UBS lowers the target price of CHINA LIT to 50 yuan, rating "Buy"

UBS report indicates that China Literature (00772.HK) performance in the second half of the year is generally in line with UBS's expectations and its profit warning issued on February 10. However, due to the weak performance of New Classics Media (which the bank estimates will incur a loss of RMB 154 million in 2025), net profit fell short of market expectations. China Literature's revenue in the second half of the year grew by 6% year-on-year to RMB 4.2 billion, which is 3% and 1% higher than UBS and market expectations, respectively. Gross margin decreased by 4 percentage points year-on-year to 42.7%, which is 790 and 679 basis points lower than UBS and market forecasts, respectively. Benefiting from better-than-expected control of operating expenses and reduced taxes, adjusted net profit for the second half of the year was RMB 351 million, in line with UBS's forecast. The target price has been lowered from RMB 52 to RMB 50, with a rating of "Buy."