Established in Tokyo in 1994, Japan Elevator Service (JES) is an independent maintenance service provider for elevators.
The Japanese economy has matured and the population continues to decline. It is becoming increasingly difficult to create a growing business solely within Japan, so what challenges do you undertake? elevator side door
We estimate there are about 1.1 million elevators installed in Japan. The Building Standard Low requires elevators be maintained regularly as a responsibility of the building owner. Currently, manufacturers and their affiliates (OEMs) control 80% of the maintenance market, and independent maintenance service providers like us have about 20%. Outside Japan, however, the split is about 50:50 outside Japan. We believe this number should go up to 50% as in other markets. That would give us an opportunity of about 330,000 elevators to compete with. Currently we service about 100,000 elevators, which translates to about JPY 50 billion in sales, with about JPY 8 billion in operating profit. While the market itself is maturing, we have a huge opportunity.
Whenever someone talks about high quality, usually it comes at a high price, but your company has achieved the highest quality in terms of services to your customers, while maintaining an affordable price. What is the secret behind this achievement, and what sets you apart from your competitors?
Independent maintenance companies do not have development and manufacturing processes, so they can provide maintenance service relatively lower than OEMs. But in order to gain customers from OEMs, you have to make sure you have the same quality. If we do not comply with the specification of OEMs, we cannot assure our quality. In the past, there was a misperception that independent maintenance companies were cheap, but the quality was bad, so we knew that we had to do our job really well to change this perception. I come from a technical field and I was actually an elevator inspector too, so I had the mindset that we have to do this right.
I believe we stand far beyond 300 independent companies. First, we have a proprietary remote inspection system called PRIME. Second, we are the only listed company. Third, we have the biggest scale and we do business across Japan.
Around 2000, OEMs started to introduce remote inspection systems for elevators. We were small then with sales of only JPY hundreds of millions, but we spent well above that amount to develop this PRIME system.
Then, there was a casualty in 2006 involving a Schindler elevator that was maintained by an independent maintenance company. I actually worked at that company before I started our company in 1994. Around that time, people started to believe that independent maintenance companies weren’t good. I wanted to change that perception and establish credibility by taking our company public.
Finally, we have buildings in Wako, Saitama that house parts of the warehouse, research & development, training, control center and modernization workspace. Most recently we have completed a building in Takarazuka, Hyogo in March 2024. These facilities enable us to maintain the largest stock of genuine parts, a disciplined team of technical personnel and control center that monitors elevators 24/7, 365 days a year, to ensure quick and quality maintenance service for our customers in every part of the country.
Your sales of JPY 50 billion seem high for a relatively young company, just 30 years in business. Few companies can reach that much in sales in such a short period. Yet you even have an ambitious mid-term business plan. What are the key pillars of your midterm strategy?
Our Vision 2027 mid-term business plan sets target net sales of JPY 60 billion and operating profit margin of 20% for the fiscal year ending March 2027, and I believe this plan is achievable. We see a good flow of business because building owners and building maintenance companies are switching from OEMs to us because we are the first and the only service provider in Japan to establish a combination of affordable price and high quality.
On top of that, modernization is growing quite rapidly. Modernization involves replacement of major equipment in the elevator system, and as the elevator market in Japan matures there is growing demand for modernization. We replace OEM equipment with our own, and we have the advantage of not only attracting new customers but also locking in contracts with existing customers.
With these investments that we made in the past, including our remote inspection system, warehouse, training center and so on, and our network of operation now reaching every region in Japan, we are able to improve productivity as we build density in maintenance contracts in those areas. For this reason, I even think the 20% target is just a milestone for us.
As our business grows, we need more and more people, obviously, because we have to send people for maintenance work. Last year, we hired 130 new graduates, and this year we managed to hire 150 new graduates. We focus on university students who have studied science and engineering. I think there are three reasons students choose us. First, we are the only listed company in the industry. Second, our business is growing steadily. Third, those types of students like to strike a balance between work and life, and we share the same culture.
Further, most of the 300 independent elevator maintenance companies in Japan are so small that they don’t even have the budgets to maintain their own parts inventory. Since we maintain a large stock of genuine parts, we sometimes supply parts to them and thus we build relationships with them. From time to time that would lead to friendly M&A activity. In other words, we have growth opportunities through organic and inorganic channels.
Are you looking to expand your overseas presence and, if so, which regions are you targeting and how do you plan to achieve it?
Right now we have our overseas headquarters in Hong Kong. We also conduct business in such countries as Indonesia, Malaysia, and Vietnam. We have sent Japanese technicians and engineers to provide high-quality services at lower prices. Some markets have shown remarkable growth in the number of elevators, but they tend not to emphasize maintenance. Our strength is to provide quality service at a reasonable price, and there are growth opportunities in markets where quality is important.
Our strategy is not to make huge investments at the moment. In Japan, the majority of elevators are manufactured by Japanese OEMs, but in other markets, foreign OEMs have a larger market share. We need to accumulate expertise to service these OEMs such as Schindler and Kone. Right now, it's like a training period for us.
Is M&A important in promoting overseas expansion? When do you think you will enter the phase of full-scale overseas expansion?
I think the most important thing is to choose a good local partner. Going into a new market, setting up an office, hiring local people and starting a business by yourself is not really realistic. Instead, I'd like to find a partner who already has a solid foothold in the market and perhaps do a joint venture. And once we can generate JPY 10 billion in profits, we can use that capital for aggressive overseas expansion.
Your company just celebrated its 30th anniversary last year. Imagine that we come back in five years for your 35th anniversary and we interview you again. What will you tell us? What are your dreams for this company, and what goals do you want to accomplish over those next five years?
Beyond Vision 2027, my challenge is to increase sales by JPY 10 billion per year, so in five years our sales would be JPY 100 billion and with operating profit margin in the north of 20% that would be JPY 20 billion. At the current P/E ratio, that would mean a company with market capitalization of JPY 1 trillion.
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