KONE: Structural Compounder Down 32% From Peak After Inflation, China Fears

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

Summary

• KONE stock has fallen 32% below its 52-week high to a level last seen in March 2020; the P/E is 26.2x and the Dividend Yield is 3.5%.

• Elevators are a structurally-growing sector backed by trends like urbanization. KONE's Maintenance base grew another 4.9% in 2021.

• Sales grew 5.8% and EPS grew 7.9% in 2021, but 2022 outlook implies a profit decline due to rising input costs and a slowdown in China.

• We expect the Chinese economy to be stable, with growth and margin to both recover after 2022, driving a high-single-digit EPS CAGR.

• With KONE stock at €50.10, even on reduced forecasts, we expect a total return of 61% (14.1% annualized) by 2025 year-end. Buy.

Introduction

We review our KONE Oyj investment case after shares fell below €50 this month for the first time since March 2020. At €50.10, shares are now 32% below their 52-week high, and just 11% above their COVID-19 trough.

We initiated our Buy rating on Kone in June 2020. Initially gaining 25% by October 2020, Kone stock is currentl…