Source: Zhitong Finance and Economics

Who is the hottest star in the Hong Kong stock market at the beginning of the year?

是$China Literature (00772.HK)$。

Tencent's "own son" rose 26.40% in two trading days, leading the Hong Kong Stock Exchange, up 6 percentage points more than MGM China, the second-placed gaming stock.

Just a week ago, Li Yanli, an analyst at Western Securities, released an in-depth report entitled "online Reading has a solid leading position, IP upgrading to create a New growth engine", which comprehensively dismantled China Literature's fundamentals (digital reading, IP operation, etc.) from the perspective of performance changes, and concluded that for the first time, coverage was given a "buy" rating.

Analysts believe that the catalyst for China Literature's rising share price includes three points: the increase in the number of active users of online paid reading and the higher-than-expected ARPPU value; the higher-than-expected box office or audience ratings of films and TV dramas adapted from the company's IP; and the better-than-expected landing of the company's IP commercialization project.

In the valuation, the segment plus total valuation method is used. the online business selects CITIC Publishing, Palm Reading Technology and New Classics as the object of comparison, taking into account China Literature's leading position in the industry, the number of contracted writers and the industry's leading number of works, as well as the flow advantage, give the company a certain valuation premium of 25 times PE in 2023.

Copyright business, with reference to Chinese online, Light Media, and Huatze Film and Television as the object of comparison, will also be given 25 times PE in 2023.

Based on the net return of the online business and the copyright business, the combined market capitalization of the two parts is expected to be 33.7 billion yuan, corresponding to the target share price of 33.16 yuan (HK $36.96).

Among the international investment banks, Morgan Stanley gave a target price of HK $30 in its latest update report in December.

At the close of trading yesterday, China Literature traded more than HK $500m to HK $38.3, exceeding the target prices of Morgan Stanley and Western Securities. This kind of "one step in place" is the characteristic of the Hong Kong stock market, so the question that follows is, what do you think of the future? The funds killed at the end of the day will run away after eating some meat, or will they wait for a bigger market?

First of all, why did China Literature rise?

There are probably three reasons:

The fundamental reasons (the above three or "exceeding expectations") are the underlying logic.

Secondly, the change in investment sentiment in Hong Kong stocks is the most important factor. The Chongqing Banking and Insurance Regulatory Bureau allowed Ant Xiaojin to increase its capital to 18.5 billion yuan. Internet stocks were so sensitive when they smelled the smell that even the big Tencent jumped 4.58%.

For a period of time, China Literature's large-scale buyback has also provided the strength for funds to dare to intervene. In August last year, the company announced that a maximum of 102 million shares could be repurchased under the repurchase authority, with a maximum amount of Rmb700m to be used-interpreted by the market as a sign that the share price had bottomed out.

There are three other possible reasons, all related to expectations:

One is the expectation of the "year of Media Entertainment".

After several years of cold winter, some organizations believe that media entertainment will finally become a pro-cyclical industry in 2023. With the liberalization of epidemic prevention policy and the marginal relaxation of industry policy, movies, cinemas, advertisements, Internet videos, games and so on will bloom in 2023. The allocation in this plate is just the right time, the Hong Kong stock market can choose a stock, can not avoid China Literature. According to netizen @ Qiheng DK-CAPITAL, China Literature's performance is steady in the counter-cycle, "three unchanged": it means that the trend of continuous growth in the number of writers and works remains unchanged, the income structure focusing on "double main business" remains unchanged, and the level of gross profit margin remains stable.

(1) the number of writers and works has continued to grow: in the first half of 2022, about 300000 new writers and 600000 novels were added during the platform period, with a new number of 16 billion words. What reflects the vigorous development of content ecology is the resilience of the basic disk of online business. As of June 2022, the number of monthly paying users under China Literature's content ecology reached 8.1 million, and the average monthly income of each paying user reached 38.8 yuan, an increase of 6.6 percent over the same period last year.

(2) the income structure of focusing on "dual main business" remains unchanged: online business accounts for 56.4%, and copyright operation accounts for 43.6%, which means that the proportion of copyright revenue mainly for the production and distribution of film and television works is further increased.

(3) the level of gross profit margin remains stable: the gross profit margin remains at 52% 53%, which is commendable in the cold winter of the film and television industry.

Counter-cyclical steady, pro-cyclical will often go wild.

The second is the incremental imagination space brought by anti-piracy.

At present, the number of pirated users reading starting point novels is more than ten times that of paying users, and the profit space brought by anti-piracy is very huge. There is a saying that the current 4 billion or so a year's reading fee income, in theory, there is room for a tenfold increase.

The impact of anti-piracy on the online text industry can be said to be very profound. China Literature's payment rate is only about 3%, which is a far cry from the penetration rate of 14% of long audio and 20% of long video. With the improvement of copyright awareness, the habit of paying for long video and long audio has been well verified, which has a high reference significance for online articles.

Third, the valuation of Hong Kong stocks is expected to repair.

China Literature has a history of rising from HK $22 to HK $90 when her performance is not as good as the current one. It is worth noting that the speed and rate of increase of this rapid pull are better than those of investment in Tencent in the same period.

There is a big difference in the price of each hand between "father" and "son", and who to choose is sometimes a very important question.

Edit / Viola