In "The Big Bank," Citigroup: China Literature's core IP and online business profits hit a record high, raising the target price to 42.3 yuan

Citi published a research report indicating that China Literature (00772.HK) recently issued a profit warning, with nominal net profit significantly impacted by a one-time goodwill impairment and net losses related to New Classics Media. However, the bank believes that the adjusted net profit from core IP and online business will reach a new high in 2025 (RMB 1 billion), confirming breakthroughs in IP monetization. Amid broader concerns about "AI disruption," the micro-short drama industry and IP owners are expected to benefit from recent defensive measures. The bank raised its target price for China Literature from HKD 40 to HKD 42.3 and maintained a "outperform" recommendation.

The bank forecasts that online business revenue will remain flat in the second half of 2025 (year-on-year and half-year comparisons) at RMB 2 billion, with stable profit margins. However, IP operations (excluding New Classics Media) are expected to continue driving growth, with profits projected to reach RMB 457 million (14% year-on-year growth), benefiting from strong IP demand, robust merchandise sales, and a total merchandise transaction value (GMV) likely to more than double year-on-year, along with improved profit margins and a richer entertainment portfolio including micro-short dramas and animated shorts. Citi anticipates that these new initiatives will drive profit growth in 2026 and may benefit from the acceleration of AIGC applications