On August 11, 2026, CHINA LIT (00772.HK) released its interim results: first-half revenue reached 3.531 billion yuan, up 10.7% year-on-year, while net profit attributable to shareholders plummeted 84.1% to 135 million yuan. From a year-on-year perspective, this is a report of "rising revenue without increasing profit." However, beneath the surface of the profit figures, a profound shift in business structure is underway—online business is contracting, copyright operations are rapidly emerging, and AI-driven comic series are becoming the variable reshaping the growth curve.
Net Profit Plummets 84%: 300 Million Yuan in Tax Back Payments and 500 Million Yuan High-Base Effect
The direct causes of the profit plunge are twofold. First, one of CHINA LIT's subsidiaries needed to pay back corporate income tax and late fees for 2020 to 2022, totaling about 300 million yuan. Of this, approximately 166 million yuan in corporate income tax was recorded as income tax expenses, and around 134 million yuan in late fees were booked as other losses. This one-time expense directly reduced current-period profits. Second, the first half of 2025 had an extremely high base—a net gain of about 598 million yuan from the deemed disposal of an associate, with a post-tax impact of about 512 million yuan. Excluding this one-time gain, adjusted net profit for the first half of 2025 was 508 million yuan. For the first half of 2026, adjusted net profit was 259 million yuan. Even excluding the 300 million yuan tax back payment, core earnings still showed a significant gap compared to the same period last year.
Online Business Continues to Contract, Copyright Operations Take the Lead
More noteworthy than the profit figures is the profound change in business structure. Online business revenue (paid reading, advertising, game distribution) was 1.84 billion yuan, down 7.3% year-on-year, with its share of total revenue falling from 62.2% to 52.1%. CHINA LIT Senior Vice President Huang Yan explained during the earnings call that the decline was mainly due to adjustments in channel segments with lower user stickiness, such as the increased proportion of free reading content with lower monetization efficiency within the WeChat ecosystem. The form of distributed content is shifting from pure text to visual formats like short dramas and comic series. User data also faced pressure: average monthly active users fell from 141 million to 134 million, and average monthly paying users dropped from 9.2 million to 8.2 million. The user base for the reading business continues to shrink.
In stark contrast, copyright operations and other revenue surged 40.3% year-on-year to 1.691 billion yuan, with its share of total revenue rising from 37.8% to 47.9%. The biggest highlight came from the short drama and AI comic series business—revenue exceeded 430 million yuan, a 230% year-on-year increase.
AI Comic Series Explosion: 430 Million Yuan Revenue and the "Less Than 0.1%" Imagination Space
In the first half of 2026, CHINA LIT launched over 90 short drama works, with a hit rate four times the market average. For AI comic series, leveraging AI technology to adapt thousands of online novels, 46 works surpassed 100 million views, 367 exceeded 10 million views, and the 100 million-view rate was five times the industry average. CHINA LIT CEO Hou Xiaonan revealed during the earnings call that the monthly production of premium comic series has already exceeded 100 works, and the company plans to produce no fewer than 200 short dramas annually, a 70% increase over last year.
What truly opens up the imagination space is CHINA LIT's review of its own IP library. Hou Xiaonan stated on the call: "We hold the largest original literary IP library in China, addressing the industry's core pain point from the source—a lack of good stories. From the perspective of our entire IP library, currently developed IP accounts for less than 0.1%. As AI tools continue to lower production barriers, there is immense room for future IP development speed and coverage."
CHINA LIT adopts a capital-light model of "self-controlling both ends, outsourcing the middle"—actively strengthening script and IP development, as well as traffic acquisition and commercialization, while outsourcing visual production to external studios. The company's self-developed AI comic assistant, Drama Buddy, has already served over 200 studios. In January 2026, CHINA LIT's comic assistant fully integrated with Shengshu Technology's multimodal large model Vidu, embedding AI generation capabilities deeply into the entire creative chain, further lowering the barrier to visual production.
The key to this model lies in AI reducing the production cost of individual works, but the company consequently enters larger-scale production and distribution. In the first half of 2026, production costs for film, television, animation, short dramas, and AI comic series rose from 195 million yuan to 433 million yuan, a 122.2% increase. Costs have not disappeared; they have merely shifted from the text content side to the visual production side—during the same period, content costs fell from 789 million yuan to 671 million yuan. CHINA LIT's overall gross margin was 50.7%, only a 0.2 percentage point improvement year-on-year.
In terms of overseas expansion, CHINA LIT has launched Qidian Theater and the Toon Scroll platform domestically and internationally. Toon Scroll plans to release over 1,000 premium comic series works this year and explore the development of original overseas local IP into comic series.
Conclusion
The mid-year report of CHINA LIT for 2026 paints a picture of the transition from old to new growth drivers. Online business continues to contract, copyright operations are rapidly emerging, and AI comic series are becoming the new growth pole. The year-on-year decline in net profit is more of a temporary disruption from tax back payments and the high-base effect, rather than a reversal of business trends. When "less than 0.1% of IP has been developed" becomes a narrative repeatedly emphasized by management, CHINA LIT is actually telling a story about the "revaluation of existing assets."
AI tools have lowered the barrier to IP visualization, making it possible to activate a vast number of dormant literary IPs. CHINA LIT's true value may not lie in how much money it has already made, but in the untapped IP mine it holds—and the increasingly sharp AI mining tools. However, this path is not without costs. Rising production costs, dependence on external channels, and the cultivation of proprietary platforms—each link tests CHINA LIT's execution capability in transforming from a "content platform" to a "full IP lifecycle operator." The 430 million yuan in AI comic series revenue is just a beginning. The real test lies in whether CHINA LIT can convert its "largest IP library" first-mover advantage into a sustainable competitive moat once AI tools become widely accessible.
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