Catalyzes the conversion of 7,8-dihydroneopterin to 6-hydroxymethyl-7,8-dihydropterin. 7,8-dihydroneopterin = 6-hydroxymethyl-7,8-dihydropterin + glycolaldehyde Cofactor biosynthesis; tetrahydrofolate biosynthesis; 2-amino-4-hydroxy-6-hydroxymethyl-7,8-dihydropteridine diphosphate from 7,8-dihydroneopterin triphosphate: step 3/4. Belongs to the DHNA family. Extended N-terminus.