Guosheng: China Lit (00772) has been given a "buy" rating for its domestically rare IP reserves.

Guosheng released a research report stating that it is initiating coverage of CHINA LIT (00772) with a "buy" rating for the first time. The bank expects the company to achieve revenue of 8.033 billion/8.329 billion/8.591 billion yuan and net profit attributable to shareholders of 718 million/1.296 billion/1.494 billion yuan from 2026 to 2028, corresponding to PS 2.2x/2.1x/2.1x and corresponding PE 25x/14x/12x. The bank is optimistic about the company's IP commercialization value and future growth, believing that AI-driven content production capabilities will dramatically improve, potentially accelerating further exploration of the company's IP rich resources. Guosheng's main points are as follows: CHINA LIT is a comprehensive cultural industry group based on digital reading, with IP cultivation and development as its core business, focusing on online business, copyright operations, and other businesses. The company was formerly known as China Reading Limited and was formed in 2015 through a merger between Tencent Literature and Shanda Literature. As of December 31, 2025, Tencent is the controlling shareholder. In terms of business, the company's main operations include online business and copyright operations, as well as other businesses. 1) Online business: providing online reading services through its own online literature platforms and commercializing services such as paid reading and online advertising; 2) Copyright operations and other businesses: transforming online literature IPs into various forms of content such as films, short dramas, animations, and derivative products through licensing or independent development. The company relies on its online business to incubate, accumulate, and initially monetize IPs, while copyright operations further explore the monetization potential of IPs. The online business has platform-based IP incubation capabilities, and diverse businesses such as copyright operations accelerate the commercialization of the IP downstream chain. 1) Online business: the company continues to improve the construction of its platform, writer side, reader side, and commercialization side, creating a significant network effect; 2) Copyright operations and other businesses: the company actively promotes emerging formats such as AI animations, short dramas, and IP derivative products, achieving impressive commercial progress in 2025. Due to uneven project scheduling, the company faced temporary pressure in 2025, but with project scheduling gradually recovering in 2026, it is expected to contribute to performance growth. Three core investment logics for accelerating the commercial value release in the AI era The bank believes that this round of technological development, driven by generative AI technology, has led to a revolutionary change in the way content is produced, significantly improving production efficiency. Therefore, in such an era, the bank believes that the current core investment logic of the company lies in: 1) AI empowerment increases the supply of upstream online literary IPs: The company possesses the largest literary IP library in the industry from a stock perspective, with rich quality IP resources. From an incremental perspective, the company has created an AI online literary creation tool "Writer Assistant," which is expected to empower the thickening of IP supply through AI technology, consolidate the foundation of the online business, expand the IP development resource base, and accumulate momentum for subsequent monetization. 2) AI-driven efficiency improvement in screening and developing online literary IPs, increasing output: The low cost and high efficiency brought by AI technology assist the company in batch developing a large number of IPs, conducting "scalable" trials, rapidly validating the market potential of IPs. In terms of AI capability building, the company actively constructs its own AI tool capabilities, aiming to form a business cycle from "IP-AI-driven development-Product," accelerating the process of high-potential IP screening and value release, and contributing to revenue growth. 3) AI assists in the export of various forms of IPs, accelerating internationalization: The company has already used AI to facilitate the internationalization of online literature, and in the future, it is expected to accelerate the pace of internationalization for other types of IPs, expand its business regions, and bring about performance growth. Risks Macroeconomic fluctuations; business progress falling short of expectations; intensified industry competition.