Company Dynamics - On March 28, 2026, the company hosted the "Yuewen IP Industry Influence Forum," where management shared opportunities in the AI era for its IP ecosystem and officially launched the "Spark Plan" [1] - The management indicated that over 1,000 web novels have been adapted into animated dramas, with more than 100 achieving over 10 million views and 26 surpassing 100 million views, demonstrating a successful AI+IP model [1] - Currently, the IP development rate is less than 0.1%, with over 99% of IP still in text form, suggesting that AI technology can activate a vast number of dormant IPs, opening long-term growth potential [1] Comments - The "Spark Plan" aims to build an AIGC content supply-side ecosystem by signing 1,000 AI directors and investing over 100 million yuan to support individual creators [2] - In the literary field, AI is viewed as an assistant, while in the visual domain, it acts as an engine to activate 90% of undeveloped IPs, and in overseas markets, AI serves as a bridge with a 40% year-on-year increase in overseas revenue [2] - The consumption of IP derivatives is shifting from niche markets to broader consumer and social asset markets, with a focus on creating a closed loop of "content—derivatives—offline experiences" [2] Profit Forecast and Valuation - The company maintains a Non-IFRS net profit forecast of 1.46 billion yuan for 2026 and 1.62 billion yuan for 2027, corresponding to adjusted P/E ratios of 16.0 and 14.2 for those years [2] - The company retains an outperform rating and a target price of 43.5 HKD, implying an upside potential of 69% based on adjusted P/E ratios of 27 and 24 for 2026 and 2027, respectively [2]

Core Viewpoint - The event hosted by Reading Literature on March 27-28, 2025, highlighted the significance of IP development and its integration with AI, showcasing the industry's trends and future directions [1] Group 1: Company Developments - Reading Literature's CEO, Hou Xiaonan, shared that over the past six months, the company has transformed more than 1,000 web novels into AI comics, with over 100 of these comics achieving over 10 million views and 26 surpassing 100 million views [2] - The success rate of self-produced comics by Reading Literature is more than five times the industry average, indicating strong performance in content adaptation [2] - Despite having millions of original web novels, the IP development rate remains below 0.1%, suggesting significant untapped potential for visual adaptations [2] Group 2: Industry Insights - The AI comic industry has surpassed 20 billion RMB in scale, with projections suggesting it could reach nearly 100 billion RMB with the addition of live-action adaptations [2] - AI comics have reduced production costs by 80% and shortened production cycles by 70% compared to traditional film and television production [2] - The founder of Soy Sauce Culture discussed the trends in the AI comic industry, emphasizing that IP remains the core value anchor for comics [2] Group 3: Financial Projections - The company maintains its previous profit forecasts, expecting revenues of 7.949 billion RMB and 8.264 billion RMB for 2026 and 2027, representing year-on-year growth of 8% and 4% respectively [3] - Adjusted net profit is projected to reach 1.455 billion RMB and 1.617 billion RMB for the same years, reflecting significant growth of 69% and 11% [3] - Based on comparable IP and film production company valuations, the estimated fair value of the company is set at 42.05 HKD per share, with a "buy" rating maintained [3]

Group 1 - The core event of the "2025 Reading IP Gala" showcased the integration of AI into the entire IP value chain, positioning AI as a new engine for activating IP value [2][5] - The gala highlighted that 5 out of the top 10 long dramas and 9 out of the top 10 animated series in 2025 were adaptations of Reading's IP, indicating the dominance of its IP in the industry [2] - The evolution of the IP industry is reflected in the transition from short dramas to derivative products and new business models, showcasing the rapid expansion of IP value boundaries [2] Group 2 - In the derivative products and trendy toys sector, Reading Group's overall GMV for IP derivatives surpassed 1.1 billion RMB in 2025, marking over a 100% year-on-year growth and setting a historical high [3] - The launch of AI-driven animated dramas has led to the production of over a thousand works in just six months, with 26 pieces exceeding 100 million views, significantly outperforming industry averages [3] - Reading Group's strategy emphasizes the synergy between its vast IP reserves and top-tier creator ecosystem, with AI acting as an accelerator to unlock new growth opportunities for IP value [3] Group 3 - The global Chinese literature competition, co-launched by Reading Group and Singapore's "Lianhe Zaobao," attracted over 50,000 entries from 60 countries, exemplifying the international outreach of China's online literature model [4] - An industry forum held during the gala discussed new trends in the IP industry in the AI era, while an immersive experience called "Macau Pain City" was created to blend IP culture with local characteristics [4] - The combination of new business models and AI's impact on content production is establishing "IP+AI+ecosystem" as a new paradigm for amplifying IP value [5]

Investment Rating - The report assigns a "Buy" rating to the company with a current price of HKD 25.70 and a fair value of HKD 42.05 [9]. Core Insights - The report highlights the company's performance in the IP industry, emphasizing the integration of AI and IP, which is expected to drive growth in the coming years. The CEO shared that over 1,000 web novels have been transformed into AI dramas, with significant viewership success [9][20]. - The report maintains previous profit forecasts, expecting revenues of RMB 79.49 billion and RMB 82.64 billion for 2026 and 2027, respectively, with adjusted net profits of RMB 14.55 billion and RMB 16.17 billion, reflecting growth rates of 69% and 11% [9][26]. Financial Summary - Revenue projections for 2024A to 2028E are as follows: - 2024A: RMB 8,121 million (16% growth) - 2025A: RMB 7,366 million (-9% growth) - 2026E: RMB 7,949 million (8% growth) - 2027E: RMB 8,264 million (4% growth) - 2028E: RMB 8,550 million (3% growth) [4]. - Non-GAAP net profit projections are: - 2024A: RMB 1,142 million - 2025A: RMB 858 million - 2026E: RMB 1,455 million (69% growth) - 2027E: RMB 1,617 million (11% growth) - 2028E: RMB 1,782 million (10% growth) [4]. - The report anticipates an EBITDA of RMB 729 million in 2024A, increasing to RMB 1,574 million by 2028E [4]. Market Performance - The report notes that the company has outperformed the Hang Seng Index, with a relative performance increase of 70% from March 2025 to March 2026 [6]. Industry Trends - The report discusses the rapid growth of the AI drama market, which has surpassed RMB 20 billion, with expectations to reach a scale of RMB 100 billion as it integrates with live-action productions [20][23]. - The report emphasizes the importance of IP as a core value anchor in the drama industry, highlighting that established IPs reduce customer acquisition costs and mitigate creative risks [23]. Valuation - The report uses a sum-of-the-parts (SOTP) valuation method, estimating the company's fair value at HKD 42.05 per share based on comparable company valuations and expected growth in IP-related revenues [9][31].

Core Viewpoint - In 2025, the company reported a revenue of 7.366 billion yuan, a year-on-year decline of 9.3%, and a Non-IFRS net profit of 858.5 million yuan, down 24.8% year-on-year. Under IFRS, the company recorded a loss attributable to equity holders of 776 million yuan [1]. Group 1: Operational Performance - In 2025, the platform's average monthly active users (MAU) reached 138 million, a decrease of 17.3% year-on-year. The total number of paying users was 9 million, remaining relatively stable with a decline of 1.1% [1]. - The user structure showed characteristics of "total adjustment and value concentration," primarily due to the continuous loss of users from self-operated channels, while the value contribution of proprietary platform products became more pronounced [1]. - The average monthly revenue per paying user increased by 2.8% year-on-year, reaching 32.9 yuan [1]. Group 2: Overall Performance - The total revenue for 2025 was 7.366 billion yuan, with an operating loss of 804 million yuan. The Non-IFRS net profit was 858.5 million yuan, a decline of 24.8% year-on-year, mainly due to the recognition of significant goodwill and financial asset impairment losses related to New Classics Media in 2025 [1][2]. - The decline in copyright operations and other businesses was attributed to the postponement of film and television projects, which resulted in fewer releases and related revenue recognition [2]. Group 3: Online Business - Online business revenue for 2025 was 4.047 billion yuan, a slight increase of 0.41% year-on-year. The monthly average paying users for proprietary platform products and Tencent's self-operated channels decreased by 1.1% due to increased promotional activities leading to some low-paying users being classified as free users [2]. - The structure of paying users continued to optimize, with a decrease in the proportion of small-paying users, which contributed to the increase in average monthly revenue per paying user [2]. - The core product operations and improved content quality led to a slight increase in revenue from proprietary platforms, while significant growth in third-party platform revenue reflected the value added by the company's quality output to partners [2]. Group 4: Copyright Operations and Other Businesses - Revenue from copyright operations and other businesses was 3.3191 billion yuan, a year-on-year decline of 18.86%, mainly due to the reduced number of releases from film and television projects affected by scheduling delays [2]. - The company continues to advance its "IP + AI" strategy, utilizing AI to enhance the efficiency of IP content production and monetization, with the GMV of IP derivatives reaching 1.1 billion yuan [2]. Group 5: Profit Forecast and Investment Rating - Revenue forecasts for 2026-2028 are projected at 8.1 billion, 8.6 billion, and 9.2 billion yuan, with adjusted net profits of 1.45 billion, 1.59 billion, and 1.75 billion yuan, respectively, corresponding to PE ratios of 17, 15, and 14 times [3]. - Considering the rapid development of IP derivatives and AI dramas, along with a rich reserve of New Classics series, the company is estimated to have a target market value of 34.6 billion yuan for 2026, with a target price of 34 yuan and 39 HKD, maintaining a "buy" rating [3].

Investment Rating - The investment rating for the company is "Buy" (maintained) [2] Core Insights - The company reported a revenue of 7.366 billion RMB for 2025, a year-on-year decrease of 9.3%, with a Non-IFRS net profit of 858.5 million RMB, down 24.8% year-on-year. Under IFRS, the company recorded a loss attributable to equity holders of 776 million RMB [10][16] - The average monthly active users (MAU) for the platform reached 138 million in 2025, a decline of 17.3% year-on-year, while the total number of paying users remained stable at 9 million, with a slight decrease of 1.1% [6][11] - The company is focusing on the rapid growth of new businesses such as short dramas, AI comics, and IP derivatives, which have shown significant growth despite the overall decline in traditional revenue streams [6][30] Summary by Sections Financial Performance - In 2025, the company achieved a total revenue of 73.66 billion RMB, with an operating loss of 8.04 billion RMB. The Non-IFRS net profit was 8.58 billion RMB, reflecting a 24.8% decline year-on-year due to significant goodwill and financial asset impairment losses related to Xinli Media [16][28] - The online business revenue was 40.47 billion RMB, a slight increase of 0.41% year-on-year, while the copyright operation and other business revenue fell to 33.19 billion RMB, down 18.86% year-on-year [17][30] User Metrics - The platform's average MAU was 138 million, with a decline of 17.3% year-on-year. The average monthly revenue per paying user increased by 2.8% to 32.9 RMB [6][11] - The user structure showed a trend of "total adjustment, value concentration," primarily due to the continuous loss of users in self-operated channels [11][28] Business Segments - The online business segment accounted for 54.9% of total revenue, while copyright operations and other businesses represented 45.1% [17][30] - The company has made significant advancements in the IP derivatives sector, achieving a GMV of 1.1 billion RMB, indicating strong growth potential [31][32] Future Outlook - The company forecasts revenues of 81 billion RMB, 86 billion RMB, and 92 billion RMB for 2026, 2027, and 2028 respectively, with adjusted net profits of 14.5 billion RMB, 15.9 billion RMB, and 17.5 billion RMB [35] - The target market capitalization for 2026 is estimated at 34.6 billion RMB, with a target price of 34 RMB per share [35]

Investment Rating - The report maintains a "Buy" rating for the company [1]. Core Insights - The company reported a revenue of 7.37 billion yuan for 2025, a year-on-year decline of 9.3%, and an adjusted net profit of 860 million yuan, down 24.8%, which aligns with previous forecasts [4][7]. - The fluctuation in the New Classics Media project has led to a decline in revenue and profit for the company in 2025, with only two series released during the year and losses from the film "The Saint of Love 3" [7]. - Online business remained stable, with online revenue of 4.05 billion yuan in 2025, a slight increase of 0.4%, and a minor decrease in monthly active users [7]. - New IP growth is clearer with over 120 short dramas launched in 2025, and AI comic revenue exceeding 100 million yuan since its introduction [7]. - AI has been applied in various operational aspects, contributing significantly to revenue, particularly through the WebNovel platform [7]. - Short-term profit recovery is anticipated if long dramas resume and new business continues to expand, while medium-term focus is on upgrading IP monetization structures [7]. - The adjusted net profit forecasts for 2026 and 2027 have been revised down to 1.403 billion yuan and 1.555 billion yuan, respectively, with a new forecast for 2028 set at 1.717 billion yuan [7]. Financial Data and Profit Forecast - The projected financial data for the company is as follows: - Revenue: 8,121 million (2024), 7,366 million (2025), 7,952 million (2026E), 8,441 million (2027E), 8,995 million (2028E) [6]. - Adjusted net profit: 1,142 million (2024), 858 million (2025), 1,403 million (2026E), 1,555 million (2027E), 1,717 million (2028E) [6][8]. - Earnings per share: 1.12 (2024), 0.84 (2025), 1.37 (2026E), 1.52 (2027E), 1.68 (2028E) [6].

Investment Rating - The report assigns a "Buy" rating to the company, with a target price based on the closing price of HKD 27.46 on March 20, 2026 [2]. Core Insights - The company reported a revenue of RMB 7.366 billion for 2025, a year-over-year decrease of 9.3%. The adjusted net profit was RMB 858 million, down 24.8% year-over-year. The company also experienced a net loss attributable to shareholders of RMB 780 million, a significant increase of 270.9% due to an impairment of goodwill related to New Classics Media [6]. - The online reading business remained stable, with revenue of RMB 4.05 billion, a slight increase of 0.4% year-over-year. The company attracted 400,000 new authors, producing over 800,000 novels, and saw significant engagement on its platform [6]. - The company is focusing on new business areas such as short dramas and AI comic adaptations, with a rich pipeline of upcoming shows for 2026. The IP operation and other revenues were RMB 3.32 billion, down 18.9% year-over-year [6]. Financial Forecasts - Revenue projections for 2026 to 2028 are RMB 7.966 billion, RMB 8.435 billion, and RMB 8.943 billion, reflecting growth rates of 8.1%, 5.9%, and 6.0% respectively [2]. - The adjusted net profit is expected to increase to RMB 1.122 billion in 2026, RMB 1.434 billion in 2027, and RMB 1.585 billion in 2028, with growth rates of 30.7%, 27.9%, and 10.5% respectively [2]. - The report anticipates a gradual improvement in profitability driven by new business initiatives and a stable online business [6]. Business Strategy - The company is leveraging AI technology to enhance content creation and global distribution, with tools like "Miao Bi Tong Jian" for deep understanding of web literature and "Copyright Assistant" for efficient IP development [6]. - The strategy includes a focus on "IP + AI" to maximize the commercial value of quality content, with expectations of expanding into new markets through short dramas, comic adaptations, and IP derivatives [6].

Core Viewpoint - The company reported a revenue of 7.366 billion yuan for 2025, a year-on-year decrease of 9.3%, while the net profit attributable to shareholders was a loss of 777 million yuan, an increase of 270.9% year-on-year. The Non-IFRS net profit was 858 million yuan, down 24.8% year-on-year, primarily due to the impact of delayed broadcasting on its subsidiary, New Classics Media, and a reduction in the number of film and television projects launched. The company also recognized an impairment of goodwill amounting to 1.81 billion yuan for New Classics Media, leading to an expanded loss of 777 million yuan on an IFRS basis. Following this impairment, the goodwill related to New Classics Media has been fully written off, eliminating future impairment risks, which is considered a one-time negative impact [1][2]. Group 1 - The online reading business remains stable, while the film and television business faces short-term pressure. The online business generated a revenue of 4.047 billion yuan for the year, a slight increase of 0.4% year-on-year, indicating a solid foundation, with proprietary platform product revenue growing by 0.9% to 3.562 billion yuan, reflecting strong user stickiness. The company has actively optimized distribution channels, focusing on paid reading channels, with MAU for proprietary and Tencent self-operated channels at 138 million, down 17.3% year-on-year, and MPU at 9 million, down 1.1% year-on-year. Revenue from copyright operations and other businesses decreased by 18.9% to 3.319 billion yuan, mainly due to the delay in the broadcasting of certain film and television projects and the impairment of goodwill for New Classics Media [1][2]. - The AI comic business has achieved a breakthrough start, with nearly 1,000 AI comic works launched, over 100 of which have surpassed 10 million views, and 12 have exceeded 100 million views. Revenue from this business exceeded 100 million yuan in the second half of the year. AI technology is expected to enable the large-scale, low-cost visual development of the company's vast mid-tier IPs, opening up new high-growth curves for copyright operations [1][2]. Group 2 - The company actively embraces AI by launching the "Comic Assistant" tool, integrating with several leading multimodal large models. AI technology is anticipated to facilitate the large-scale, low-cost visual development of the company's extensive mid-tier IPs, creating new high-growth opportunities for copyright operations [2]. - The IP derivative products are experiencing rapid growth, with the company's derivative business GMV expected to exceed 1.1 billion yuan in 2025, more than doubling from 2024 and setting a historical high. Multiple major IP licensed games have obtained approval and will be launched in the future, including titles from Tencent's Magic Cube Studio and other collaborations [2]. - The film and television projects affected by the broadcasting delays at New Classics Media in 2025 are expected to gradually release in 2026. Additionally, several new dramas, such as "Young and Promising" and "Eradication of Evil," have been released at the beginning of the year and received positive reviews and popularity, indicating a potential recovery in the film and television business [2]. - Revenue forecasts for the company are projected at 7.86 billion yuan and 8.36 billion yuan for 2026 and 2027, respectively, with growth rates of 7% and 6%. Adjusted net profits for 2026 and 2027 are expected to be 1.47 billion yuan and 1.71 billion yuan, respectively [2].

Core Viewpoint - The company reported a significant decline in its financial performance for the year 2025, with a notable increase in net losses primarily due to goodwill impairment related to Xinli Media, while online reading and IP-related businesses showed resilience and growth potential. Financial Performance - The company achieved a revenue of 7.366 billion RMB in 2025, a year-over-year decrease of 9.3%, slightly above Bloomberg's consensus estimate of 7.365 billion RMB [1] - Gross profit was 3.397 billion RMB, down 13.4% year-over-year, resulting in a gross margin of 46.1%, which is a decline of 2.2 percentage points compared to the previous year and below the expected 49.3% [1] - The net loss attributable to shareholders was 777 million RMB, compared to a loss of 209 million RMB in 2024, primarily due to an impairment loss of approximately 1.813 billion RMB related to Xinli Media's goodwill [1] - Adjusted net profit attributable to shareholders was 858 million RMB, reflecting a year-over-year decrease of 24.8% [1] Online Reading Business - Online reading revenue reached 4.047 billion RMB in 2025, remaining stable year-over-year and accounting for 54.9% of total revenue, an increase of 5.3 percentage points [2] - Revenue from proprietary platform products grew by 0.9% to 3.562 billion RMB, driven by content operations and high-quality content production [2] - Revenue from Tencent products declined by 22.3% to 191 million RMB due to reduced new user acquisition from content distribution optimization [2] - Revenue from third-party platforms increased by 15.7% to 294 million RMB, attributed to expanded cooperation with third-party distribution partners [2] - The IP creation ecosystem expanded, with 400,000 new authors added in 2025, and the Qidian Reading platform saw a 40% increase in works with over 100,000 subscriptions [2] IP Ecosystem and Derivative Products - The derivative products business showed strong performance, with GMV exceeding 1.1 billion RMB in 2025, compared to 500 million RMB in 2024 [3] - The company expanded its product offerings across various categories, including precious metals and collectibles, and established a multi-channel network for distribution [3] - Over 120 short dramas were launched in 2025, with the highest-grossing project exceeding 80 million RMB, showcasing a successful strategy in diversifying genres [3] - AI comic dramas were introduced in the second half of 2025, generating over 100 million RMB in revenue from nearly 1,000 works [3] - Xinli Media is expected to release 6-8 TV dramas in 2026, with several titles already launched [3] AI Integration and Overseas Expansion - AI technology is integrated throughout the IP value chain, enhancing efficiency in web novel creation, IP selection, and overseas expansion [4] - The company has developed tools for writers and copyright management, significantly improving the selection process for quality IP [4] - By the end of 2025, the WebNovel platform had over 17,000 AI-translated works, contributing to more than one-third of total platform revenue, with a year-over-year revenue growth of 39% [4] Profit Forecast and Valuation - The company is recognized as a leading player in the IP value chain, with stable online reading business and promising growth in short dramas, comic dramas, and derivative products [4] - Adjusted net profit forecasts for 2026 and 2027 have been revised down by 6% and 5% to 1.43 billion RMB and 1.58 billion RMB, respectively, with a new forecast for 2028 set at 1.69 billion RMB [4] - The company maintains a "buy" rating based on its growth potential despite uncertainties in new media releases and film productions [4]