China Literature Ltd Surges Over 25% Intraday as Brokers Bullish on IP Licensing and Derivative Monetization

Deep News
08/18

On August 18, China Literature Ltd (0772.HK) surged over 25% during trading, ultimately closing at HK$43.16, up 15.34%.

On the news front, China Literature Ltd and "Honor of Kings" launched a "Domestic Content Strategic Cooperation Plan" on August 14, simultaneously releasing and launching a crossover between "Lord of the Mysteries" and "Honor of Kings." The collaboration includes "Lord of the Mysteries" themed skins, merchandise, and fan creation activities. The author of "Lord of the Mysteries," Cuttlefish That Loves Diving, also updated with new novel extras.

This marks the first time the two major IPs have synchronized the launch of both merchandise and skins since their deep cooperation began. Additionally, the drama adaptation of China Literature's core IP "A Record of Mortal's Journey to Immortality" recently aired on Youku, igniting the summer market. The series achieved a popularity score of 8,326 on its premiere day, setting the highest opening-day popularity record on Youku since last year and topping Youku's seven-day bestseller chart.

China Literature's development of "A Record of Mortal's Journey to Immortality" began years ago. In 2020, the animated adaptation "A Record of Mortal's Journey to Immortality" was exclusively broadcast on Bilibili. The author Wang Yu had previously explained that he invested considerable effort in crafting the world-building, referencing the system settings from "The Legend of the Condor Heroes" and "Misty Journey."

In the world of "A Record of Mortal's Journey to Immortality," the protagonist "Old Devil Han" is cautious and meticulous, possessing modern thinking patterns that urban readers find highly relatable. Some readers even call it a "workplace scheming novel." This relates to Wang Yu's personal experience - as a newcomer to the workplace who felt alienated by society, he incorporated his cautious mentality in dealing with colleagues and supervisors into the novel, resonating with many readers.

In 2019, China Literature invested in Huoerguosi Fanren Xianjie Culture Media Co., Ltd., the third-party production company for the drama version of "A Record of Mortal's Journey to Immortality." Both parties hold 45% stakes each, with the remaining 10% belonging to original author Ding Lingtao. Additionally, Tencent, China Literature's parent company, holds a 12.13% stake in Force Animation, making it the third-largest shareholder.

According to disclosure documents from Force Animation and Zhongtai Securities, the two major projects "A Record of Mortal's Journey to Immortality" and "Perfect World" contributed the most revenue to Force Animation from 2022-2024. Preliminary calculations show total revenue of 150 million yuan for the "A Record of Mortal's Journey to Immortality" project and 140 million yuan for the "Perfect World" project over these three years. Meanwhile, animation production gross margins increased annually, reaching 30.83% in 2024.

Premium IPs and derivative businesses have become important engines driving China Literature's revenue growth. On August 12, China Literature announced its interim results for 2025, reporting first-half revenue of 3.191 billion yuan, down 23.9% year-over-year, while net profit attributable to shareholders reached 850 million yuan, up 68.5% year-over-year.

China Literature CEO and President Hou Xiaonan stated that the online reading content ecosystem continued to flourish in the first half, with online business revenue growing 2.3% year-over-year to 1.99 billion yuan. New sectors including mini-dramas and IP derivatives also achieved breakthrough progress. Mini-drama hit rates improved significantly, and IP derivative business GMV reached 480 million yuan, approaching last year's full-year level.

The potential of China's fan economy market continues to materialize. According to iiMedia Research's "2024-2025 China Fan Economy Market Analysis Report," China's fan economy market reached 168.9 billion yuan in 2024, up 40.63% from 2023, with projections exceeding 300 billion yuan by 2029.

During the earnings call, China Literature CEO and President Hou Xiaonan indicated that beyond proprietary IPs, the company would consider introducing high-quality third-party IPs for derivative development. He explained that China Literature has covered almost all categories of derivative products, established integrated online and offline channel networks, and continues to deepen its capabilities in product design, user operations, licensing cooperation, and external investments. Moving forward, China Literature will continue to cultivate the derivative sector to capture a larger market share in this trillion-yuan market.

Mini-drama business has also become a highlight of China Literature's profit growth. The financial report mentioned that in the first half, China Literature's mini-drama productions included one project with revenue exceeding 80 million yuan and total network views surpassing 3 billion, while another work achieved over 1 billion views in its first month online.

China Literature announced in March a further upgrade to its mini-drama business, opening over 2,000 web novel IPs for quality mini-drama production and initially releasing a list of 300 IPs. The company achieved strong growth in the mini-drama sector in the first half with significantly improved hit rates, benefiting from China Literature's rich IP reserves, creator lineup, and IP industry chain support.

Shenwan Hongyuan Securities maintained a "Buy" rating on China Literature Ltd (00772). In the near term, China Literature has a richer pipeline of IP projects for the second half: the revenue-sharing authorized game "Douluo Continent: Soul Hunting World" by 37 Interactive Entertainment launched on July 10. Upcoming projects include Tencent's "Under One Person," which already has a license number.

Shenwan Hongyuan noted that the National Content Strategic Cooperation Plan with "Honor of Kings" was reached on August 14, featuring "encounters with more IP characters in the canyon." The crossover "skins" (character appearance decorations) with "Lord of the Mysteries" are now online, and exclusive merchandise is being sold through China Literature's official flagship store and Honor of Kings' official mall. This represents the most extensive and diverse merchandise launch synchronized with a new Honor of Kings skin release. New Classic Media's film and television projects will launch successively. The animated and live-action TV drama adaptations of Qidian IP "A Record of Mortal's Journey to Immortality" have been popular this summer. Successful visualization will effectively expand IP influence, enabling China Literature to pursue more licensing and derivative monetization opportunities.

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