Schindler Earnings: Buoyant Service Orders Offset Weak Demand for New Equipment in Late 2023

Demand for new elevator installations remains weak globally in late 2023. Nonetheless, wide-moat Schindler Holding SCHN pleased investors, growing new order intake by 3.8% in the third quarter, in local currency terms, spurred on by continued strength in service and modernization orders that offset ongoing cyclically weakened orders for new equipment. The resilience of service and modernization orders reinforces Schindler’s order book—which stood at a pleasing CHF 9.3 billion at the end of the third quarter. In turn, Schindler’s order book should continue to support robust sales growth through the remainder of 2023, having advanced at 8.5% in the first nine months of 2023 in local currency terms. Our 2023 estimates for Schindler are largely unchanged—we forecast full-year net profit of CHF 905 million, near the top end of Schindler’s upwardly revised CHF 880 million-CHF 910 million guided range. Investors warmed to the result with shares up 3% at the time of writing. Still, Schindler’s shares screen as undervalued, trading at an approximate 15% discount to our unchanged CHF 210 fair value estimate.

Unsurprisingly, orders for new installations remain weak for Schindler globally, with the exception of the Asia-Pacific region (excluding China) where new installation orders have grown low single digits in the first nine months of 2023. Construction activity in China is yet to show signs of imminent recovery with floor space under construction still in decline. Furthermore, indications of a return in homebuyer confidence are yet to eventuate with China’s inventory of unsold homes beginning to rise once again in late 2023, unwinding the improvement in excess supply observed in 2022. The market for new elevator equipment has also weakened recently in North America as demand from multifamily and commercial construction projects wanes cyclically.