Morgan Stanley initiates Nissui stock with overweight rating

Morgan Stanley initiated coverage on Nissui Corp (1332:JP) with an overweight rating and a JPY1,020.00 price target, highlighting the company's successful transition to a global processed food company. The firm anticipates Nissui achieving a third consecutive operating profit high in fiscal year 2026, driven by aquaculture profitability and marine product turnaround, despite expecting the food business growth to level off due to raw material prices and tariffs. While a slowdown in food revenue is anticipated, Morgan Stanley believes Nissui can sustain a 6% profit margin through implemented price hikes.

Analysis

Morgan Stanley has initiated coverage on Nissui Corp (1332:JP) with an overweight rating and a JPY1,020.00 price target, underscoring the company's significant transformation from a traditional seafood entity into a global processed food company. This strategic pivot is reflected in Nissui's evolving revenue structure, with the food business's operating profit contribution projected to increase to 69% by fiscal year ending March 2025, a substantial rise from 44% in fiscal year 2020, while marine products are expected to see their contribution decline to approximately 20% from 40% over the same period. The growth in food revenues is primarily attributed to successful expansion in European and North American markets, coupled with an enhanced ability to pass on higher input costs to consumers, thereby bolstering Nissui's resilience against price volatility compared to other global seafood producers. Morgan Stanley anticipates Nissui will achieve a third consecutive operating profit high for the fiscal year ending March 2026, driven by improved profitability in its aquaculture segment due to lower feed prices and a turnaround in its marine products division following structural reforms at underperforming subsidiaries in North and South America. Despite an expected moderation in the food business's growth trajectory due to persistent high raw material prices, the impact of US tariffs, and increased capital investments, the firm believes Nissui can maintain a sustainable profit margin of approximately 6%, largely owing to price increases implemented to counteract cost pressures.

Key Decisions for Investors

• Investors should consider Morgan Stanley's positive initiation on Nissui Corp, particularly noting the company's successful strategic shift towards processed foods and its projected ability to achieve consecutive operating profit highs.
• It is advisable to monitor the impact of high raw material costs, US tariffs, and capital expenditure levels on Nissui's food business growth, alongside the effectiveness of price hikes in sustaining the guided 6% profit margin.
• Attention should be paid to the progress of structural reforms in Nissui's North and South American marine product subsidiaries and the sustainability of lower feed prices in aquaculture, as these are critical drivers for the forecasted fiscal year 2026 profit improvements.