Kone Earnings: Modernization Orders Come to the Rescue With Chinese Market Still a Sore Point

Kone delivered a solid second-quarter result with order intake flat sequentially and strengthening 3.6% year on year, on a constant-currency basis. Growth in new orders was geographically broad-based, with orders rising in all regions aside from Asia--where conditions in the Chinese new elevator installation market remain particularly challenging. While new equipment orders were weak, modernization orders once again grew significantly, rising in all of Kones geographies. Kones EBIT margin strengthened sequentially, up 1.7 percentage points quarter on quarter to 11.9% as profit margins strengthened on new equipment installation deliveries (outside of China), according broadly with our full-year expectations. We make no change to our EUR 48 fair value estimate with our long-term view on the wide-moat elevator original equipment manufacturer unchanged. Kone shares trade at a slim 3% discount to our unchanged valuation.