BRIEF: China Literature sees red on acquisition-related goodwill impairment

Online literature platform China Literature Ltd. (0772.HK) announced on Tuesday it expects to report a net loss of 150 million yuan ($20.7 million) to 250 million yuan for last year, reversing a net profit of 804 million yuan in 2023. It blamed the loss primarily on a non-cash goodwill impairment related to its 2018 acquisition of New Classics Media.

According to a preliminary assessment, the company’s board believes that the recoverable amount of goodwill associated with New Classics Media is lower than its book value, leading to an impairment charge of 1.05 billion yuan to 1.15 billion yuan.

China Literature said New Classics Media plans to further focus on developing high-quality premium film and television content, refining its script incubation, pre-production, filming, and post-production processes to meet the industry’s highest standards. However, this strategic shift is expected to extend the development cycle and increase costs for new projects in the coming years, lowering profit expectations in the short term. Nonetheless, the company believes this approach will create greater long-term value for its intellectual property (IP) business.

China Literature’s stock opened 5.01% lower on Wednesday at HK$29.40, and closed down 7.75% at HK$28.55 by midday break.

By Lee Shih Ta

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