Kone: Shares At 5-Year Lows; Q2 May Mark The Bottom

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

Summary

• Kone shares fell below €40 on Friday to a new 5-year low, after losing another 13% since Q2 results on July 20.

• Adjusted EBIT fell 44% in Q2, largely due to COVID lockdowns in China; 2022 outlook was cut again and now shows an 11% EBIT decline.

• Q2 did show progress in Kone's self-help efforts on pricing, costs and margins, but with nearly all improvements outside China.

• Management indicated margin may start to improve in Q3, but much will depend on a stabilization of the Chinese construction sector.

• With shares at €39.92, after lowering our forecasts, we expect a total return of 58% (15.7% annualized) by 2025 year-end. Buy.

Introduction

We review our investment case on Kone Oyj after shares fell below €40 in Helsinki to a new 5-year low.

We initiated our Buy rating on Kone in June 2020. Shares have now lost 28% (after dividends) since our initiation, falling another 13% since Q2 2022 results on July 20, and are down 47% from their all-time high in October 2020.

Kone has been battered b…