Kone Earnings: China Demand Remains a Pain Point in Late 2024; Shares Fairly Valued

Wide-moat Kone delivered a resilient third-quarter result, which once again featured strong growth in modernization orders and in elevator servicing. Notwithstanding, Chinese demand for new equipment continued to decline in the quarter, dragging new order intake down some 11% lower, quarter on quarter. While demand in China remains a pain point, the ongoing strength in modernization orders highlights the significant secular growth opportunity in elevator modernizations for Kone and its major elevator original equipment manufacturer peers. Kone continues to grow its high-profit margin service business, with service sales climbing about 10% on a constant-currency basis. We make no change to our EUR 50 fair value estimate, which includes the impact of cost-out initiatives recently unveiled by Kone, which is expected to drive modest profit margin expansion over the 2025-27 period. Kone shares screen as approximately fairly valued.