EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Kion Delivers Another Solid Performance; Shares Attractive

Narrow-moat Kion reported strong warehouse equipment order growth and margin expansion in 1Q, continuing to support our view that the company is well positioned for a long runway of demand for warehouse automation equipment. We are maintaining our EUR 90 fair value estimate and continue to find the shares attractive.

Kion outperformed the market on forklift unit demand, with the market seeing a 3% unit decline year over year. Kion's forklift demand was stable on a unit basis and up 2% on a value basis, reflected by order book growth. Revenue increased by 10% aided by the unusually high backlog. The forklift division's EBIT was flat year over year with margin expansion from volume growth offset by continued costs related to supply chain bottlenecks and price increases for raw materials . We expect these headwinds to ease in the second half of 2019.

Warehouse equipment (supply chain solutions division) grew orders significantly year over year at 52% with the help of a large order over EUR 100m. Revenue grew by 21%. In line with our thesis, division margins expanded year over year from increased plant utilization as the 2018 high order intakes starts to be booked in revenue. The division's margin expanded by 110 basis points.

Group level orders and revenue grew by 12% and 13%, respectively and the EBIT margin grew by 20 basis points to 8.9%. Overall, the results are in line with our thesis that the warehouse equipment business should meaningfully outgrow forklift demand because of the early stage shift toward automating warehouses. We, and the market, expected forklift demand to moderate in 2019 after two years of exceptional growth. In the medium term, we continue to expect the demand for forklifts to grow by 4%, particularly electric forklifts, aided by demand for warehouse space with a growing portion of e-commerce as a percentage of retail sales.