3611.T

Company Overview

• Matsuoka Corporation is an apparel OEM manufacturer headquartered in Fukuyama, Hiroshima, Japan, operating 13 factories across 5 Asian countries, with over 20,000 total employees. It operates two core business segments and celebrated its 70th anniversary in 2026.
• Key competitive strengths include: full in-house control of production across 5 countries, real-time production visibility at headquarters, flexible multi-site production planning matching customer needs, and ability to mitigate geopolitical and supply chain risks via diversified production locations. The company has a long-term, close relationship with Fast Retailing, which accounts for 60-70% of total sales.

Review of Current Medium-Term Plan (Vision 2025)

• Completed planned construction of 3 new factories despite COVID-19 related supply chain disruption, and achieved the original targets of 70.0 billion yen in revenue and 3.5 billion yen in ordinary profit one period ahead of schedule in FY2025 March term. This led to an upward revision of the FY2026 March term plan to 74.0 billion yen in revenue and 4.7 billion yen in ordinary profit.
• Unfinished priorities include advanced data-driven management and organizational strengthening, which will be carried over to the new medium-term plan.

New Medium-Term Management Plan (BEYOND 2028 Stitch the Future)

Core strategic pillars and key initiatives:

• Business Strategy 1: Pursue production scale expansion and profit maximization
  • Strengthen and expand supply chain via production base expansion: Target 72% production share in ASEAN countries by FY2026 March term, and grow sewing business revenue to 81.7 billion yen (23% increase) by the end of the plan period. Planned production increases include 1,000,000 units via facility expansion in Bangladesh, 300,000 units via a new sewing factory in Indonesia, and 60,000 units via expansion at the large An Nam factory in Vietnam. China facilities will shift production to non-apparel consumer goods.
  • Optimize utilization and strengthen development capabilities for the Lamination Film business: Transfer production and technology from China to Vietnam, expand sales to domestic Chinese manufacturers to improve capacity utilization, and invest in talent and equipment to boost film development capabilities. The business has medium-term growth potential despite current temporary weak performance.
• Business Strategy 2: Refine customer value to become a "chosen factory"
  • Improve technology, quality, and item responsiveness per factory: Consolidate production of specific items to dedicated optimized factories to increase employee proficiency and quality, classify factories into training, mid-tier, and flagship tiers, and dispatch technicians from flagship to training factories to upskill operations company-wide.
  • Advance manufacturing management via smart factory transformation: Roll out MES (Manufacturing Execution System) and ERP (Enterprise Resource Planning) to enable real-time visibility of production, inventory, and profit data for immediate analysis and improvement. Pilot implementation is already underway at the IMBD factory in Bangladesh and the Tan Thanh factory in Vietnam, with gradual expansion to all other factories during the new medium-term plan period. This will deliver shorter lead times, improved stable supply, lower costs, and higher quality.
• Financial Strategy: Shift to capital efficiency-focused management
  • Target PBR above 1.0, set a long-term ROE target of 10% or higher, with a 9.0% ROE target for the new medium-term plan period. Strengthen IR communication and information disclosure to shareholders.
  • Balance growth investment and shareholder returns via improved cash generation: Total allocable cash from operating cash flow over the 3-year plan is estimated at 15.0 to 20.0 billion yen. 55-65% (approximately 10.0 billion yen total) will be allocated to reinvestment for future growth: 700 million yen for smart factory system investment, 7.1 billion yen for new factory construction and capacity expansion, 2.7 billion yen for factory maintenance, totaling 10.5 billion yen in planned capital investment. Reserve funds for M&A and emergency risk response. Increase target payout ratio to 35% (up 5 percentage points) starting FY2027 March term, and will consider additional flexible shareholder return methods based on financial and share price conditions. Maintain equity ratio between 45% and 55% to preserve financial health.
• Human Capital Strategy: Build cross-border talent frameworks to support ASEAN expansion
  • Prioritize building cross-border frameworks that allow skilled talent from different countries and factories to conduct on-site guidance and improvement activities across the group, to support the company's growing regional footprint. Adopt "All group employees thrive" as a core materiality, and maintain an inclusive, collaborative work environment for diverse talent.

Sustainability and Social Contribution

• Sustainability guideline: "Create a society where both wearers and makers of clothing are happy." Core priorities include stable factory operation to protect employee dignity, meeting international audit standards for production operations, expanding renewable energy use via solar panel installation, expanding female employment and female management promotion, promoting work standardization and documentation, advancing CO2 emission reduction and monitoring, and implementing digital traceability to improve transparency. Sponsor local professional sports teams in Hiroshima prefecture to support regional community development.

• FY2026 March term full-year guidance: Full-year guidance remains unchanged from the initial announcement made in May 2025, at 74.0 billion yen in revenue, 2.5 billion yen in operating profit, 4.7 billion yen in ordinary profit, and 3.0 billion yen in net income attributable to parent shareholders. The impact of delayed customer product pickup in the third quarter is expected to resolve by year-end, and full-year results are expected to meet original forecasts. The FY2026 March term dividend is forecast at 90 yen per share, unchanged from the prior year, with the 30% target payout ratio expected to be met.
• New Medium-Term Management Plan (3-year period ending FY2029 March term) guidance: Targets of 90.0 billion yen in revenue, 6.0 billion yen in ordinary profit, 4.0 billion yen in net income, and 9.0% ROE. Non-financial targets include 24,000 total consolidated employees, 78,000,000 units of annual sewing production, and 15,000,000 yards of annual lamination film production. Management believes the 90.0 billion yen revenue target is achievable via existing expanded production capacity and steady acquisition of new orders to match growing demand from key customers, while ongoing sales expansion and new customer acquisition efforts will continue for long-term growth beyond the plan period.
• Shareholder return guidance: Starting from the first year of the new medium-term plan (FY2027 March term), the target payout ratio will be increased from 30% to 35%, with a commitment to stable, performance-aligned returns. The company will consider additional shareholder return methods based on financial and market conditions.

1. Sewing Business: Revenue was 47.763 billion yen, up 9.4% year-over-year. Segment profit was 4.223 billion yen, up 44.0% year-over-year. This segment accounts for 88.0% of total consolidated revenue. Within the sewing segment, casual wear accounts for 53.2% of total company revenue, working wear accounts for 8.5%, and innerwear/cut-sew accounts for 22.4%. Sales volume increased 21.4% year-over-year, and foreign exchange gain/loss adjusted operating profit increased 57.7% year-over-year. Strong performance was driven by increased demand for working wear (particularly fan-equipped workwear) and expanded production capacity at Bangladesh facilities to meet growing innerwear orders, while casual wear growth was limited by delayed customer product pickup. 2. Lamination Film Business: Revenue was 6.522 billion yen, down 28.9% year-over-year. Segment profit was 446 million yen, down 67.7% year-over-year. This segment accounts for 12.0% of total consolidated revenue. Sales volume decreased 22.8% year-over-year due to the loss of orders from a prior year hit product from a key customer. Consolidated overall results: Total revenue was 54.2 billion yen, up 2.7% year-over-year. Operating profit was 1.3 billion yen, up 98.2% year-over-year. Ordinary profit was 3.7 billion yen, up 4.4% year-over-year. Net income attributable to parent shareholders was 2.0 billion yen, down 3.3% year-over-year (impacted by a 200 million yen impairment loss). The company's core performance indicator, foreign exchange gain/loss adjusted operating profit, was 3.5 billion yen, up 12.5% year-over-year.

• High customer concentration: 60-70% of total sales are to Fast Retailing. While this relationship is mutually beneficial and supports near-term growth, management acknowledges long-term concentration risk and maintains an ongoing strategy to expand sales to other customers.
• Geopolitical and macro risk: Rising geopolitical tension (including the current Iran situation) and industry trends of rising labor costs across Asian production locations, as well as political instability in Bangladesh, pose potential operational risks. The company's diversified multi-country production base mitigates this risk, with available room to absorb rising labor costs in Bangladesh and Myanmar via productivity improvements from smart factory investment and product mix shifts to higher efficiency items. Management expects the current production structure to remain viable for the foreseeable future.
• Foreign exchange risk: While the company hedges day-to-day settlement risk via natural hedging (USD revenue matches USD payments for production costs), translation of offshore profit remains exposed to yen-dollar exchange rate fluctuations: yen depreciation increases reported profit, while yen appreciation reduces it, and this structural exposure cannot be fully eliminated.
• Lamination Film business performance risk: The segment is currently facing a sharp decline in revenue and profit due to the loss of a large order from a prior year hit product. It faces ongoing revenue volatility risk, though management is actively addressing this via new customer development and operational optimization.
• Short-term demand volatility: Near-term sales and production can fluctuate due to seasonal weather factors, changes in customer inventory levels, and post-pandemic demand adjustments, though medium-term growth remains driven by gradual production capacity expansion.

Q: What specific strength does Matsuoka have that makes it stand out among other OEM manufacturers, and why do customers choose it over competitors?

A: The company is evaluated for its overall combined strength in cost, quality, speed, and volume, rather than excelling in just one area. The core differentiator is that Matsuoka operates its own factories across 5 countries, while most comparable Japanese competitors are trading companies that outsource production to third-party factories. In-house ownership allows full, real-time control over production status and quality, with headquarters able to monitor current production output and status instantaneously, which builds high trust with customers. The diversified multi-factory structure also allows flexible production planning aligned with customer priorities.

Q: What is the origin of the relationship with Fast Retailing, and how do you view the high sales concentration as both a risk and an opportunity?

A: The relationship began around 2000, and Matsuoka expanded production in line with Fast Retailing's Uniqlo business growth, even building factories near-dedicated to Fast Retailing production. Fast Retailing is a very important customer, accounting for 60-70% of total sales including direct and indirect transactions. Management acknowledges that this high concentration carries long-term risk, so the company is continuously working to acquire new customers to diversify the customer base. In the short to medium term, however, Fast Retailing's rapid business growth provides strong, stable support for Matsuoka's order and production volume, and the relationship is mutually beneficial: Fast Retailing also has capital stakes in some of Matsuoka's factories, and Matsuoka collaborates with fabric suppliers to co-develop products for Fast Retailing, giving it a stable, important position with the customer.

Q: Does foreign exchange gain/loss adjusted operating profit eliminate the impact of exchange rate fluctuations, or does it still fluctuate with exchange rate movements?

A: This indicator eliminates most, but not all, exchange rate impact. The company separates exchange rate impact into two categories: first, day-to-day settlement for procurement and factory labor costs: most revenue is USD, and the company matches USD revenue to USD payments for production costs, so settlement risk is already largely hedged via this natural structure. Second, translation impact of reporting offshore profit in yen: like other global companies, yen depreciation increases reported sales and profit, while yen appreciation reduces them, and this structural impact cannot be hedged away. The adjusted indicator mainly removes the settlement impact, to better reflect the core operating performance of the business, and it aligns with how the sales team operates (they create quotes on a USD basis), so it is a useful internal and external performance metric.

Q: The 21.4% increase in sales volume is very large. Is this change driven by utilization rates, production location optimization, or employee proficiency?

A: Medium-term, growth is driven by gradual expansion of factory production capacity, leading to steady, gradual top-line growth. Short-term large fluctuations are mainly driven by seasonal factors and customer inventory levels. The COVID-19 related inventory glut that suppressed orders for 2-3 years has now fully resolved, but even in normal conditions, changes in customer inventory holdings (driven by weather or customer foot traffic) impact order volumes for the following season, which causes near-term fluctuations.

Q: What was the background for the large increase in shareholder returns starting from FY2025 March term, and what led to the increase in the payout ratio?

A: After listing in late 2017, the company maintained a stable dividend of 40 yen per share for several years. During COVID-19, there was high uncertainty about future financial performance, but the completion of new factory construction during that period led to a gradual increase in earned profit. As the business scale and profit level grew, the company had the ability to return more cash to shareholders, so the policy was changed to target a 30% payout ratio, which supported the increase in dividend per share. This was only possible because local team members successfully completed and started up new factories even when international travel was restricted during COVID-19.

Q: Is the 90.0 billion yen new medium-term plan revenue target achievable just via increased capacity, or do you need to acquire new customers and expand product offerings to hit the target?

A: The target is achievable because the company has already significantly expanded production capacity, and is steadily acquiring orders to fill this new capacity. New factories are under construction, additional capacity is being added in Bangladesh, and factories built in the current plan period still have remaining room to increase output. Key customers are themselves planning large business expansion, so meeting their growing demand will allow the company to hit the revenue target. That said, the company is continuously working to expand sales and diversify the customer base for long-term growth beyond the 3-year plan period.

Q: Why are you increasing production focus on Bangladesh, and what makes it an important production location for Matsuoka?

A: There are both business and operational factors. First, operationally, Matsuoka already has 3 factories in Bangladesh, including a large innerwear facility with significant remaining room for production expansion, and the IMBD factory (focused on working wear) that has strong, stable order growth. Second, from an industry perspective, as production in China becomes less competitive, customers are increasingly looking to Vietnam and then Bangladesh as next-generation production locations, so demand for Bangladesh-based production is growing. This makes it strategic for Matsuoka to strengthen its production base in the country.

Q: Rising labor costs across Asia are a trend. How long can the current production structure remain viable?

A: There is no clear timeline for when the structure will need to change. However, Bangladesh and Myanmar still have room to absorb rising labor costs, and other locations are improving productivity via new equipment and smart factory transformation, as well as shifting product mix to higher efficiency items. Management believes the current structure can be maintained for the foreseeable future.

Q: What is the foreign exchange sensitivity by business segment?

A: Foreign exchange sensitivity depends on not just USD/JPY, but also the exchange rates between emerging market production currencies, and impact often does not match theoretical forecasts. For this reason, the company does not disclose separate sensitivity by segment.

Q: What is the sales share of Fast Retailing?

A: Including direct and indirect transactions, 60-70% of total sales are to Fast Retailing.

Q: What are the growth drivers and challenges for 3Q FY2026 March term?

A: The main growth driver is expanded profit in the sewing business: increased production at new factories in Vietnam and Bangladesh, improved productivity from production location optimization and higher employee proficiency, all driven by strong order demand, led to higher profit. The main challenge is the slowdown in the Lamination Film business: the segment saw a large profit decline after losing orders from a prior year key customer hit product. To mitigate future volatility, the company is pursuing new customers in China and shifting production to Vietnam to optimize capacity utilization.

Q: What are the core pillars of the new medium-term plan growth strategy, and what is the highest priority investment area?

A: The core pillars are: 1) Maximize utilization of existing and newly built capacity in the sewing business to expand production scale, and 2) Optimize Lamination Film business utilization by shifting production/technology to Vietnam and developing new customers in China. The highest priority investment areas are new factory construction in Indonesia, facility expansion in Bangladesh, and system investment for smart factory transformation.

Q: How are changing customer requirements for sustainability impacting competitiveness?

A: Customers are increasingly demanding CO2 emission reduction and digital traceability, in addition to traditional quality and cost requirements. Investing to meet these requirements builds trust with customers and regions, which is the foundation of competitive advantage for the company.