"there is a beauty like jade in the book, and a house of gold in the book." Compared with Yan Ruyu, the Golden House is real. For example, in 2007, the click-through rate of the electronic novel "Tomb robbing Notes" soared to 6 million on the Chinese website of the starting point, which can be called one of the most profitable online novels. With the increment of IP, the author of the book, the 29-year-old uncle of Nanpai, also became famous, and he was able to buy an apartment in Shanghai for a year's fee.

"Tomb robbing notes" is popular at the same time, "ghosts blowing lights" is also popular, which immediately makes it possible for platform merchants specializing in online literature to "realize", that is, paid reading, movies, television sold according to copyright, and so on. Among them, China Literature, a subsidiary of Tencent, is the leader, with annual income expanding from 466 million yuan in 2014 to 1.9 billion yuan in June 2017, which can be called a "unicorn" in the online literature platform.

On October 16, Zhitong Financial APP learned that after a long period of preparation and IPO filing, China Literature officially passed the hearing period of the Hong Kong Stock Exchange and took another big step forward in the listing plan. And this also means that the dream that Shanda once left unfulfilled in Shanda literature will be illuminated into reality by Tencent (00700).

The online literature market is as fierce as a tiger.

Zhitong Financial APP learned that at present, the Chinese literature market is mainly composed of three parts: online literature, e-books and paper books (literary nature). By revenue scale, the market was about 29.7 billion yuan in 2013, but by 2016, it has exceeded 40.3 billion yuan, with a compound annual growth rate of 10.7 percent, and is expected to further increase to 59.1 billion yuan in 2020, with a compound annual growth rate of 10.1 percent since 2016.

Among the three, online literature is the fastest growing, with a compound annual growth rate of 44.9% from 2013 to 2016, and is expected to continue to grow at a compound annual growth rate of 30.9% from 2016 to 2020. In 2016, the size of China's online literature market was 4.6 billion yuan, accounting for 11.4% of the total size of China's literature market, and the percentage is expected to increase to 22.7% in 2020.

How can network literature have so much energy? According to the analysis of Zhitong Financial APP, there are several main reasons: first, online literature enjoys great creative freedom and is increasingly favored by Chinese readers seeking the depth and diversity of literary content; second, Internet users can easily access online literature through personal computers and mobile devices. Third, China's intellectual property protection environment has been significantly improved, and readers' willingness to pay for paid online literature content has greatly increased.

With the wonderful and diverse literary content and the increased willingness of readers to pay, it is no wonder that the third uncle of the Southern School can easily buy a suite in Shanghai in one year.

China Literature's net profit "turning losses into profits"

China Literature's revenue in 2016 was 2.568 billion yuan, up 59.1 percent from 1.606 billion yuan in 2015, Zhitong Financial APP saw in its prospectus. It also increased by 92.5% from 999 million yuan as of June 2016 to 1.9 billion yuan as of June 2017.

With the doubling of revenue, China Literature's gross profit also showed amazing growth. The company's gross profit was 580 million yuan in 2015 and 1.1 billion yuan in 2016, an annual increase of about 81.7 percent, and an increase of 135.7 percent from 408 million yuan as of June 2016 to 962 million yuan in June 2017.

China Literature's revenue and gross profit increased sharply, mainly from online reading, copyright operation, paper books and other businesses. Specifically, the revenue from online reading increased from 970 million yuan in 2015 to 1.974 billion yuan in 2016, an increase of 103.3 percent; the income from copyright operations increased from 162 million yuan in 2015 to 247 million yuan in 2016; but the revenue from paper books decreased from 228 million yuan in 2015 to 224 million yuan in 2016, down 2%.

The beautiful revenue also makes China Literature's net profit "turn loss into profit". In 2016, the company's net profit was 30.4 million yuan, with a net loss of 354 million yuan in 2015; as of June 2017, its net profit was 213 million yuan.

In addition, in these reporting periods, China Literature's cash flow also performed well. As of June 2014, 2015 and 2016 and 2017, the company's cash and cash equivalents were 830 million yuan, 331 million yuan, 404 million yuan and 1.6 billion yuan respectively.

In June 2017, for example, the net cash flow from the company's operating activities was 325 million yuan; the net cash flow from investment activities was 22.9 million yuan; and the net cash flow from financing activities was 825 million yuan. It mainly includes 687 million yuan from the issuance of ordinary shares and 475 million yuan from loans, partly offset by the payment of 300 million yuan. In front of the data, this also shows that the company is not short of money in operation and mergers and acquisitions in the future.

From the business increment and performance, the hands of the cash flow point of view, China Literature this asset can be described as high-quality.

Lean on Tencent "to enjoy the cool"

In addition to the market, performance, China Literature is also the most interesting shareholder-Tencent.

When it comes to the composition of shareholders, the valuation of Shanda Literature once showed a downward trend under the influence of the sudden departure of 22 senior executives from the Shanda Department. Although the new wave of 10-fold increase in the price of online literature IP (that is, copyright) has made the value of Shanda literature rise again. But back to the core issue: according to Shanda's original intention of operating online literature, they wanted to combine literature with games. How can there be a disagreement between online literature and online games? if this problem has been put on hold for many years, it will be indefinite later. On the other hand, Shanda's game business is also shrinking, Shanda games are slightly weak in the competition with Tencent and NetEase, Inc, and their status is declining day by day.

At this time, Tencent preempted Baidu, Inc. and bought Shanda literature from Shanda. In November 2014, China Literature signed an agreement with Luxun, Laoshe, TB Partners and Qinghai lake to buy all shares of Cloudary for $729.58 million.

China Literature signed a share subscription agreement with Qinghai lake and TB Partners on February 5, 2016. the fifth round of investors agreed to subscribe for 33.01 million common shares with a total consideration of US $100 million, which was completed on February 16, 2016. on January 16, 2017, China Literature signed a share subscription agreement with TB Partners, Qinghai lake and Luxun, and the sixth round of investors agreed to subscribe for 30.2 million common shares with a total consideration of US $100 million.

Under the series subscription, Tencent indirectly controls 65.38% of the issued shares of China Literature through its wholly-owned subsidiaries (THL A13, Tencent and Qinghai lake).

After becoming a major shareholder, according to the prospectus, China Literature will remain as a subsidiary of Tencent, and Tencent, THL A13, Tencent Growthfund and Qinghai lake will constitute a group of controlling shareholders of China Literature.

In other words, Tencent will not give up the company at all after listing, and Tencent will still have the final say in its future. In this way, the side reflects that it will be assisted by the excellent "science and technology genes" of the parent company, and the future is very bright.

Of course, although there is the "shelter" of the big tree Tencent, it does not mean that China Literature is a "risk-free" enterprise.

For example, online reading accounts for most of the company's revenue, if it fails to retain the user base or if user participation is no longer growing or declining, this will have a significant adverse impact on the company's existing business, financial situation, operating performance and prospects. Failure to control content-related costs, lack of realizable popular literary content, or failure to obtain various forms of copyright related to literary content, or failure to attract and retain authors or maintain business relationships with key authors, will also have a negative impact. And face the competition of palm reading, BABA literature, Chinese online, Baidu, Inc. literature and so on.

To sum up, under the background of the increasingly mature online literature market and market share, China Literature may be able to leap to the "big white horse" in Hong Kong stocks with the help of Tencent, the king of "what to do, what to become". It is entirely possible to replicate the feat of Zhongan (06060) listing Day. (Tian Yuxuan / article)