New Mid-Term Plan BEYOND2028 launched — growth strategy targeting JPY 90B in revenue and 9% ROE through new Indonesia factory investment and MES deployment

Summary

Envalith had the opportunity to attend the company's earnings presentation held on May 29, 2026 at 13:00. Speakers were President Matsuoka, Director Kaneko, and Senior Managing Executive Officer Matsuoka. In FY2026/3, the sewing business maintained robust order flow throughout the year, achieving a +22.1% increase in unit sales and FX-adjusted operating income of JPY 4.8B (+13.7%), marking four consecutive years of core earnings growth. The lamination film business saw revenue decline 30.9% due to the absence of prior-year large orders, but overall the company delivered top- and bottom-line growth. Under the new mid-term plan BEYOND2028, the company targets revenue of JPY 90B, recurring profit of JPY 6B, and ROE of 9% for FY2029/3, with plans to build a new factory in Indonesia and pursue smart factory transformation through MES/ERP deployment. The dividend payout ratio has been raised from 30% to 35%, with a JPY 115 dividend per share planned for FY2027/3.

Key Points (Earnings Highlights and Growth Initiatives)

• Management Strategy and Market Outlook
  • The global apparel market is projected to expand from USD 1.7T in 2024 to USD 2.3T in 2032 (CAGR 3.5%) (Source: Fortune Business Insights, 2025/10/6, P24)
  • Management recognizes that transparency and reliability, in addition to quality, cost, and delivery, are now prerequisites for being selected as a manufacturing partner
  • The prior mid-term plan Vision 2025 achieved its initial targets (revenue JPY 70B, recurring profit JPY 3.5B) ahead of schedule; advancing data-driven management remains a carryover initiative for the new mid-term plan
• Current Business Progress and Drivers
  • The President attributed the sewing business's revenue and profit growth primarily to expanded transactions with high-growth customers and sustained full-year capacity utilization
  • The IMBD Phase 2 factory in Bangladesh has surplus capacity in an adjacent building, confirming room to ramp up production of fan-equipped workwear
  • The lamination film business faces sluggish replacement demand amid a weak Chinese market; sales offices have been opened in Shanghai and Ho Chi Minh City to drive new customer acquisition
• Strategic Initiatives and Inflection Points
  • Construction of a new Indonesia factory (~JPY 3B) to add 3 million units of capacity; Bangladesh plans to add 10 million units
  • MES/ERP will be piloted at the IMBD and Tan Chuong factories, with phased rollout to additional factories over the mid-term plan period
  • Chinese factories are shifting production toward bedding and household goods where automation and mechanization are viable
  • Lamination film: US-bound production is being transferred to Vietnam, with freed-up capacity at Chinese factories allocated to domestic customer acquisition

Outlook and Strategy

• FY2027/3 guidance calls for revenue of JPY 80B (+7.7%) and FX-adjusted operating income of JPY 5.3B (+10.1%). Spring/Summer 2026 orders are solid, providing sufficient visibility for production line utilization plans
• The final year of the new mid-term plan (FY2029/3) targets revenue of JPY 90B, recurring profit of JPY 6B, and ROE of 9.0%, with a longer-term aspiration of ROE 10%
• Of the three-year capex plan of JPY 10.5B, 75% is allocated to growth investment: JPY 7.15B for new factory construction and expansion, JPY 680M for systems investment, and JPY 2.67B for maintenance capex
• Dividend payout ratio raised to a 35% target. A JPY 115 dividend is planned for FY2027/3, with flexible shareholder return enhancements under consideration depending on financial position and share price
• Consolidated headcount to expand from 20,000+ to 24,000, centered on Indonesia and Bangladesh

Positive Factors

• Sewing business FX-adjusted operating income reached JPY 5.47B (+57.2%), demonstrating a marked improvement in core earnings power
• Workwear revenue surged +48.9%. Management views fan-equipped workwear as a structural demand growth story, driven by prolonged periods of extreme heat
• IMBD Phase 2 factory in Bangladesh doubled production from 1.42 million to 2.89 million units, with additional upside from utilizing adjacent buildings
• ASEAN and other regions now account for 72.6% of sewing business revenue, reflecting meaningful progress in geopolitical risk diversification
• Equity ratio improved to 53.1% (+1.3pt), D/E ratio declined to 0.48x. Operating cash flow was JPY 6B, up JPY 3.3B YoY
• A training center opened at the IMBD factory in Bangladesh, operating at a scale of 100 trainees, contributing to reduced hiring mismatches and improved productivity

Concerns and Risks

• As evidenced by the lamination film business posting an operating loss of JPY 57M in Q3, the timing of a Chinese market recovery remains uncertain
• Risk of crude oil price spikes due to escalating Middle East tensions. Management acknowledges potential impact on raw material and factory fuel costs
• FY2027/3 capex of JPY 8B represents a 2.6x increase YoY. D&A burden is projected to remain flat near-term but is expected to rise once the new Indonesia factory becomes operational
• The period-end FX assumption of JPY 152/USD (vs. actual JPY 159.9) implies a stronger-yen bias, creating both upside and downside risk to recurring profit depending on actual rates
• Approximately 70% of revenue is USD-denominated and roughly 50% of cash holdings are dollar-based assets, exposing the company to translation losses in a sharp yen appreciation scenario
• Casualwear revenue declined 2.7%, with transition risk as Chinese factories shift their product mix

Performance Highlights

FY2026/3 delivered revenue of JPY 74,251M (+5.2%) and FX-adjusted operating income of JPY 4,813M (+13.7%), achieving top- and bottom-line growth on a core basis. Reported operating income was JPY 2,174M (+401.3%), reflecting a reversal from prior-year suppression caused by higher yen-translated overseas factory costs, as well as contributions from improved productivity and optimized production structures in the sewing business. Recurring profit of JPY 5,391M (+28.4%) benefited from translation gains on USD-denominated assets driven by yen weakness at period-end.

Segment Performance

• FX-Adjusted Operating Income: JPY 4,813M (+13.7% YoY)
• Sewing Business FX-Adjusted Operating Income: JPY 5,469M (+57.2% YoY)
• Sewing Business Unit Sales: 63.50 million units (+22.1% YoY)
• Lamination Film Business Yards Sold: 13.64 million yards (▲25.2% YoY)
• ROE: 8.0% (+0.7pt YoY)
• Equity Ratio: 53.1% (+1.3pt YoY)
• Dividend Per Share: JPY 100 (vs. JPY 90 in prior year, including JPY 10 commemorative dividend)
• ASEAN and Other Regions Revenue Ratio: 67.5% (+3.9pt YoY)