HK Stock Market Move | CHINA LIT (00772) continues to fall by over 4% due to impairment of Xinli's goodwill dragging down annual performance, Citigroup points out uncertain future prospects.

China Literature (00772) continued to decline by over 4%, as of the time of writing, it is down by 4.35% at HK$25.3, with a turnover of HK$181 million. In terms of news, China Literature recently issued a profit warning, expecting a net loss of approximately RMB 150 million to RMB 250 million for the fiscal year 2024 according to IFRS (International Financial Reporting Standards), while the IFRS net profit for the fiscal year ended December 31, 2023 was RMB 804 million, mainly due to the non-cash impairment of goodwill arising from the acquisition of New Classics Media Holdings Limited in 2018, estimated at around RMB 1.05 billion to RMB 1.15 billion. The board of directors expects the non-IFRS net profit for fiscal year 2024 to be around RMB 1.1 billion to RMB 1.15 billion, which is roughly in line with the RMB 1.129 billion for the fiscal year ended December 31, 2023. Nomura stated that it downgraded its rating on China Literature to "Neutral" and lowered its target price from HK$29.8 to HK$27. The bank mentioned that the group's profit outlook for the fiscal year 2025 seems weak, hence adjusted its profit for fiscal years 2024 and 2025 downwards by 18% and 16% respectively, mainly due to the low profit contribution from New Classics Media. Citigroup stated that Yuewen's expected shift in strategy may lead to a longer development cycle for new projects and an increase in production costs. While the advantage of New Classics Media in content production remains unchanged, the success of major content pieces is difficult to predict, and the future outlook remains uncertain.