Kone's China Woes Are a Temporary Drag on Growth and Profitability; Shares Attractive

The coronavirus lockdowns in China drove Kone's second-quarter sales decline for the second quarter in a row, and the company expects to have lower revenue growth and operating profit for full-year 2022 as a result. Using the midpoint of guidance, management expects revenue growth to be 250 basis points lower and operating profit 5% lower relative to previous guidance. We expect any adjustments to our forecasts to be modest as our operating profit expectations are already in line with the company's revised guidance. As the government is driving the pandemic measures, as well as the developer lending controls, we do not view Kone's profit warning as an indication of underlying weakness in the business outlook over the long term. Therefore, we are sticking to our wide moat rating and EUR 56 fair value estimate. The shares look attractive at current levels.