Maintain Equal-weight: Global IP Expansion Expected, but Near-term China Film Revenue Decline

Overview

Morgan Stanley maintains its Equal-weight rating on Toei Animation. The report believes that the globalization-driven expansion thesis for the company's core IPs remains unchanged, but lower renewal values for major Chinese distribution contracts will pressure near-term overseas film revenue, and second-quarter results may be weaker than market expectations.

Core views

From a mid-term perspective, the influence of One Piece and Dragon Ball continues to expand in regions such as North America, supported by promotions including events, exhibitions, and official stores. In the near term, changes in exclusive distribution relationships in China, fewer titles acquired, and intensifying competition from local content, AI-generated content, and short videos could all weaken second-quarter overseas video sales. The next phase of earnings expansion will depend more on the release of new film and television content and is expected to become visible no earlier than the next fiscal year.

Analysis framework

The report assesses the company using segment revenue and operating profit forecasts, comparisons of quarterly forecasts with consensus expectations, peer valuation comparisons, and overseas licensing and film/television content schedules for core IPs.

Methodology notes

• Valuation methodsPrice-to-earnings valuation

  The target price uses a 25x P/E multiple

  Based on the average P/E after the secondary offering announcement, less one standard deviation; the current average is approximately 29x. The discount reflects valuation pressure on the entertainment content sector and market preference for semiconductor-related stocks.

• Earnings ForecastsSegment forecasts and consensus comparison

  Focus on the overseas film segment and potential second-quarter earnings variance

  After lowering the China overseas film sales forecast, the analyst expects second-quarter operating profit to fall below the lower end of the current consensus range, while the full-year operating profit forecast remains broadly in line with consensus.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Toei Animation（4816.T）

  Covered company

  Strengths

  One Piece and Dragon Ball have global brand influence and a strong foundation for overseas licensing revenue growth; first-quarter overseas film performance exceeded expectations; potential TOPIX inclusion could provide near-term support.

  Weaknesses

  No clearly identified major new content releases in the near term; renewal values for major China contracts face downward pressure; limited upside from the current share price to the target price.

  Comparison

  FY3/27E P/E is approximately 24.8x, near the low end of the company's valuation range over the past four years; it trades at a premium to some entertainment content peers, reflecting expectations for stable growth from core IPs.

  Risks

  A larger-than-expected decline in China distribution revenue, poor performance of new films, potential impairment losses, and continued valuation pressure on the sector.

Key data

• Investment RatingEqual-weightMaintained unchanged.
• Target Price¥3,000Raised from ¥2,700.
• Closing Price¥2,985August 10, 2026.
• FY3/27E Operating Profit¥30.9bnRaised from the previous forecast, mainly due to better-than-expected first-quarter overseas film performance.
• Second-quarter China Overseas Film Sales Forecast¥5.6bnPreviously ¥7.8bn, implying a 35% year-on-year decline.
• FY3/27E Revenue¥102.0bnExpected to grow 9% year on year.
• FY3/27E Net Profit¥24.6bnExpected to decline 2% year on year.
• FY3/27E P/E24.8xClose to the 25x target valuation multiple used in the report.

Impact & implications

Near-term earnings forecast cuts and the lack of major content catalysts limit room for valuation recovery; however, overseas licensing and film operations for core IPs still offer mid-term growth potential. The target price is close to the current share price, indicating an unexceptional risk-reward profile. The share price could find support if a new One Piece film or TOPIX inclusion provides incremental catalysts.

Risks

• Major China streaming distribution contracts shift from exclusive to non-exclusive arrangements or acquire fewer titles, causing further declines in overseas film sales.
• Second-quarter earnings may fall below consensus expectations, triggering market cuts to full-year forecasts.
• The format and release timing of the new One Piece film and Dragon Ball Super: The Galactic Patrol remain unclear, and content catalysts may be delayed.
• If new works such as Expelled from Paradise and Monkey Quest underperform, substantial impairment losses could arise.
• AI-generated content, competition from short videos, and valuation compression in the entertainment content sector may continue to suppress valuation.

What to watch

• Whether second-quarter results and market consensus expectations are revised downward before the November earnings release.
• Renewal terms, exclusivity status, and progress in supplementary sales to other platforms for major Chinese streaming contracts.
• Whether ONE PIECE DAY on August 22–23 releases further information on a new One Piece film.
• The content format, production progress, and release plan for Dragon Ball Super: The Galactic Patrol.
• The initial TOPIX rebalancing assessment at the end of August and the inclusion announcement and implementation at the end of October.
• Overseas licensing revenue, marketing effectiveness in North America, and progress on local co-production projects in China.