Key Takeaways:
China Literature's H1 net profit fell 84.1% to RMB 135.4 million on RMB 300 million in tax charges.
"China Literature has the largest original literature IP library in China, addressing the industry's core problem head-on, which is the shortage of compelling stories," Chief Executive Hou Xiaonan said, describing the market shift "from quantity to quality" in short dramas and AI-animated content.
Total revenue rose 10.7% to RMB 3.5 billion, but the online reading business contracted 7.3% to RMB 1.84 billion as monthly active users fell 5.1% to 134.1 million. Intellectual property operations and other revenue jumped 40.3% to RMB 1.69 billion, now 45.7% of total revenue. Non-IFRS net profit, stripping one-time items, fell 49.0% to RMB 258.8 million.
Shares fell 2.17% to $20.74 after the announcement, near the 52-week low of $18 and well below the high of $46.88. The tax charges comprised RMB 166 million in supplementary income tax payments and RMB 134 million in late-payment surcharges by a subsidiary, while the prior-year period included a RMB 512 million after-tax gain on the deemed disposal of an investee.
Short drama and AI-animated drama revenue reached RMB 430 million in the first half, up 2.3x year over year. The male-oriented blockbuster "The Invisible Bodyguard" achieved a 100 million-plus popularity index and 5 billion-plus total views, while 46 AI-animated titles surpassed 100 million views each. Management plans at least 200 short drama titles in 2026, roughly 70 percent more than the first-half baseline.
IP merchandise gross merchandise value reached RMB 780 million, up more than 60 percent, as the company expanded into plush toys, lifestyle products, and precious-metal categories under its "Yuewen Goods" brand. On WebNovel, more than 30,000 AI-translated works contributed 40 percent of platform novel revenue in the first half. Drama adaptations dominated platform rankings, with China Literature IPs representing 50 percent of Tencent Video's Top 20 rewatch list and 80 percent of the top 10 animation series by cumulative views across all platforms.
Gross margin improved slightly to 50.7 percent from 50.5 percent, but non-IFRS operating margin compressed to 10.4 percent from 14.1 percent. Selling and marketing expenses rose 9.6 percent to RMB 1.01 billion, while general and administrative expenses increased 15.5 percent to RMB 560 million. Adjusted EBITDA fell 0.7 percent to RMB 384.2 million.
The profit decline shows margin pressure even as the company pivots toward visual content. Investors will watch whether the RMB 300 million tax charge is a one-off and whether short drama and AI-animated growth can offset the shrinking reading business in the second half.
This article is for informational purposes only and does not constitute investment advice.
