Huachuang Securities has issued a research report initiating coverage on China Literature Group (00772) with a "Strong Buy" rating and a target price of HK$28.19.
The firm forecasts the company's revenue for 2026-2028 to be RMB 7.63 billion, RMB 7.98 billion, and RMB 8.32 billion, respectively, with adjusted net profit attributable to shareholders of RMB 850 million, RMB 1.10 billion, and RMB 1.20 billion.
Using the PE valuation method, the firm assigns a target PE of 29 times for 2026, corresponding to a target market capitalization of RMB 24.6 billion, or HK$28.6 billion.
The firm believes that generative AI will enhance IP adaptation efficiency and serve as an amplifier of IP value, therefore it is bullish on the company's medium-to-long-term development.
The main viewpoints of Huachuang Securities are as follows:
China Literature Group is built on digital reading with IP incubation and development at its core
China Literature Group is a comprehensive cultural industry group built on digital reading with IP incubation and development at its core. In 2002, Qidian Chinese Network was founded, pioneering the VIP paid model. In 2015, Tencent Literature and Shanda Literature merged to form China Literature Group. In 2017, it was listed on the Main Board of the Hong Kong Stock Exchange. The company's brands include Qidian Reading, New Classics Media, QQ Reading, Tencent Animation, and China Literature Goods, bringing together creators and a reserve of works, and has expanded into film and television, animation, gaming, audiobooks, merchandising, and live entertainment in the IP development space. In May 2023, Hou Xiaonan, Vice President of Tencent's Platform and Content Group and President of China Literature Group, became the company's Chief Executive Officer. In June of the same year, the company launched organizational and business upgrades, establishing four major business divisions to embrace AI and ramp up its IP ecosystem.
The online reading business cultivates the creator ecosystem and forms the foundation of the business
Huachuang Securities noted that online reading is the company's business foundation, with its core competitiveness lying in long-term cultivation of the creator ecosystem, having built a support, incentive, and collaboration system spanning from novice writers to "platinum master" authors. As of the end of 2025, the company had 11.35 million writers, accounting for approximately 35% of the total number of online literature writers in China. The platform's total works reached 18.17 million, representing 40% of the total number of online literature works in China. In 2024-2025, the company's online reading revenue was approximately RMB 4 billion, with its own platform user base remaining stable while proactively optimizing other distribution channel businesses. In 2025, monthly ARPPU rebounded to RMB 32.9, up 2.8% year-on-year, reversing the previous consecutive downward trend. MPU was approximately 9 million, remaining relatively stable. The company's overseas portal WebNovel (Qidian International) is positioned around IP translation, UGC creation, and global monetization, firmly holding a leading position in the industry, and leveraging AI to improve translation efficiency, enabling Chinese stories to reach multilingual users worldwide more quickly.
The IP operations business builds a second growth curve through acquisitions, incubation, and investment
Starting in 2018, the company accelerated the building of its IP ecosystem. In film and television, the company acquired 100% equity of New Classics Media in 2018, connecting IP incubation with film and television development, moving from copyright into production. In animation, the company acquired Tencent Animation-related assets and a 90% stake in Michengzi in 2023, the latter being the IP operator of "Under One Person," with the original Tencent Animation team integrated in, further enriching its IP reserve and accelerating the visualization of text-based IP. In 2026, the company increased its stake in YHKT to hold 59.7% equity, thereby owning the sci-fi IP "Ling Cage" and enhancing its capabilities from IP incubation to visualization and commercialization. In IP derivatives, the company launched the IP derivative brand "China Literature Goods" in 2022. In 2024, it invested in card manufacturer Hitcard and European and American card company Crossing to enter the card sector. In 2025, it invested in Super Vitality Factory to enter the plush trendy toy sector. In short dramas, the company entered the short drama sector in 2023, launching the "Short Drama Galaxy Incubation Plan," introducing three major initiatives: the "Hundred IP Incubation Plan," the "Hundred Million Yuan Creation Fund," and AIGC-empowered interactive short dramas. In May 2026, the company launched the overseas comic drama platform "ToonScroll." In July 2026, it launched the domestic premium video app "Qidian Theater." In 2024, the company's IP operations revenue was RMB 4.09 billion, surpassing the online reading business for the first time. In the first half of 2026, IP operations revenue was RMB 1.69 billion, up 40.3% year-on-year, of which short drama and AI comic drama revenue was RMB 430 million, up 230% year-on-year, and IP derivative GMV was RMB 780 million, up 60% year-on-year.
Risk warnings: Risks related to film and television drama scheduling, new businesses falling short of expectations, declining user activity, and tightening regulatory policies.