Kone: Structural Growth Continuing Despite China; Lower P/E than Otis

Company Update (KNEBV FH) (Buy) EBIT grew in Q2 despite a 19.1% drop in China sales, supported by Service and Modernization growth.

Highlights

• Q2 results showed Kone is now less dependent on Chinese construction.

• We believe EPS will grow 7% this year and by 6% annually long-term.

• Forward P/E is ~25x, dividend is 3.7%; trailing P/E is ~1x lower than Otis’s.

• Kone has faster Service sales growth than Otis and a much lower margin.

• At €46.99, we see a 41% total return (11.0% p.a.) by end of 2027. Buy.

Introduction

We review our Buy rating on Kone after the company released Q2 2024 results on Friday (July 19).

We upgraded our rating on Kone to Buy last September; since then shares have gained 20.9% (including a dividend):

Kone Share Price (Last 1 Year)

Source: Google Finance (21-Jul-24).

While we have not included Kone in our “Select 15” model portfolio, we have instead included its U.S.-listed peer Otis, which has done similarly well in the same period, gaining 19.5% in Euros (or 22.1% in U.S. Dollars).

We believe Kone shares continue to be attractive, with our forecasts indicating a 10%+ annualized return in our base case, and potentially more if Chinese construction and/or Kone’s margin were to prove stronger than expected.

(The rest of this article is for paid subscribers only, but unlocking it costs just $10; you can see a free sample of our research here.)