If Factory Energy-Saving Investments Return, This Is the Target: 20 Equipment-Related Stocks to Monitor

In the current Japanese market, there is a massive theme toward which capital is quietly but surely beginning to flow. That is 'factory energy-saving investment and equipment renewal.' Over the past few years, against the backdrop of global supply chain disruptions, inflation, and an uncertain macroeconomic environment, many manufacturers have temporarily suspended or postponed large-scale capital investments. However, the timing for that 'investment dam' to burst is finally approaching.

The biggest triggers for this are persistently high energy prices and the pressure for 'decarbonization (carbon neutrality)' that is approaching without delay. In factory operations until now, a status quo bias has been at work, where even somewhat old equipment was considered 'fine because it is running.' However, now that soaring electricity and fuel costs are directly squeezing corporate operating profits, continuing to use old equipment with low energy-saving performance has transformed into the greatest management risk.

Furthermore, the government-led 'GX (Green Transformation)' promotion policy is providing a powerful tailwind. Generous subsidy menus are available for the introduction of energy-saving equipment, making replacement with the latest equipment an unprecedentedly attractive option even for mid-sized and small-to-medium enterprises that had previously hesitated to invest. In addition, FA (factory automation) investment to resolve the worsening labor shortage is also becoming essential from the perspective of 'eco-automation,' which focuses on 'how to increase productivity while suppressing power consumption,' rather than just simple automation.

The companies picked up this time are not the ultra-large finished vehicle manufacturers or general electronics manufacturers that everyone knows. They are the 'BtoB professional companies' that support the backbone of Japanese manufacturing from behind the scenes, providing factory air conditioning, water treatment, power control, fluid control, and high-efficiency production goods. These companies hold overwhelming global or domestic market shares in niche fields and have a solid earnings base that is less susceptible to economic fluctuations. The structure is such that if factory energy-saving investment goes into full swing, special demand will fly to them first.

For investors, incorporating these 'excellent domestic demand and equipment investment-related stocks that only those in the know are aware of' into a portfolio is a very effective strategy for medium- to long-term asset formation. Unlike growth stocks that show flashy price movements, these are a group of stocks that can be held steadily with peace of mind, backed by steady earnings growth and expectations for dividend increases.

In this article, from among a wide range of equipment-related sectors, we have thoroughly researched and carefully selected 20 stocks with technical capabilities, financial soundness, and the potential to capture future special energy-saving demand. We have comprehensively explained the strengths of each stock, recent trends, and risk factors to be aware of when investing, so we hope you will use this as a reference for your stock selection.

[Disclaimer Regarding Investment] The information provided in this article is intended solely for informational purposes to assist in investment decisions and does not solicit investment in any specific stock. Stock investment involves various risks, such as price fluctuation risk and liquidity risk, and there is a possibility that the principal investment may be lost. The performance, financial condition, and macroeconomic trends of each company are constantly changing, and the predictions and outlooks described in this article are not guaranteed to be realized. We ask that you make your own decisions and take responsibility for stock selection, trading timing, and final investment decisions. We assume no responsibility for any damages arising from the use of the information in this article.

[A Pioneer in Automatic Control Driving Building Energy Conservation] Azbil (6845)

◎ Business Content: A major manufacturer of measurement and control equipment that focuses on the Building Automation (BA) business for buildings, including air conditioning control systems, and the Advanced Automation (AA) business that provides various measurement and control equipment for factories.

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◎ Reason for Attention: In factory energy conservation, the visualization of energy consumption and the optimal control of air conditioning and production lines are the first steps. The company excels in technology that integrates everything from sensors to valves and the entire system, and it has overwhelming competitiveness in solutions that optimize the power consumption of the entire factory. As corporate decarbonization needs rise, the introduction of the company's system is becoming essential for renewal projects in existing factories, and its greatest strength is that long-term earnings growth can be expected.

◎ Corporate History and Recent Trends: Founded in 1906 as Yamatake Shokai, it was long familiar under the 'Yamatake' brand, but changed its name to Azbil in 2012. In recent years, in addition to steady domestic demand for equipment renewal, it has also accelerated its business expansion overseas. In particular, it is strengthening proposals for energy-saving solutions for manufacturing bases in Southeast Asia and China, where environmental regulations are being tightened, and has succeeded in expanding stock-type revenue that includes not only hardware sales but also maintenance and operation services.

◎ Risk Factors: There is a risk that rising material prices and supply chain constraints due to semiconductor shortages will squeeze profit margins. Also, it should be noted that performance is easily influenced by the capital investment trends of the manufacturing industry, which is the main customer.

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[Top Runner in Air Conditioning Equipment, Strong in Factory Environment Construction] Takasago Thermal Engineering (1969)

◎ Business Content: One of the largest equipment construction companies in Japan that comprehensively handles the design and construction of air conditioning equipment for office buildings and factories. It boasts extremely high technical capabilities in industrial air conditioning that requires clean rooms and special temperature control.

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◎ Reason for Attention: Air conditioning and ventilation systems account for a large percentage of the energy consumed within a factory. The company excels in advanced energy-saving design that circulates the thermal energy of the entire factory without waste, rather than just installing air conditioning equipment. In particular, inquiries from high-tech industries such as semiconductor factories and pharmaceutical factories, which require both strict environmental control and energy conservation, are very strong, and it is in a position to most directly enjoy the benefits of the trend of returning manufacturing to Japan.

◎ Corporate History and Recent Trends: With a long history dating back to its establishment in 1923, the company has grown alongside the development of Japan's modern architecture and industrial infrastructure. In recent years, it has branded itself as an "Environmental Creator," focusing on the development of hydrogen energy utilization technology for a decarbonized society and the introduction of AI-driven automatic air conditioning optimization systems. It has secured numerous large-scale factory construction projects and redevelopment deals, leading to stable revenue growth and improved profit margins as it works through its backlog of construction projects.

◎ Risk Factors: There are concerns that the chronic shortage of engineers and workers, as well as the rising labor costs faced by the construction industry as a whole, could worsen construction profitability. Additionally, attention must be paid to the risk of construction delays in large-scale projects.

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