"Big Banks" Citigroup: China Literature's performance last year was below expectations, affected by limited content release from New Classics Media

Citi published a research report stating that China Literature Group (00772.HK) issued a profit warning, expecting last year's non-IFRS adjusted net profit to be between RMB 800 million and 900 million, lower than Citi's and market expectations. The bank estimates that New Classics Media may incur losses in the fiscal year 2025, mainly due to delays in content production leading to limited release of series content, which is far from the bank's original assumption of releasing 6 series in the second half of the year and recording a profit of RMB 243 million; the profit from non-New Classics Media businesses may be RMB 1 billion, lower than the pre-performance forecast of RMB 1.08 billion.

Therefore, the bank believes that the underperformance of China Literature's 2025 earnings is mainly due to the limited content release from New Classics Media, while the non-New Classics Media business only slightly missed expectations. Since the market is already aware of the delays in content production, the bank believes that the disappointing performance of New Classics Media should not be considered a surprise.

Citi expects the market to lower its earnings forecast for China Literature in response to the profit warning, and the stock price is expected to decline. The bank maintains a "Buy" rating on China Literature with a target price of HKD 38. (/da)