Huachuang Securities: First Credit Reading Group (00772) “Strong” Rating Target Price HK$28.19

The Zhitong Finance App learned that Huachuang Securities released a research report stating that it covered Reading Group (00772) for the first time and gave it a “strong” rating, with a target price of HK$28.19. The bank expects the company's revenue for 2026-2028 to be $7.63 billion, $7.98 billion and $8.32 billion, respectively, and adjusted net profit to mother of $850 million, $1.1 billion and $1.2 billion respectively. Using the PE valuation method, the company was given a target PE of 29 times 2026, corresponding to a target market value of RMB 24.6 billion and HK$28.6 billion. The bank believes that generative AI will improve the efficiency of IP adaptation and become an amplifier of IP value, so it is optimistic about the company's medium- to long-term development.

The main views of Huachuang Securities are as follows:

Reading Group is based on digital reading, with IP cultivation and development as the core

Reading Text Group is a comprehensive cultural industry group based on digital reading and IP cultivation and development as the core. In 2002, Starting Point Chinese Network was born, pioneering the VIP payment model; in 2015, Tencent Literature and Shanda Literature merged to form Reading Group; listed on the main board of the Hong Kong Stock Exchange in 2017. The company's subsidiary includes brands such as Starting Point Reading, Shinih Media, QQ Reading, Tencent Animation, and Reading Goods, bringing together creators and work reserves, and lays out various business forms such as film, television, animation, games, sound, commercialization, and reality entertainment in the field of IP development.

In May 2023, Hou Xiaonan, vice president of Tencent's platform and content business group and president of Reading Group, became the company's CEO; in June of the same year, the company launched an organizational business upgrade, established four major divisions to embrace AI and enhance the IP ecosystem.

The online reading business deeply cultivates the creator ecosystem and builds the basic business market

Huachuang Securities pointed out that online reading is the basic business of the company. Its core competitiveness lies in deepening the creator ecosystem over a long period of time and creating a system of support, motivation and cooperation from novice writers to “Platinum God” writers. By the end of 2025, the number of writers in the company reached 11.35 million, accounting for about 35% of the total number of domestic online literature writers; the total number of works on the platform was 18.17 million, accounting for 40% of the total number of domestic online literary works.

In 2024-2025, the company's online reading business revenue was about 4 billion yuan, its own platform user accounts remained stable, and other distribution channel businesses were actively optimized. ARPPU rebounded to 32.9 yuan in 2025, up 2.8% year on year, reversing the previous continuous downward trend; the MPU remained relatively stable at around 9 million.

The company's online overseas reading portal WebNovel (Starting Point International) is positioned as the core position of IP translation, UGC creation, and global monetization. It also uses AI to improve translation efficiency and promote Chinese stories to reach multi-lingual users around the world more quickly.

The IP operation business creates a second growth curve through acquisitions, incubation and investment

Beginning in 2018, the company accelerated the construction of the IP ecosystem. In terms of film and television, the company acquired 100% of Shinih Media's shares in 2018, opening up IP cultivation and film and television development, and moving from copyright to production.

In terms of animation, the company acquired Tencent animation-related assets and 90% of the shares in Rice Orange in 2023. The latter is the “Under One Person” IP operator, and the original Tencent Animation team merged to further enrich IP reserves and accelerate text IP visualization. In 2026, the company will increase its holdings of Art and Picture Kaidianhou by 59.7%, thereby owning the sci-fi IP “Spirit Cage” and improving its capabilities from IP incubation to visualization and commercialization.

In terms of IP derivatives, the company launched the IP derivatives brand “Reading Articles” in 2022; invested in card manufacturer Hitcard and European and American card company Crossing in 2024 to lay out a card track; and in 2025, it invested in a super energy factory to lay out a plush trendy playground.

In terms of skits, the company entered the short drama circuit in 2023, launched the “Short Drama Galaxy Incubation Program”, launched the “100 IP Development Program”, “100 Million Yuan Creation Fund”, and AIGC's three initiatives to enable interactive skits. In May 2026, the company launched the overseas comic platform “ToonScroll”; in July 2026, the domestic premium video app “Starting Point Theater” was launched.

In 2024, the company's IP operating revenue was 4.09 billion yuan, surpassing the online reading business for the first time. In the first half of 2026, IP operating revenue was 1.69 billion yuan, up 40.3% year on year; of these, revenue from short dramas and AI comics was 430 million yuan, up 230% year on year, and GMV for IP derivatives was 780 million yuan, up 60% year on year.

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Film and TV drama broadcasting risks, new business falling short of expectations, declining user activity, and tightening of regulatory policies.