Left hand explosive short drama, right hand comic drama breakthrough: China Literature (00772) IP ecology opens up the value reassessment of a new cycle.

With the "electronic pickled vegetables" of contemporary adults upgrading from short videos to the form of "short drama spicy strips," the short drama market is also ushering in its "golden year" in 2025. According to the latest research by Hongguo Drama, in 2025, the domestic short drama market is expected to reach close to one hundred billion yuan. This also means that compared to the 50 billion output value scale in 2024, the micro-drama market has doubled in just one year. Of course, the popularity of short dramas is closely related to the "hot-selling machine" that accurately hits the hot spots and urgent points of the times. On December 11, Yuewen (00772) released the 2025 annual short drama report. In 2025, Yuewen's short dramas produced over 120 short dramas, significantly increasing production capacity. Among them, many works received the certification of top platforms for being "hot dramas," with a variety of genres such as modern romance, costume drama, period drama, and male-oriented dramas. For example, the female-oriented drama "Good Pregnancy Sweet Wife" produced by Yuewen was a phenomenon-level hit at the beginning of the year, ranking second in the annual play count on Cloud, with a total view count exceeding 3 billion and total revenue breaking 80 million, ranking first on the paid monthly list. The male-oriented drama "This Bodyguard is Too Invincible" ranked first on the paid end consecutively for five days, with a three-day popularity index of 76.86 million on the top free short drama platform, ranking third on the hot play list and second on the new drama list, and also the only male-oriented drama to break into the top four of the weekly list during the same period. The impressive data further validates that Yuewen's short dramas have seen a dual improvement in "quantity" and "quality," showcasing its strong influence in the short drama field. Currently, the trend of micro-short dramas is sweeping the global entertainment industry with unprecedented intensity, and the industry's growth potential is considerable. With the company's leap in short drama "quantity" and "quality," Yuewen, as a giant in the online literature industry, is expected to have the opportunity to reshape its value. After all, what investors truly buy into is not stock codes and financial statements, but a compelling and believable story about the future with certainty. High-quality IP + excellent creators = holding two core "value plates" Yuewen's foray into short dramas began in 2023, at a time when the industry was transitioning from unbridled growth to normalization, as the market saw explosive growth, with capital and giants entering, and regulatory frameworks began to take shape, making "high-quality content" the key to industry development. Due to Yuewen's background as a leading online literature company, with expertise in content, it has a natural advantage in creating short dramas. Since entering the industry, Yuewen has continuously released many hit short dramas, gaining a reputation for producing high-quality works. For example, in 2024, CHINA LIT launched the hit short drama "Ten Thousand Thunders Supreme" which generated over 10 million in revenue within 72 hours, and the female-oriented hit short drama "Ding! My Rich Husband is Online" generated over 12 million in revenue within 48 hours. Moving on to 2025, Yuewen released more diversified and hit works at the beginning of the year such as "Good Pregnancy Sweet Wife," "He Wild," "Sweet Wife Like Fire, Hov- Super Loves," "The Shunan Daughter Enters the Game with Her Body," and "After Leaving Home, I Reborn with My Daughter," among others. In addition to its inherent advantage in producing short dramas, CHINA LIT also holds two core "value plates." Firstly, it has a rich IP reserve, providing high-quality story sources that are scalable, sustainable, and low-risk. On March 31, 2025, CHINA LIT's short drama label Yuewen Drama announced an upgrade to its operations, opening up more than 2,000 online literature IPs to create high-quality short dramas, and released the first list of 300 online literature IPs. This comes after last year's announcement at the Yuewen Creative Conference to open up 150 online literature IPs for collaboration, further expanding and collaborating with the entire industry on the number and variety of IPs. This massive IP library is a rich and market-validated "story database" for CHINA LIT. Each successful IP comes with a complete worldview, strong character relationships, and proven "hot spot" modules that attract audiences. This serves as the core raw material for the short drama production line, providing a "pre-screened, high-quality, standardized" foundation. Secondly, empowering excellent authors directly creates an "ecological barrier to creation" that cannot be easily replicated. As a leading online literature giant in China, CHINA LIT has a large ecosystem of creators. Among them, outstanding online literature authors understand the "narrative rhythm" and "user engagement points" the best, ensuring that adaptations do not lose their essence and can accurately transform the "pay hooks" from written works into "pay points" in short dramas. This is a core capability that external writers find difficult to replicate. For example, the original script "Good Pregnancy Sweet Wife" developed by Yuewen Drama and Gongzi Yan cleverly utilizes a precise "kinship" design to repeatedly heighten audience anticipation for the plot, making it a phenomenon-level hit at the beginning of the short drama industry in 2025, ranking in the top three on the global short drama hotness charts. Furthermore, the short drama "He Wild" adapted from an IP by Yuewen's renowned author Bai Xiangmi, broke through 60 million in platform popularity with its solid story foundation and precise emotional expression. It is evident that by firmly grasping these two core value plates, Yuewen's success rate in short drama adaptations and hit rate lead the industry. As of the first half of 2025, Yuewen's overall hit rate in short dramas reached 60%, far exceeding the industry average. Aside from its above-average hit short dramas, Yuewen's success in the short drama field is also attributed to its forward-thinking and efficient platform layout. On one hand, Yuewen benefits from a mature and complete industry chain advantage, spanning from upstream content production including IP incubation and scriptwriting, to midstream artist management, short drama production, content distribution, short drama distribution, and downstream support in media and traffic investments, providing a deep moat for its short drama business layout. On the other hand, in terms of distribution channels, in addition to reusing some of Yuewen's existing online literature distribution channels for short dramas, Yuewen continues to enhance cooperation with WeChat ecosystem, Tencent Video, and other platforms to explore more effective ways to integrate short dramas into their platform scenes, achieving a strategic synergy effect of 1+1 > 2. In conclusion, by holding the two core value plates of high-quality IP and excellent creators, complemented by a forward-thinking and efficient platform layout, Yuewen's short dramas have gradually evolved into an "ecosystem hub that uses short dramas as a new transformation tool to systematically unleash the value of literary IPs," showcasing significant growth momentum. From short dramas to comic dramas, it's about tactical replication as well as strategic elevation. If entering the short drama market was a key strategic move for CHINA LIT to open up a "second growth curve," then investing in comic dramas is an important business elevation for the company to continue to gain growth momentum. According to data from Huge Engine, driven by factors such as AI empowerment and platform support, the comic drama market saw a cumulative launch of 3,000 comic dramas in the first half of 2025, with a continuous expansion rate of 83%; revenue scale grew 12 times, and the market size is expected to exceed 20 billion yuan for the full year, showing a highly prosperous industry. This means that the comic drama market is another growth level not inferior to the short drama market. In response, Yuewen has actively laid out the comic drama market to seize the industry development opportunities accurately. On October 16, at the 2025 Yuewen Creative Conference, CHINA LIT CEO and President Hou Xiaonan announced that based on its deep roots in short dramas, the company will comprehensively layout the comic drama ecology and support comic drama creation from four dimensions: IP, funding, technology, and ecosystem. Regarding IP resources, Yuewen comics will open up over 100,000 high-quality IPs, including top works such as "National Forensic Doctor" and diverse genres; in terms of creative support, Yuewen comics will establish a billion-dollar special creative fund to support author transitions and team development; in technology empowerment, Yuewen introduced "Comic Drama Assistant" and other AIGC tools to improve the efficiency of comic drama adaptation; in terms of industry chain collaboration, it has established full-chain support from production, distribution, to IP collaboration, creating an open, efficient, and win-win comic drama co-creation ecosystem. In addition, Yuewen comics have also established deep cooperation relationships with several leading comic drama production companies such as Soya Animation, Qixiang, and Zhihang He Yi. It is crucial to note that the substantial investment in comic drama business is not just about reaping industry dividends and opening up more incremental space for Yuewen but about leveraging short drama business to become a "perfect dual wing" driving IP visualizations. On one hand, comic drama user profiles will complement short drama user profiles, reaching more incremental users. Specifically, short dramas cover a wider audience in the mainstream and mass sentiment, while comic dramas provide a direct channel to the Z-generation and core users of the second dimension. Therefore, Yuewen's layout of comic drama business will help the company develop the "second frontline" of IP visualization and complete IP audience coverage across all age groups. On the other hand, delving into the comic drama field can further amplify the company's IP value and drive rapid visual development of IPs. Today, the value of visualization has become a consensus in the IP industry, but the coverage of developed visual works remains limited. Therefore, expanding into the comic drama business, in addition to short drama business, is another "weapon" for promoting the visual development of IPs for the company. It is worth noting that the production cost and cycle of comic dramas are between online literature and animation/live-action series, making them a "middle test product" that is lighter and faster than long-form animations, enabling a lower-cost and faster visual development of an IP. Moreover, the launch of tools such as "Comic Drama Assistant" by Yuewen Studios is timely. It not only significantly lowers the production threshold and time cost for high-quality comic dramas, revolutionizing the balance between cost and speed, but also enables Yuewen to potentially establish a more profound ecological moat in the next generation of AI-driven visual content competition, focusing on a core of "IP data + AI model." From these actions, it is evident that CHINA LIT's layout in the comic drama market is a crucial extension and deepening of its IP ecosystem strategy. The strategic practice of short dramas provides a clear development path and growth paradigm for comic drama layout. In the future, as AI technology matures and the comic drama industry continues to release high growth potential, CHINA LIT is expected to further open up new growth curves. Conclusion In conclusion, it is evident that for CHINA LIT, the business layout of short dramas and comic dramas is not only a key factor for the company to quickly unleash the value of IPs but also a core driver for the company to reevaluate its value from a traditional digital reading provider to an IP-oriented ecosystem company. Yuewen's clear chain of communications promoting the reevaluation of the company's valuefrom the successful landing of short and comic drama businesses, to the dual growth in revenue and profits brought by this new business, to the proven industrialization ability of IPs, leading to the transformation into an IP ecosystem companyhas prompted the secondary market to look at it with more optimism and higher multiples. Therefore, even though Yuewen's online reading and copyright operation business showed signs of weakness in the first half of the year, based on the company's robust IP monetization capabilities and the growth potential of short and comic dramas, mainstream market institutions still hold a positive view of Yuewen. Besides the target price of 40 HKD given by Lyon Securities and UBS Group, CMSA also maintains a "buy" rating, and Shenwan Hongyuan Group maintains a "buy" rating as well.