EUR 87.07 For Business Accounts Only

Kone (Hold, TP: EUR48.00) - Weak Q1 apart from strong orders

We have made only minor estimate changes following stronger orders than expected in Q1 but disappointing earnings, trimming our clean 2022–2024e EPS by 2% on average. We reiterate our HOLD and EUR48 target price. Q1 review. Apart from orders, most elements in Q1 were on the soft side. Sales of EUR2,442m (down 0.4% organically YOY) were just below our estimate and consensus. New Equipment sales missed our forecast and consensus (down YOY), but Service sales were above (growing strongly YOY). Group clean EBIT was EUR197m, 11% below our estimate and consensus, giving an 8% margin (consensus was 8.9%, we expected 8.7%). However, orders of EUR2,423m grew by 10.6% organically YOY (consensus was 0.7%, we expected a decline of 4.1%), across regions and businesses (orders in China rose slightly in units and were stable in value; like-for-like prices fell slightly, and the mix was slightly negative). The new equipment market in China shrank by c5–10% YOY, with intense pricing pressure. Group cash flow of EUR219m was down from EUR426m in Q1 2021. 2022 guidance and market outlook. Kone guides for 2–5% organic sales growth in 2022 (previously 2–7%) YOY and clean EBIT of EUR1,180m–1,280m (previously EUR1,180m–1,330m) including a EUR70m positive FX effect (previously EUR50m). The raw materials headwind was raised from EUR100m–150m to EUR150m–200m, as we expected. Lockdowns in China are expected to hurt Q2 sales and profitability, but the 2022 guidance assumes normalised conditions from Q2. The margin on orders received declined slightly YOY in Q1 (as in Q4) but improved sequentially. In terms of new equipment markets in 2022, Kone guided for: China to decline by more than 10% YOY (previously 5–10%); repeated slight growth in EMEA; clear growth in North America (previously slight growth); and repeated significant growth in APAC excluding China. It continues to expect maintenance markets to grow (clearly in APAC, slightly elsewhere), and modernisation markets to grow across all markets. HOLD and EUR48 target price reiterated. We have made minimal estimate changes following the Q1 results.