• The recent road collapse incident in Yashio City, Saitama Prefecture, is believed to have been caused by a broken sewer pipe. In Japan, there are about 490,000 kilometers of sewer pipelines buried under roads for water supply and drainage. As of 2022, approximately 30,000 kilometers of these pipes have exceeded their standard lifespan of 50 years. This number is expected to increase to about 90,000 kilometers in 10 years and 200,000 kilometers in 20 years. The aging of sewer pipes is a nationwide issue, increasing the risk of road collapses like the recent incident.

Ashimori Industry (AIC) primarily manufactures automobile safety parts such as seat belts and airbags for mainly Subaru (57% of Auto safety products group) and Suzuki (12%). However, they also have the technology for pipe rehabilitation materials. This technology (PALTEM) can strengthen existing sewer pipes by coating their surfaces without replacing them. Such technology is expected to play a crucial role in reinforcing essential infrastructure as sewer pipes continue to age. Overseas sales account for 32% of total sales for FY3/24. Toyoda Gosei is the largest shareholder (28.1%).

AIC shares rose 54% over the last 12 months but are still trading at a single-digit PE. This low valuation has a chance of being corrected once the company’s volatile earnings are stabilized under the new Toyota-trained CEO and government-led efforts to rehabilitate aging pipes. I have prepared a note which discusses this upside potential in detail. Please consider becoming my client so that I can send my note directly to your inbox.