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Shares in Tokyo-listed Morinaga Milk [TOKYO:2201] were slammed in trading this week, dropping over 230 points from 4318 to hit close to 4085 in a spectacular erasure of value for the diversified foods and dairy group.

Technical indicators are setting up for further selling of the stock as we approach the end of the week, although some Japanese traders were buying Morinaga at this level as the Tokyo session closed today.

It is a big drop for Morinaga stock, tactically speaking. Morinaga has been struggling to shrug off the impact the pandemic has had on its share price. Morinaga shares were trading around 5400 as the first cases of COVID cropped up in Japan. It has failed to get back to that level. We are seeing no signs of any positive impact on the company from the recent Pfizer news that has energised UK and US equity markets.

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Morinaga is involved in food production, food wholesale. as well as some related real estate and food services activity. It is known for its confectionaries and frozen foods. Its milk subsidiary recently dreamed up tomato-flavoured yoghurt, following in the footsteps of its aloe-flavoured yoghurt into the Japanese dairy market.

Morinaga’s Milei GmbH subsidiary is thought to have the largest share of the global market in lactoferrin, and plans to double its production capacity in lactoferrin in 2021. Lactoferrin plays a role in the growing market for probiotic products internationally.

Engulfing bearish pattern drove Morinaga stock down

An engulfing bearish pattern emerged for Morinaga in late September, and this seems to have been justified. Investors continued to buy into Morinaga in October, but there has just not been enough enthusiasm for the company. We would add it as a short, but for the fact that the stock is subject to the occasional short term boost of enthusiasm.

Morinaga announced decreased revenues of JPY 47.6bn in Q2, that’s down 9%. Net income applicable to common stock holders was down 11%. Food products revenues were also off 9%, while its exposure to Japan’s wholesale and restaurant sector cost it 25% in revenue reduction.  The company currently has a net profit margin of 5% and an operating margin of 6.04%.

Restaurant business seems to be hurting Morinaga

While Japan has fared better than many other countries in terms of the impact of the pandemic, the entertainment sector, and especially the restaurant sector, has been hurting. This has had a knock on impact on Morinaga, and there are going to be some concerns among investors about the outlook for its final results early next year.

The market does not seem to be in love with Morinaga Milk right now. Short term trading opportunities in the stock could present themselves near term, based on the way the Japanese investor community is behaving right now. There is a lot of volatility in Morinaga stock, it has swung between 3841 and over 4300 in the last six weeks, with 4300 being tested twice. It is on its way back down again, and based on its behaviour this year, is going to push to the 3800 level.

Traders should be aware that there are institutional buyers in the market who will come back into Morinaga at lower price levels, but the trend has been steadfastly down for this one since February.


Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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