EUR 850.00 For Business Accounts Only

Morningstar | KNEBV Updated Forecasts and Estimates from 25 Apr 2019

Wide-moat Kone's first-quarter results surprised positively with top-line growth well above the 2019 guidance range, prompting management to tighten the revenue growth range with the lower end now at 3% instead of 2%. Management also tweaked the EBIT range modestly higher. The operating income margin contracted by 40 basis points, not unexpected considering the company is still working through projects in its order book based on previous pricing. We have tweaked our forecasts expecting 4% revenue growth this year, up from 3% previously. However, this did not lead to us materially change our fair value estimate as we still factor in a slowdown in revenue growth in 2020. We are maintaining our EUR 42 fair value estimate. Shares look modestly overvalued following the recent rally.

Group orders and revenue grew by 10% on an organic basis. Encouragingly, China, the largest market globally for elevators, saw good demand and improved pricing, which has been under pressure for the past couple of years. Maintenance and modernization revenue grew in China and the rest of Asia. Revenue for the region grew an impressive 17% on an organic basis, important as it is the company's second largest region after EMEA. The other regions experience less buoyant growth with the Americas and EMEA regions growing revenue at 2% and 5%, respectively.

In terms of revenue mix, new equipment and modernization grew equally robustly at 8%-9% while maintenance revenue grew at 5%. Europe and the Americas posted more modest maintenance growth relative to Asia, as was the case in new equipment orders. However, overall, we were impressed by the results as the Asia new equipment order growth should lead to future maintenance revenue in that region, which is the bread and butter of the company's profitability and returns.