Key Positives From The 2Q Results
New production lines and hiring in Vietnam, Indonesia and Bangladesh translated into higher orders. 1H revenue grew to JPY 41,256M (+18.5% YoY). On a standalone July–September basis, gross margin improved from 1Q (our estimate), suggesting profitability is starting to recover despite rising costs.
- Sewing Volume And Revenue: Sewing Business unit volume reached 31.99M pieces (+16.9% YoY), with revenue up 21.8% YoY. Expanded capacity allowed the company to capture higher orders, led by casualwear.
- Price/Mix Contribution: Sewing revenue growth outpaced unit volume growth by 4.9pt (our estimate). Pricing contributed to the top-line gain, not just volume.
- Quarterly Margin Recovery: Standalone July–September gross margin was 11.8%, up 1.7pt from 10.1% in 1Q (our estimate). Operating income recovered from JPY 148M in 1Q to JPY 819M, +6.8% YoY.
- Lamination Film Relocation Demand: The Lamination Film Business's Vietnam plant captured demand from production shifting out of China and grew sales. Dependence on China is declining.
- Funding And Dividend: The company raised JPY 2,642M in capital contributions from non-controlling shareholders and JPY 2,000M in long-term borrowings. Cash and deposits stood at JPY 27,493M. The annual dividend forecast of JPY 115 (vs. a JPY 90 ordinary dividend in the prior year) was maintained.
Key Concerns From The 2Q Results
FX-adjusted operating income, which the company treats as its underlying earnings measure, fell to JPY 1,871M (-28.1% YoY). The corresponding margin declined from 7.5% to 4.5% (our estimate). Three headwinds outweighed the benefit of higher revenue: a stronger yuan and weaker dollar, which raised the USD cost of China-sourced materials; higher oil prices; and upfront costs tied to capacity expansion. Reported operating income held roughly flat YoY only on paper. On an underlying basis, profit declined.
- Sewing Profitability: Sewing Business FX-adjusted operating income was JPY 2,238M (-15.1% YoY). Profit fell despite revenue growth of 21.8%, as raw material cost pass-through has lagged.
- Lamination Film Profitability: Lamination Film Business FX-adjusted operating income was JPY 309M (-43.2% YoY). At the China plant, demand recovery for the domestic Chinese market and for Western markets fell short of expectations.
- Back-Loaded Profit Plan: Progress on FX-adjusted operating income stood at 35.3% of the JPY 5,300M full-year plan (our estimate). The company needs JPY 3,429M in 2H, 1.8x the 1H level.
- Working Capital Build: Inventories rose JPY 5,036M from the prior fiscal year-end to JPY 20,648M, with work-in-progress up 57.8%. Operating CF was only JPY 784M, and short-term borrowings increased by JPY 2,758M.
- Minority Leakage: Interim net income attributable to non-controlling interests rose to JPY 215M (JPY 22M in the prior year). A larger share of subsidiary profits now flows to minority shareholders, which caps growth in profit attributable to owners of the parent.
Focus Areas / Items To Monitor Going Forward
- How far the company can pass through cost increases from the stronger yuan, weaker dollar and higher oil prices. FX-adjusted operating income needs to reach JPY 3,429M in 2H, so we want to see whether the July–September gross margin improvement continues.
- Whether the JPY 9,745M build-up in work-in-progress converts into 2H revenue and operating CF. Normalized inventory turnover would also ease the funding burden from increased borrowings.
- The pace of production relocation from China to Vietnam in the Lamination Film Business, and the timing of a demand recovery at the China plant.
- Progress on passing higher USD costs of China-sourced materials through to customers, and the FX rate assumption for 2H
- The reasons behind the JPY 3,570M increase in work-in-progress, and the 2H shipment and revenue recognition schedule
- Which subsidiary received the JPY 2,642M in contributions from non-controlling shareholders, the rationale for the capital alliance, and the future equity stake policy
- The nature of the JPY 481M in subsidy income, and whether it will continue into 2H and beyond
- The scale of upfront costs from capacity expansion, and when higher utilization rates will absorb them
Key Financial Highlights
| Item | Value | YoY |
|---|---|---|
| Revenue | JPY 41,256M | +18.5% |
| Gross Profit | JPY 4,543M | +12.4% |
| Gross Profit Margin | 11.0% | -0.6pt |
| SG&A | JPY 3,575M | +16.4% |
| Operating Income | JPY 967M | -0.6% |
| FX-Adjusted Operating Income (Company's Underlying Measure) | JPY 1,871M | -28.1% |
| └FX Gains/Losses from Operating Transactions | JPY 904M | -44.6% |
| FX Gains (Non-Operating Income) | JPY 710M | -53.9% |
| └Arising from Financial Transactions | JPY -193M | Prior year: JPY -89M |
| Subsidy Income | JPY 481M | Prior year: JPY 87M |
| Recurring Profit | JPY 2,229M | -12.4% |
| Extraordinary Losses | - | Prior year: JPY 265M |
| Interim Net Income Attributable to Non-Controlling Interests | JPY 215M | Prior year: JPY 22M |
| Interim Net Income Attributable to Owners of Parent Company | JPY 1,212M | -0.7% |
| EPS | JPY 115.52 | -1.2% |
| Sewing Unit Volume | 31.99M pieces | +16.9% |
| Lamination Film Volume | 8.4M yards | -4.0% |
*Gross profit margin and the YoY changes in gross profit and SG&A are our estimates. FX gains from operating transactions fell by JPY 726M, and FX-adjusted operating income declined by JPY 731M. A JPY 394M increase in subsidy income limited the decline in recurring profit to JPY 314M. Net income held flat YoY for two reasons: the prior year's JPY 265M in extraordinary losses (including JPY 204M in impairment losses) did not recur, and income taxes fell to JPY 801M (JPY 1,036M in the prior year).
Performance By Business Segment
The Sewing Business, which accounts for 87.7% of revenue, drove top-line growth (our estimate). However, FX-adjusted operating income declined in both segments due to currency moves and higher raw material costs. Segment profit is disclosed on a recurring profit basis.
Segment Performance Table
| Segment | Revenue | YoY | Segment Profit (Recurring Profit Basis) | YoY | FX-Adjusted Operating Income | YoY | Margin (FX-Adjusted) |
|---|---|---|---|---|---|---|---|
| Sewing Business | JPY 36,183M | +21.8% | JPY 2,729M | +2.4% | JPY 2,238M | -15.1% | 6.2% |
| Lamination Film Business | JPY 5,072M | -1.1% | JPY 301M | -40.2% | JPY 309M | -43.2% | 6.1% |
| Adjustments | - | - | JPY -801M | - | JPY -676M | - | - |
| Consolidated | JPY 41,256M | +18.5% | JPY 2,229M | -12.4% | JPY 1,871M | -28.1% | 4.5% |
*Margins are our estimates. Prior-year margins were 8.9% for Sewing, 10.6% for Lamination Film and 7.5% on a consolidated basis. The adjustment to FX-adjusted operating income represents unallocated SG&A from the company's corporate administrative divisions.
- Sewing Business (Sales): Unit volume rose 16.9% and revenue rose 21.8%. The production base in Vietnam, Indonesia and Bangladesh, including plants built under the previous medium-term management plan, captured higher casualwear orders.
- Lamination Film Business (Vietnam Plant): The plant captured demand from production relocating out of China and grew sales. This offset slower demand at the China plant and limited the segment's volume decline to 4.0%.
- Sewing Business (Profit): FX-adjusted operating income fell 15.1%. Profit was hit by higher USD costs of China-sourced materials amid a stronger yuan and weaker dollar, higher oil prices, and upfront costs from capacity expansion.
- Lamination Film Business (China Plant): Sales stalled as demand recovery for the domestic Chinese market and for Western markets was weaker than expected. Combined with currency moves and higher raw material costs, FX-adjusted operating income fell 43.2%.
Progress Versus Full-Year Guidance
1H progress stood at 51.6% for revenue, 28.5% for operating income and 35.3% for FX-adjusted operating income (our estimates). Operating income progress lags the prior-year period's 44.8%. The 2H revenue requirement of JPY 38,744M is 1.7% below the prior-year 2H actual, so the bar for the revenue plan is low. The profit plan is far more demanding. It requires JPY 3,429M in FX-adjusted operating income in 2H (1.8x 1H), which hinges on sustaining the July–September gross margin improvement and further progress on price pass-through.
| Item | Value (2Q Cumulative) | Full-Year Forecast | Progress Rate |
|---|---|---|---|
| Revenue | JPY 41,256M | JPY 80,000M | 51.6% |
| Operating Income | JPY 967M | JPY 3,400M | 28.5% |
| FX-Adjusted Operating Income | JPY 1,871M | JPY 5,300M | 35.3% |
| Recurring Profit | JPY 2,229M | JPY 4,900M | 45.5% |
| Net Income Attributable to Owners of Parent Company | JPY 1,212M | JPY 3,400M | 35.7% |
*Progress rates are our estimates. In the prior-year period, progress against full-year actuals was 46.9% for revenue, 44.8% for operating income, 47.2% for recurring profit and 39.1% for net income.
- 2H Weighting: In the prior fiscal year (FY3/26), 1H accounted for 46.9% of revenue and 44.8% of operating income, so both were weighted toward 2H (our estimate).
Changes To Guidance
Full-year guidance is unchanged from the figures announced on May 14, 2026: revenue of JPY 80,000M (+7.7% YoY), operating income of JPY 3,400M (+56.3% YoY), FX-adjusted operating income of JPY 5,300M (+10.1% YoY) and net income of JPY 3,400M (+9.1% YoY). Underlying profit declined in 1H, so the plan assumes a substantial profit build in 2H.
Commentary On Shareholder Returns
The FY3/27 annual dividend forecast is unchanged at a year-end dividend of JPY 115. The prior year's JPY 100 consisted of a JPY 90 ordinary dividend and a JPY 10 commemorative dividend, implying a planned JPY 25 increase on an ordinary dividend basis. The payout ratio is 35.5% against forecast EPS of JPY 323.85 (our estimate). No share buyback was disclosed.
Financial Position
Interest-bearing debt rose, but cash and deposits still exceed it, leaving the company in a net cash position and its balance sheet sound. However, the equity ratio fell to 47.7% (53.1% at the prior fiscal year-end). Two factors drove the decline: working capital expansion, and higher non-controlling interests following capital contributions into a subsidiary.
- Key Figures
- Leverage Metrics
| Item | Value | Additional Information |
|---|---|---|
| Cash and Cash Equivalents | JPY 25,797M | +32.2% vs. prior FY-end |
| Shareholders' Equity | JPY 41,778M | +4.6% vs. prior FY-end |
| Interest-Bearing Debt | JPY 19,033M | JPY 14,947M at prior FY-end |
| └Short-Term Borrowings | JPY 7,459M | JPY 4,700M at prior FY-end |
| └Long-Term Borrowings (Incl. Current Portion) | JPY 10,450M | JPY 9,065M at prior FY-end |
| └Convertible Bonds | JPY 750M | Unchanged |
| Inventories | JPY 20,648M | +32.3% vs. prior FY-end; of which work-in-progress JPY 9,745M |
| Non-Controlling Interests | JPY 6,383M | JPY 3,619M at prior FY-end |
| EBITDA | JPY 2,114M | Operating income + depreciation of JPY 1,147M (our estimate) |
| Metric | Value | Notes |
|---|---|---|
| Net Debt/EBITDA | Net cash of JPY 8,834M | Calculated using cash and deposits of JPY 27,493M (our estimate); net cash of JPY 7,085M at prior FY-end |
| Debt/Equity | 0.45x | 0.36x at prior FY-end (our estimate) |
| Interest Coverage Ratio | 7.1x | Operating income ÷ interest expense of JPY 137M (our estimate); 6.7x in prior-year period |
| Equity Ratio | 47.7% | -5.4pt vs. prior FY-end (company disclosure) |
Disclosures Released Alongside The Earnings Announcement
- 2026/11/12Released supplementary materials for the interim results and plans to hold an earnings briefing for institutional investors (Supplementary Materials for 2Q FY3/27 Results)
Major Announcements During The Quarter
None
Large-Shareholding Filings / Material Proposals Over The Past Year
- Noriyuki Matsuoka (Representative Director) And Joint Holders: 28.8%→28.6% (2026/05/01; amendment report filed 2026/10/08). The stake is held by the Representative Director and his asset management company as stable shareholders. The amendment reflects a change in a joint holder's head office address.
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