$CHINA LIT(00772.HK) first take: The highlight of China Literature's first-half performance was mainly New Classics Media, with a bumper harvest in films and TV series, directly driving a near doubling of copyright income. Online literature is still in decline, but fortunately the decline in paid online literature revenue, which accounts for the bulk, has slowed down to some extent, with the number of paying users stable and per capita payment slightly declining.

In the end, the combined revenue of the two businesses slightly exceeded expectations (mainly compared with major banks' expectations, as Bloomberg consensus expectations had a large error and were not directly comparable). However, sales expenses in the first half were higher than the market had anticipated, leading to core operating profit from the main business falling short of expectations. Although the performance is not bad, it is somewhat awkward at the moment. New Classics' strongest pipeline had already been mostly priced in before the earnings report, but the pipeline for the second half is relatively flat (currently mainly consisting of "The Night Watchman" and "Anti-Drug Storm" pending broadcast, with the latter not yet completed and the broadcast time uncertain), so the high growth in copyright income is unlikely to continue in the short term.

Although the decline in online literature has eased, given the pressure from the macro environment, it will be difficult to achieve stable performance going forward, let alone drive group growth. It is recommended to listen to the management's outlook and explanation of growth drivers during the earnings call later.