EUR 850.00 For Business Accounts Only

Morningstar | KNEBV Updated Forecasts and Estimates from 18 Dec 2018

Margin pressures remain more severe at Kone than at peer Schindler, and the company tightened its full-year EBIT guidance, lowering the high end by 4% after reporting a 250-basis-point decline year over year. We do not expect to make changes to our forecasts, as margin pressure has been clear throughout this year's results. Order growth was healthy across most markets, and the company raised its organic revenue growth guidance for the full year by increasing the bottom end of the guidance by 100 basis points. We anticipate improvement in revenue growth and margins next year as pricing increases work their way through the order book, with higher-priced projects taking time to be fully executed and flowed through to earnings. We expect the company to claw back 110 basis points of margin pressure next year. Most of the pressure has come from intense pricing in China, the company's largest market, as well as raw material price increases. Despite our expectation of an improved outlook next year, we see the shares as fairly valued relative to our EUR 42 fair value estimate. We retain our wide moat rating.

Kone's third-quarter orders grew 7% organically. Revenue grew by nearly 6% with maintenance and modernisation (think major equipment changes to ageing elevators) revenue growth of 6%, while new equipment installations grew by 5%. New installation growth was less than 5% across nearly all markets, with the exception of the Middle East and parts of Europe that were flat or weak. While China's pricing environment remains fierce with now well-established slowdown in new installations, the growth in modernisations, or elevator upgrades, is among the strongest at more than 10%.