China Literature shares plunge after user numbers slide, news of $2.3 bln deal (updated)

China Literature

14/08/2018 04:56

* Average monthly paying users slid 7 pct in H1 
    * To acquire Chinese movie and TV firm for 15.5 bln yuan

 (Writes through with details of the deal)
    By Kane Wu
    HONG KONG, Aug 14 (Reuters) - China Literature Ltd
 0772.HK 's shares slid as much as 14.6 percent on Tuesday,
after it reported first-half results that showed a drop in the
average number of monthly paying users and announced a $2.3
billion acquisition.
    Shares in China Literature, an online literary reading and
writing platform backed by Tencent Holdings  0700.HK , fell to
HK$57.4 in morning trade, the lowest since China Literature's
initial public offering last November.
    The firm said on Monday that first-half net profit jumped
139 percent to 506 million yuan but the average number of
monthly paying users (MPU) slid 7 percent from the same period a
year ago. 
    On that note, asset manager Bocom International lowered its
target price for China Literature to HK$70 per share on Tuesday,
saying the MPU was lower than expected. It noted that it takes
one to three quarters to convert new users into paying users.
    China Literature also announced a 15.5 billion yuan ($2.3
billion) acquisition of New Classics Media, a Chinese film and
television production company.
    The online literature platform will pay for the deal with
5.1 billion yuan in cash and 10.4 billion in stock, including an
earn-out mechanism, it said. 
    New Classics Media is currently controlled by Tencent
Mobility and a number of special purpose vehicles held by its
executives. The company has produced hit films and television 
series across different genres, including adapting a number of
titles from China Literature's own portfolio.
    Bocom said in a research note that the acquisition would
enhance China Literature's production capability and unlock its
intellectual property value.

 (Reporting by Kane Wu; Editing by Edwina Gibbs and Eric Meijer)
 ((kane.wu@thomsonreuters.com; +85228436590; Reuters Messaging:
kane.wu.thomsonreuters.com@reuters.net))