CICC: Maintain CHINA LIT (00772) as an outperformer in the industry with a target price of HKD 29.

CICC has released a research report indicating that it maintains the Non-IFRS net profit attributable to the parent company for CHINA LIT (00772) at 850 million yuan and 1.311 billion yuan for 2026 and 2027 respectively. The current price corresponds to a 21x and 14x Non-IFRS price-to-earnings ratio for 2026 and 2027. The rating of "outperforming the industry" and a target price of 29 HKD are maintained, corresponding to a 30x and 19x Non-IFRS price-to-earnings ratio for 2026 and 2027, representing an upside potential of 39.8% compared to the current stock price. Key points from CICC are as follows: 1H26 performance slightly exceeded the bank's expectations. The company announced its 1H26 performance: revenue of 3.53 billion yuan, up 10.7% year-on-year; adjusted net profit attributable to the parent company was 260 million yuan, slightly exceeding the bank's expectations (with revenue expected at 3.45 billion yuan and profit at 220 million yuan), due to better-than-expected growth in the copyright operations business. Short films and animated series build the engine for copyright operation growth. According to the announcement: Copyright operations: 1H26 revenue increased by 40.3% year-on-year to 1.691 billion yuan, of which revenue from short films and AI animated series exceeded 430 million yuan, representing a 2.3-fold increase year-on-year; IP derivative GMV reached 780 million yuan, growing by over 60%; the performance of New Classics was relatively flat. Looking ahead, the bank suggests paying attention to: 1) the trend of quality in short films and animated series. According to the results meeting, the monthly output of premium AI animated series has reached 100, with an annual production target of 200 short films; 2) the continuous deepening of IP derivative operations. As mentioned in the results meeting, the number of offline stores for high-quality products reached 17 in 1H26, with online self-operated channel sales tripling year-on-year; 3) multiple blooming in copyright operations. For example, authorized games such as "Battle Through the Heavens: Path of the Dou Di," "Mystery Master," and "The Son-in-Law" contributed, along with the performance of film and television project reserves from New Classics (the bank expects New Classics' contribution to profit after deducting tax impacts for the year to be around 100 million yuan). The platform and AI tool matrix are being simultaneously implemented, focusing on the long-term development potential of IP. On the platform side: In May, the company officially launched the overseas animation platform ToonScroll, planning to release over a thousand animated series content within the year; in July, the company launched the Qidian Theater, opening up collaboration channels for adaptations of over 100,000 IPs. On the tool side: NovelBuddy integrates creative assistance and copyright protection, DramaBuddy supports the large-scale production of animated series, and IPBuddy empowers IP value assessment; according to the announcement, as of the end of June, WebNovel had accumulated over 30,000 AI-translated works, and 1H26 saw a year-on-year revenue growth of 160% from less commonly spoken languages, accelerating the pace of IP going abroad. The bank believes that the company has a rich IP reserve, with currently less than one-thousandth of it being developed. Under the light-asset development model combined with AI empowerment, the short films and animated series business is expected to continue to break through, balancing the pressures on the reading side and benefiting the main business, with the long-term development value of IP from a whole industry chain perspective being promising. Risk warning: uncertainty of content projects, pressures on the main business exceeding expectations, and slower-than-expected progress in copyright operations.