Kone Sees Pressure in New Equipment Sales From Chinese Property Developers' Liquidity Crunch

Wide-moat Kone reported a slowdown in third-quarter revenue sales due in part to liquidity pressure from indebted Chinese developers. We are maintaining our fair value estimate. Excluding currency effects, orders grew 10.9%, moderately above the nine-month year-to-date pace of 9.8%. However, sales in the third quarter declined by 1.3% year over year. The decline was due to a 6.5% decline in new equipment revenue, including China, which contributes roughly half of new equipment sales. Eventually, the government will loosen credit expansion for the sector again and indebted developers will have restructured their balance sheets. However, we think the property market will not be fully recovered due to some speculative investments contributing to recent growth and more mature urbanization closer to Germany than India.