Kone: Up 33% From October Lows, Now Even More A Bet On China

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

Summary

• Kone shares have rebounded 33% from October lows but are still 24% below their 52-week high. The Dividend Yield is 3.6%.

• Shares are at 24.9x 2021 EPS, but we expect EPS to decline by 22% in 2022 due to cost inflation and the construction slowdown in China.

• There are positive signs on Kone's margin and sales growth, but the near-term investment case is a bet on recovery in China.

• We assume EPS will return to 2021 levels by 2024 and grow at 7% after, but investors more bullish on China will expect higher growth.

• With shares at €48.82, we expect a total return of 32% (10.5% annualized) by end of 2025. We reiterate our Buy but prefer Otis.

Introduction

We review our investment case on KONE Oyj after shares trading on their Helsinki primary exchange have rebounded 33% in euros from their October lows.

We initiated our Buy rating on Kone in June 2020. Even after the recent rebound, Kone shares have lost 13% (after dividends) since our initiation, and the share price is still 24% below its 5…