next question is also regarding our education business. So what is the latest development of our Thailand project and what's the target in our second half? And other than Cameroon, what other national level projects we are working on?

I have to say, I thought I'd talk about all that. Can you put the chart back up? So this is actually what's happened. So it's actually, we are moving forward on what we did, but we are expanding into the area of very important is to use AI to teach people how to use AI tools. And then at the same time, we're helping them to assess. We're also helping the enterprise to look at how they can kind of pivot to a new way of recruiting talent. Like I said, before you have a job spec, you look at the experiences. I think now the new way of recruiting, you're looking for talent. You're looking for capability. So that's what we do. So it's moving very fast forward because the encouraging news is actually the election is over. Actually, the party that's committed to working with us is actually returning to be the main, not a moving party in Thailand. So we fully expect this to continue and to expand. I can't talk about some of the other ones. I can assure you Cameroon, is not the only country that I'm working on. So just to share with you, not trying to be too personal, my wife is actually not very happy with my travel schedules. So, you know, I'm traveling around to work on different projects. The other thing, I don't know whether you remember last September, we were, or I was in Paris with a team attending UNESCO conferences So that was very good success. As a result of that, there is a lot of countries in Africa, in the Middle East, and also in Southeast Asia to come to talk to us. But our key is actually is not to talk to work on every single one of them. The key for us is actually is to focus on the work that we can bring a lot of value to. Thank you.

Thank you. Our next question comes from Guangda Securities. We would like to know more about education. Can you tell us more about the development of AIGC and education? Also, we would like to know if there will be any new games in the second half of 2026.

Thank you. Okay, Lin Chen, you go first. Okay. First of all, in the year of 2026, we have already confirmed that we will launch, including the first one that was introduced in QTE, the Daiha Alpha under the Denfu IP, which will be launched in Southeast Asia, Japan and other regions. This is in the second half of this year. Even if it's fast, it's something that will happen in Q2. The second one is our MMY IT base, which is the base for cooperation. This week, and got the license plate number. In theory, it will also be on the line in Q3. Of course, because this is a collaborative development and operation, we will have a water-flow project mode. In the second half of this year, there should be a lot of AI game testing. Of course, we may hope that commercialization can be done at the end of this year. That's all for today. Thank you.

Actually, I also briefly talked about how we can use AI to help us in the development of education. I will talk about it later. Actually, it is divided into two aspects. One is our install base. We use our Puli's 1 million teaching experience. Because we have a machine, we put new services in. For example, how do we assist teachers to teach and help them prepare? emotion capture. It depends on his behavior, his facial expressions, whether he understands it or not. Then we will remind the teacher to pay attention to certain aspects. This is a service in the classroom. But the same thing can also be transferred to the home. It seems that every student has a tutor at home. Because we know that the learning situation in the classroom. So at home, the AI can accompany it. This is one aspect. This is our store base. The other aspect is what we call Greenfield. Greenfield is divided into two aspects. One is in developed countries. In Europe, it uses a similar direction to take our AI services integrate to the classroom technology. It can be sold to different schools, regions, or countries. The other one is the emerging market. They are using what we just talked about. They are using what we call the Sovereign Large Language Model for Education to integrate into our offering. I want to talk about local authorities, not local authorities, but those who are more valuable. You can also help them. The most important thing is that our current system does not need them to have a network. In that school, a large language model can support the education of the whole school. This space is very, very large. So that's why Cameroon likes it so much. There are many schools in Hong Kong. Thank you Simon. Due to time constraints, we will now move on to the last question.

The last question is related to the issue of AI. Investors are very interested in this. Because the market is very large. In your expectation, what kind of cooperation or income model will we use in the future to promote this sovereignty AI? Do we have any things that are likely to happen in the future?

You were talking about the one at the back.

I know you didn't... In the future, we will soon be able to see what kind of homebrewing in the field of education and AI.

To be honest, we have a long way to go. But we know that we must work with some of our partners. Because the details are too big. For example, in the U.S., of course, we can fully utilize the capability of our Pumi. But Pumi also has a lot of other partners. For example, CDW, we have new partners who have joined us. But because Sovereign LLM is more special, so we have to participate. whether it's in marketing or self-support, we will do it. We will strengthen our rules. For example, in what we call country strategy, we will cooperate with some local partners. Because, for example, Cameroon, I can't go there many times. So I go there at an important time. Actually, my colleague also went to Cameroon from Hong Kong. . . . . . . . . . . . I cannot name the people So we have to look at the situation. I just talked about it. For example, our LLM will be placed in a server. So it's very natural. Some hardware manufacturers, some brands, may be our partners. For example, in some schools that provide communication services, some companies may also be our partners. Thank you.

Thank you, Dr. Lam. Thank you, Wood and Linton Zong. This successfully concludes our presentation today. Once again, I would like to thank you all for joining us. If you would like to communicate with the management further, please contact us for one-on-one meeting arrangements. Thank you, and we wish you have a great day. Thank you, Dr. Liang, Dr. Wu, and Mr. Lin. Today's conference is complete. Thank you, investors, for your participation today. We hope you will continue to pay attention to the company. As you wish, if there is any further communication with the management team, please contact us. Thank you. I wish you all a good day. Thank you.

Thank you.