Gunze (cap Y150 bn) is widely recognized for its men’s underwear, though in recent years it has ceded market leadership to Uniqlo in the innerwear segment. Even so, its long history of reinvention suggests that the company will continue to adapt in response to shifts in industry dynamics and evolving consumer tastes.

A recent key wake-up call driving management to accelerate restructuring has been the desire to avoid becoming “the next DAIDOH (3205),” which came under pressure from activist investor Strategic Capital (SC). SC ultimately exited its entire 32.2% stake after DAIDOH raised shareholder returns through higher dividends and share buybacks in June 2024.

Gunze is gaining investor confidence through its pursuit of an 8% ROE target by FY 3/27. Management’s recent follow-up actions demonstrate a strong commitment to this goal.

The stock jumped 20% on 5/14/25 after the company announced a policy to maintain a shareholder return ratio of over 100% until ROE exceeds 8%, along with a substantial increase in dividends. This momentum has been sustained by a series of steps, including apparel factory closures in August and the share buybacks/early retirement offers in November.

Gunze noted an increase in individual shareholders following the stock split on 4/1/25 and dividend increase.

With the stock trading at 55x FY3/26 PE and 22x FY3/27 PE, expectations for apparel restructuring are already high. Even so, the company’s track record of successful pivots, combined with non-apparel growth and new products, suggests there is still room for upside. Asedron, launched in 2024, gives them a timely entry point into the fast-growing ‘recovery wear’ space, led by items like Workman’s Mediheal.

My note to the clients evaluates management’s claim that non‑apparel businesses can drive Gunze’s next stage of growth.

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