Guosheng Securities has initiated coverage on China Literature Ltd (00772) with a "Buy" rating. The firm forecasts the company's revenue for 2026-2028 to reach RMB 8.033 billion, RMB 8.329 billion, and RMB 8.591 billion, respectively. Net profit attributable to shareholders is projected at RMB 718 million, RMB 1.296 billion, and RMB 1.494 billion for the same period. This translates to a price-to-sales ratio of 2.2x, 2.1x, and 2.1x, and a price-to-earnings ratio of 25x, 14x, and 12x.
The brokerage expresses confidence in the commercial value of the company's intellectual property and its future growth prospects. It believes that AI-driven advancements will significantly enhance content production efficiency, potentially accelerating the monetization of the company's extensive IP library. The key points from Guosheng Securities' analysis are outlined below.
Company Overview and Business Model
China Literature Ltd is a comprehensive cultural industry group built on a foundation of digital reading, with a core focus on IP cultivation and development. Its primary business segments are online operations, copyright operations, and other services. The company originated from Qidian Chinese Network and was formed in 2015 through the merger of Tencent Literature and Shengda Literature. As of December 31, 2025, Tencent is its controlling shareholder.
On the operational front, the company's main activities are online business and copyright operations. The online business provides digital reading services through its proprietary platforms, monetized through paid subscriptions and online advertising. The copyright operations and other business segment involves licensing or self-developing web novel IPs into various formats such as film and television, short dramas, comic adaptations, and merchandise.
The company leverages its online business to incubate, accumulate, and achieve initial monetization of IPs. The copyright operations segment further unlocks the commercial potential of these IPs.
Operational Strengths and Recent Developments
The online business possesses a platform-based IP incubation capability, while diversified operations like copyright management accelerate commercialization in the later stages of the IP lifecycle. The company continues to enhance its platform, author, reader, and commercialization ecosystems, creating a significant head effect. It is also actively expanding into emerging areas such as AI-generated comic series, short dramas, and IP merchandise, achieving notable commercial progress in 2025.
Its subsidiary, New Classics Media, faced temporary pressure in 2025 due to uneven project scheduling. However, the project pipeline is expected to normalize in 2026, potentially contributing to performance growth.
Core Investment Thesis in the AI Era
Guosheng Securities argues that the development of generative AI technology is driving a leap forward in content production methods, drastically improving efficiency. In this context, the firm identifies three core investment rationales for the company:
First, AI is empowering an increase in the supply of web novel IPs. From a stock perspective, the company possesses the industry's largest library of literary IPs. From an incremental perspective, it has developed "Writer's Assistant," an AI-powered writing tool, which is expected to bolster IP supply, stabilize the foundation of the online business, and expand the resource base for future IP development and monetization.
Second, AI drives efficiency in screening and developing web novel IPs, leading to increased output. The low cost and high efficiency brought by AI technology can help the company batch-process its vast IP portfolio for large-scale experimentation, quickly validating market potential. By actively building its own AI tool capabilities, the company aims to form a closed-loop business process from "IP to AI-driven development to product," accelerating the screening of high-potential IPs and the release of their value, thereby contributing to revenue growth.
Third, AI assists in the overseas expansion of various IP formats, accelerating internationalization. The company has already utilized AI to facilitate the global expansion of its web novels. In the future, it is expected to accelerate the overseas rollout of other IP types, expanding its business reach and contributing to performance growth.
Key Risk Factors
Potential risks include macroeconomic fluctuations, business progress falling short of expectations, and intensifying industry competition.
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