China Literature Ltd Adr

Good evening, ladies and gentlemen. Welcome to China Literature's 2026 Interim Results Conference Call. A copy of the Interim Results Announcement can be found and downloaded from its Investor Relations website, ir.yuen.com. At this time, all lines have been placed on listen-only mode, and the floor will be open for questions following today's presentation. If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad. I would now like to hand the conference over to your host today, Ms. Maggie Zhou, Head of Capital Markets and Investor Relations at China Literature. Maggie, please go ahead.

Thank you, operator. Ladies and gentlemen, welcome to our 2026 Interim Results Conference Call. Joining us today on the call are Mr. Xiaonan Hou, our CEO, and Mr. Jackie Xu, or VP of Finance. For today's call, Ms. Ho will discuss the company's strategies and business highlights, and Ms. Xu will go through the financials. We will then open the call for questions. Before we begin, I would also like to remind you that management comments during the call will include forward-looking statements that are based on our current expectations. All statements other than statements of historical facts during a conference call are forward-looking statements which are subject to a number of risks and and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of the company. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to but not as a substitute for the measures of the company's financial performance prepared in accordance with IFRS. So please take a minute to read the risk factors and non-IFRS financial discussions in China Literature's 2026 Income Results Earnings Release. I will now turn the call over to our Chief Executive Officer, Mr. Xiaonan Hou.

Thank you for joining us on today's earnings conference call. Before we go over our financial results, let me share a few thoughts on the industry landscape and our strategic priorities. content industry is headed. In particular, two structural shifts stand out. One is the continued rise of fragmented content consumption. The other is the revolutionary reshifting of the entire content ecosystem by AI. In response to these trends, we turned our insights into action and made decisive strategic moves We started with live action short dramas, kept up with the technology wave, and finally incubated a brand new content format, the AI animated drama, by integrating AI deeply into the creative process. In the first half of this year, our short drama and AI animated drama businesses delivered exceptional growth. with combined revenues exceeding RMB $430 million, over three times that of the same period last year, accounting for 27% of our IP operation revenues and serving as a key contributor to the 42% year-on-year increase in IP operation revenues. More specifically, full-time market average while maintaining a balance of male and female-oriented branches across our content portfolio. We also built a scalable approach to developing blockbuster IP into serialized short dramas, validating the potential of serialized IP operations in the short drama sector. Meanwhile, leveraging the AI technology we adapted over 1,000 online literature titles into AI animated dramas, among which 46 titles surpassed 100 million views each, 367 titles exceeded 10 million views each, and the proportion of titles reaching 1 million views was five times the industry average. In our view, this high hit rate reflects not only our ability to anticipate industry trends, but also the strength of our premium IP library and the deep creative ecosystem we have built across the IP value chain over the years. AI tools are undoubtedly ushering content supply into a new era defined by greater scale and speed. but this doesn't diminish the value of content. On the contrary, it really enforces the scarcity and value of premium IP. Visual content has become easier to produce, but only stories with cross-generational appeal that truly touch people's hearts will remain the foundation for sustainable monetization. Powered by our IP plus AI engine, we harness the synergy between technology and creativity to accelerate the high-quality transformation of stories from text to visuals, opening up the next decade of IP value creation. That mission guides us as we look into the future. With that, let me now walk you through our operating highlights for the first half of 2026. First, in IP incubation, our online reading ecosystem continues to serve as a super reservoir of premium content. In the first half of 2026, our platform attracted 240,000 new writers generated over 460,000 online literature works and added more than 30 billion characters, securing a strong source of content supply. Emerging generation writers are gaining momentum. Among newly signed writers who generated more than RMB 1 million in revenue during the first half those under 30 accounted for 57%, representing a 49% increase year-over-year. Promising works continue to emerge. On CDN, the number of titles receiving user collections rose 37% year-over-year, while the number of titles receiving monthly tickets grew 26% year-over-year. two new titles attracted more than 200,000 readers each on their first day of launch, setting new records for debut performance on the platform. Meanwhile, we accelerated the transformation from text to visuals. In the first half of 2026, while solidifying our traditional strengths in film, drama series, and animation, we also stepped up our efforts in emerging segments such as short dramas and AI animated dramas, resulting in exceptional growth. In the premium drama series and film segments, several drama series adapted from China Literature's IPs premiered this year, including top tier titles such as Blossoms of Power by Hua Sha, The Heir, Jia Ye, and Ashes to Crawl . They all ranked among the top titles on platform popularity charts during their respective broadcasting periods. Meanwhile, we also released our self-produced drama series No Ping No Gain , The Devil Between Us and Lady Liberty . These titles broke new ground across genres such as urban and crime dramas, winning both critical acclaim and strong audience traction. In the animation segment, we released sequels of classic animated titles including Battle Through the Heavens, Dou Po Tang Qiong, The Outcast, Yi Ren Zhi Xia. All these titles ranked among the top titles on platform popularity charts during their respective broadcasting periods. Among them, the outcast Yiren Zhixia achieved a popularity index of over 21,800 on Tencent Video, making it the most popular 2D animated series on the platform in the past three years. According to Enlighten, of the top 10 animation series by cumulative use across all platforms were adapted from China Literature's IPs, further demonstrating our market influence in animation content. In the short drama and AI animated drama segment, as mentioned earlier, we achieved major breakthroughs. In the first half of 2026, we launched over 90 short dramas with many breakout hits. In male-oriented genres, The Invisible Bodyguard in Shen Shi Wei was a blockbuster with a popularity index exceeding 100 million and total views across all platforms surpassing 5 billion. In female-oriented genres, sequels of our original In the AI-animated drama segment, our top tier title, 3,000 Shearters, San Tian Bi Hu, surpassed 3 billion views across all platforms, driving the original novel into the top 10 of the best seller ranking on Xidian. We also explored opportunities to develop premium AI-animated drama platforms, launching Xidian Theater, and tools grow in China and overseas respectively. All these achievements were driven by China literature's extensive IP library, strong creator ecosystem, and robust capabilities in IP development across the industry chain. Next, let me turn to IP commercialization. In the first half of 2026, Our IT merchandise business continued to maintain rapid growth with GMV reaching RMB 780 million, representing a year-over-year growth of more than 60%. This growth was driven by our continued enhancement across four core areas, product, channel, operation, and ecosystem. On the product front, merchandise category characterized by high frequency purchases and strong repeat purchase rates, while expanding into new categories such as plush toys, lifestyle products, and precious metals. Our design excellence and supply chain efficiency enabled us to deliver a steady stream of high-quality products, positioning human goods as one of the leading brands in China's enemy merchandise market. On the channel prep, we strengthen our self-operated online sales network, including mini programs, live streaming rooms, and flagship e-commerce stores. We also optimize our offline store network and deepen collaboration with our channel partners. These efforts led to improvements in both channel profitability and brand control. We also continued to strengthen our sales velocity and supply chain management, improving inventory turnover efficiency and turning sales growth into solid profit contribution. On the operational front, we launched campaigns around iconic IP characters, driving deeper fan engagement and stronger consumer conversion. During the first half, we organized the Glory Pilgrimage pop-up event in four cities to celebrate the birthday of Yeshu, the leading character of the King's Avatar. We also launched the OPCOT boy group, Bringing the IP to a broader audience through emotional connection between the IP and users. On the ecosystem front, we accelerated the expansion of our overseas channels. Together with our partners, we opened our first global collectible toy concept store in Singapore, while selected products on the overseas online store for Lord of the Mysteries, Great Meat Jujube, sold out shortly after launch. The popularity of our heat merchandise further amplified the appeal of our IPs, driving users back to our content ecosystem, spanning online reading, animation, and drama series. Now, let me share an update on our progress in AI. At China Literature, AI is not confined to a single application. of the content creation journey, from the spark of inspiration to user reach around the world. Recently, we launched the Buddy series of AI agents purposely built for the creative content industry and upgraded three core products. Normal Buddy, 作家助手, Drama Buddy, 漫曲助手, and IP Buddy, 版權助手. AI-powered tours. NovaBody is designed for online literature creators. In addition to AI-assisted writing support, it also provides copyright protection and anti-plagiarism services, helping safeguard creators' rights. DramaBody focuses on AI-animated drama production, covering the entire process, including creative ideation, content production, and project management, enabling the scalable production of premium AI animated dramas. IPBuddy serves as the all-seeing eye of our in-house copyright team, enabling the value assessment of a title within minutes and greatly improving the efficiency of selecting IP for adaptation and commercialization. Meanwhile, AI has also accelerated our global expansion. As of the first half of 2026, more than 30,000 AI-translated works were available on the WebNoble platform, contributing 40% of the platform's Noble revenue during the first half of the year and enabling Chinese stories to reach global multilingual audiences more efficiently. We remain firmly convinced of the transformative power of IT and AI. Over the past two decades, the Internet lowered the barriers to literary creation and paved the way for China Literature's growth into the company it is today. We believe that over the next two decades, AI will raise the ceiling for creators and drive a substantial value enhancement of the entire content ecosystem. Deeply integrating AI into the creative process to drive growth is a key strategic priority for our future. We see AI as an amplifier of IP values with the power to make great stories reach their true true potential. We also recognize that the more capable AI becomes, the scarcer and more valuable original human creativity will be. That is why China literature will continue to strengthen its support for original creators, ensuring that technology empowers creativity and that great stories thrive for generations to come. This concludes my remarks. Now I'd like to invite Mr. Xu to present our financial performance. Thank you.