Kone's 2022 Likely To Be Challenging but Maintenance and Modernization Still Supports LT Profits

Kone's full-year results of 6% revenue growth and a 12.5% operating profit margin were in line with our expectations; however, for 2022 we're forecasting 2% revenue growth and a 150-basis-point decline in operating profit margin. These are both at the bottom end of management's range. We think, it's more likely than not that the Chinese government eases some of the lending restrictions to developers this year, which will help refuel the company's growth prospects but later in the year. Inflation pressure from a likely extra EUR 100 million-EUR 150 million raw material costs and potentially 3%+ wage increases drives our margin contraction forecast. That margin pressure will ease toward the end of the year as the company starts booking more profitable orders in fourth-quarter 2021. However, order execution can be 12-24 months, so the positive profit margin contribution from the fourth-quarter 2021 orders will be visible toward the end of 2022. Kone shares are down 20% since August 2021, pricing in a lower medium-term growth outlook in China, and now trading in line with our fair value estimate. We maintain our wide moat rating.