By Jiahui Huang
China Literature’s shares rose sharply Tuesday on news of a share buyback and plans to acquire Tencent’s animation and comics unit, a deal it says could lead to more animated forms of the literary works it publishes online.
Shares of the Shanghai-based company were 13% higher at 30.30 Hong Kong dollars (US$3.88) at the midday break Tuesday, on track for their biggest one-day rise since January.
China Literature, which publishes user-generated written stories online, said late Monday that it will pay 600 million Chinese yuan (US$83.6 million) to acquire Tencent Animation and Comics and a 90% stake in Michengzi, an animation and comics company majority owned by Tencent.
China Literature said the deals would benefit its premium content portfolio. It noted that five of Tencent’s top 10 revenue-generating comics were adapted from novels published by China Literature, and said the acquisition could help it adapt literary works into animated forms.
Citi analysts led by Brian Gong were positive on the deal, saying that “the synergies behind the acquisition are clear,” even if “it might take some time for China Lit to fully realize” them.
The Citi analysts also said they are positive on China Literature’s plans to expand its mini-drama projects, saying the form yields better returns than traditional dramas given their fast production cycle, among other reasons. “[Mini-dramas] could become a new growth driver ahead,” they write.
Citi kept a buy rating on China Literature with a HK$40 target price.
Jefferies analysts Thomas Chong and Zoey Zong also maintained a buy rating on China Literature, saying they expect the acquired assets to yield profits in 2024 after posting a small loss this year. They have a target price of HK$48 on the stock.
Separately, China Literature said it will spend up to CNY1 billion to buy back shares, saying it believes the stock’s current level is undervalued.
China Literature’s last share buyback was a CNY700 million program announced in August 2022.
Write to Jiahui Huang at [email protected]
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