China International Capital Corporation (CICC) has released a research report maintaining its Outperform rating on CHINA LIT (00772), with a target price of HKD 29. The firm kept its Non-IFRS net profit attributable to shareholders for 2026 and 2027 at RMB 850 million and RMB 1.311 billion, respectively. At the current stock price, this translates to 21 times and 14 times Non-IFRS P/E for 2026 and 2027. The target price corresponds to 30 times and 19 times Non-IFRS P/E for those years, implying a 39.8% upside from the current share price.

CICC's key takeaways from the first-half 2026 performance are as follows: The company's results slightly exceeded expectations, with revenue of RMB 3.53 billion, up 10.7% year-on-year, and adjusted net profit attributable to shareholders of RMB 260 million. This surpassed CICC's estimates of RMB 3.45 billion in revenue and RMB 220 million in profit, driven by better-than-expected growth in the copyright operations business.

Short-form dramas and AI comics are fueling the copyright operations growth engine: According to the announcement, copyright operations revenue surged 40.3% year-on-year to RMB 1.691 billion in the first half of 2026. Within this, short-form drama and AI comic revenue exceeded RMB 430 million, a 2.3-fold increase year-on-year. IP merchandise GMV reached RMB 780 million, up over 60% year-on-year. However, New Classics Media's performance was relatively subdued. Looking ahead, CICC recommends focusing on several key areas: First, the trend toward higher-quality short-form dramas and AI comics. Based on the earnings call, the company's monthly production of premium AI comics has reached 100 titles, with an annual target of 200 short-form dramas. Second, the continued deepening of IP merchandise operations. According to the earnings call, the number of offline ReadMore stores reached 17 in the first half of 2026, while online self-operated channel sales volume tripled compared to the same period last year. Third, copyright operations are diversifying, with contributions from licensed games like Battle Through the Heavens: The Emperor's Path, Lord of the Mysteries, and Marvelous Husband, as well as the performance of New Classics Media's film and television projects. CICC estimates that New Classics Media's profit contribution for the full year, after accounting for the impact of tax adjustments, will be around RMB 100 million.

Platform and AI tool suites are being deployed concurrently, with a focus on the long-term development potential of IPs: On the platform side, the company officially launched its overseas comic platform, ToonScroll, in May, with plans to release over 1,000 comic titles within the year. In July, the company launched Qidian Theater, opening up adaptation cooperation channels for over 100,000 IPs. On the tool side, NovelBuddy combines creative assistance with copyright protection, DramaBuddy supports the mass production of comics, 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, with their first-half 2026 performance driving a 160% year-on-year increase in revenue from minority languages, accelerating the pace of IP overseas expansion. CICC believes that the company has a deep IP reserve, with less than 0.1% currently developed. Supported by a light-asset development model and AI empowerment, the short-form drama and AI comic businesses are expected to achieve continuous breakthroughs, balancing the pressure from the core reading business and feeding back into the main business. The long-term development value of IPs, viewed from a full industry chain perspective, is promising.

Risks include: Uncertainty in content projects, core business pressure exceeding expectations, and slower-than-expected progress in copyright operations.