Japan’s Succession Crisis Pushes Elevator Business Up 6000%

There is a greater need for lift upgrades right now since many lift systems constructed during Japan’s construction boom are nearing the end of their operational lives.

A little-known elevator maintenance company that has built an empire by buying a family-run business gets hidden away in Japan’s expansive corporate environment.

Its name is Japan Elevator Service (JES), and it has transformed the consolidation of small companies into a stock market powerhouse that has increased about 6000% since its 1.8 billion yen (approximately S$20 million at the time) initial public offering (IPO) in 2017.

Ikuo Mitsui, a fund manager at Aizawa Securities Group (who purchased shares in the IPO), stated that JES’s growth strategy was buying domestic lift maintenance companies that do not have a successor. It allowed it to expand with a stable income base.

Japan has been facing one of the worst population crises as people decide to delay marriage and having kids. The lack of children has affected family businesses who has no one to take over when the founder retires or passes away.

According to JES, the company, headquartered in Sendai, Miyagi Prefecture, 360 kilometres north of Tokyo, reached out directly when its founder, Yusoki Tohoku, passed away without an heir. Their motivation behind the acquisition is to expand their client base.

As per Teikoku Databank research, over half of Japan’s businesses did not have a succession plan last year.

The leadership void triggered over 500 bankruptcies during the fiscal year, hitting the construction, manufacturing, and services sectors.

Katsushi Ishida, founder of Japan Elevator and owner of a 20% stake, has taken advantage of these demographic headwinds to increase his company’s worth. With his acquisition strategy, he has doubled his company’s share to 10% over the past six years, and its sales have increased by 17%.

Analysts and investors are still hopeful that the businessman will continue to take over in Japan’s ageing corporate environment. Ishida refused to comment on this.

Dariusz Czoch, senior portfolio manager at Federated Hermes, stated that the company may reach 20% market share, although he did not mention a timeframe for when this might happen. JES predicts that its market share in domestic lift maintenance in Japan will increase to 13% by 2027.

There is a greater need for lift upgrades right now since many lift systems constructed during Japan’s construction boom are nearing the end of their operational lives.

The company expects sales for modernising and refurbishing elevators to increase by 10% this fiscal year compared to the previous year, making it a pillar year to achieve its goal of generating over US$400 million in revenue by fiscal 2027.

The company does not have to face the effects of US President Donald Trump’s protectionist trade threats since its operations are in Japan.

The stock is one of the major winners of the last few months, whose shares have risen 48% since Trump proclaimed April 2 to be “Liberation Day.”

The gain is more than five times the return of the Topix Small Cap Index and a 6.1% increase in broader Topix (Tokyo Stock Exchange in Japan).

All five of the stock’s analysts advise the client to buy more shares, and their average price targets suggest that the stock may rise by 11% from the Thursday closing price.

But value investors may find JES less interesting due to the recent rise in market capitalization. Currently, shares are at a price-to-earnings ratio of over 50, twice as high as its rival Fujitec.

Tim Morse, an Asymmetric Advisors analyst who has kept a favourable rating on the stock since beginning coverage, said the valuation is extraordinarily high. High valuations increase the pressure on the JES management team to increase its sales and market shares to attract new investors.

According to Hisashi Arakawa, director and head of equities at ABRDN Japan, growth is currently steady, but he believes it will start to slow down eventually. Over the next two to three years, there are not many domestic demand-oriented stocks that maintain strong returns with growth prospects.