Kone Earnings: Third-Quarter Order Intake Resilient Despite Difficult Equipment Market Conditions

Our estimates for Kone KNEBV remain largely unchanged following delivery of its third-quarter result, which tracked our full-year expectations. Third-quarter sales growth decelerated meaningfully to negative 1.4% year on year, which was unsurprising given the weak new-equipment orders in early 2023, particularly in China and the Americas. However, third-quarter new order intake rose 0.3% year on year on a constant currency basis, breaking with the year-to-date declining trend in new equipment orders. Investors sent Kone shares higher—up around 4% at the time of writing—with the approximately flat new-order intake offering investors hope that the worst of the cyclical weakness in new equipment markets may have already come to pass. Kone shares screen attractively, trading at a 18% discount to our unchanged EUR 48 fair value estimate.

We think investors took particular solace in new order development in China, where Kone’s order intake grew during the quarter and offset declines in new-equipment orders elsewhere in Europe and the Americas. This represents a good outcome given the ongoing weak construction market backdrop in China. However, the ongoing focus of Chinese policymakers on completing the significant number of unfinished construction projects acted as a tailwind for Kone’s order intake in the world’s largest elevator equipment market. While a positive outcome, we expect Chinese demand for new equipment to remain weak in 2024, with new residential building starts continuing their fall in late 2023. Separately, modernization and service markets remain robust in late 2023, with third quarter sales growing 18% and 4%, respectively.

Kone also announced that Philippe Delorme will assume the role of CEO as of January 2024. Delorme brings significant experience in a range of leadership roles with Schneider Electric, including strategy, technology and sales.