China’s digital reading business heralds substantial growth propelled byrising paid subscription take-up and ARPU. China’s RMB12bn digitalreading market grew a further 25% YoY in 2016, with online literature, ebooksand audiobooks respectively accounting for 38.1%, 37.6% and24.3%. This market is expected to charge ahead at a CAGR of 35-50%towards 2020, thanks mainly to a doubling paid subscription take-up rateand an ARPU growth rate of 5-7%, in our estimation.
Digital reading produces profits through paid subscription, adplacement, copyright sales and physical book publication. Paidsubscription as the major cash cow contributed 82.2% of total digitalreading revenue in China in 2016, down 8.3 pct YoY, with copyright salesand adverts gaining more ground to account for 6.5% and 4.8%,respectively. The aggregate number of online literature books in Chinawas 11.6mn by year-end 2016, up 19.6% YoY, and is expected to grow ata CAGR of 17.8% to 22.4mn by 2020.
Our picks for this sector include China Literature , ChineseAll and IReader , which dominate the domesticonline literature landscape with a 72%/27.5%/5.2% market share. ChinaLiterature, a Tencent spinoff, logged a revenue/profit ofRMB1.924bn/213mn in 1H17, carrying forward robust momentum from2016, when the company posted RMB2.557bn/1.054bn in operatingrevenue/gross profit, up 59.1%/81.7% YoY, alongside a gross margin of41.3% and a net profit of RMB30.36mn. Looking ahead, we believe thereis still a potential upside to China Literature’s net profit given its revenuegrowth far outpaces the growth of its marketing spend and SG&Aexpense. IReader reported RMB773mn in first-half revenue, up 63.08%YoY, building on a revenue/net profit of RMB1.198bn/77.21mn in 2016,up 87.23%/161.1% YoY. ChineseAll was the first Chinese digital readingcompany to float on the stock market. Ever since its 2015 IPO, thecompany has been maintaining an average revenue growth rate of 50%,with its operating revenue/net profit attributable to the parent comingin 30.81%/132.14% higher YoY at RMB297mn/28.965mn in 1H17.
Risk factors: industry policy headwinds; slowing growth; unwillingness topay for digital reading新三板TMT职业日报:360宣告永久封闭水滴直播安邦集团房地产通讯 股票配资 炒股高手 股票配资