Kone’s Results Indicate a Recovery in Sector Modernization and Service Demand

Kone reported strong second-quarter results, with margin expansion of 60 basis points supported by 11% organic revenue and weak year-ago revenue comparisons. Raw material and logistic costs were higher, with the offset to those rising costs mainly coming from volume growth and to a less extent from price. In China, Kone outgrew the market with more than 10% elevator and escalator unit order growth. With high revenue visibility and with six months having passed, management tightened the full year outlook previously given in the first quarter, a pattern that management has followed in previous years. Management raised the lower end of 2021 revenue guidance by 200 basis point to a range of 4% to 6% organic growth. However, an expected inflationary impact of roughly EUR 175 million from increased electronic components and logistics costs lowered the upper end of the margin range by 20 basis points to 12.4% to 13%. We forecast 5% revenue growth and 12.9% EBIT margin, and so do not expect to make material changes to our forecasts or fair value on the back of the results. We maintain our wide moat rating.