Otis Continues to Enjoy Solid Demand Outside China

Similar to competitor Kone, Otis moderately lowered its 2022 revenue and earnings outlook due to the slower-than-expected recovery in China's property market. Importantly, the service business, which drives 80% of Otis' profits, continues to look strong. Management expects group revenue to grow 2.25% at the midpoint, down 75 basis points from the previous 3% midpoint. New equipment revenue is expected to decline 2.5% for the year, down more than 100 basis points from the previous guidance caused by China's weak property market. We expect the situation in China to drive the near-term earnings outlook and expect the market's recovery to last through 2023. However, global service revenue, the bread and butter of elevator manufacturers' profit pools, remains strong. We are maintaining our wide moat rating and fair value estimate.