Kone: Adjusting To The End Of China's Construction Boom

(Preview) Company Update (KNEBV FH) (Buy)

Summary

• Kone set out its new strategy and expectations at its investor day last week, following disappointments in both its share price and P&L.

• The elevator industry is facing the end of China's construction boom and high inflation. 35% of Kone's sales were from China in 2021.

• Kone's new strategy is to focus on Services sales as its new growth driver. It is also pursuing price hikes and cost improvements.

• New financial expectations imply annual sales growth of approx. 4% and, in our estimates, annual EBIT growth of approx. 7%.

• With shares at €48.11, we expect a total return of 43% (11.1%annualized) by 2025. The Dividend Yield is 3.6%. Buy.

Introduction

We review our investment case on KONE Oyj after its investor day last Wednesday (June 1).

We initiated our Buy rating on Kone in June 2020. Kone shares have lost 14.3% since then (in EUR, after dividends), and the share price is now down 36% from its peak in October 2020.

Earnings have stalled at Kone since our initiation. Adjusted EBIT and EP…