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Going Down? Elevator OEMs Have Material Exposure to Chinese Property Market

Analyst Note

| Denise Molina, CFA |

The Chinese property sector is under pressure from the latest weakening land and building sales, government-directed tightened credit, and heavily indebted large developers, presenting risks to our valuations of elevator original equipment manufacturers, or OEMs, Kone, Schindler and Otis. Should Chinese new elevator equipment demand decrease by 10%-20%, we estimate 7%-18% downside risk to our current fair value estimates, or FVEs, for these three companies. China's property sector is a key driver of sector growth, accounting for around 60% of new elevator equipment demand. In the last decade, underlying demand has been supported by relatively low urbanization rates. However, China's urbanization rate is now 61%, from 51% in 2012, boosted by years of property sector growth and a narrowing gap with more mature markets.

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Company Profile

Business Description

Kone, whose name means "machine" in Finnish, is the world’s fourth-largest supplier of elevators and escalators. Kone began producing elevators in Finland in 1918 and today generates revenue in three ways: selling new elevators and escalators, overhauling or modernising old equipment, and servicing its installed base. Most of the company's profit comes from the last activity, where contracts are rolled over annually with built-in price increases. The bulk of Kone's business is in elevators, which are more numerous globally than escalators.

Keilasatama 3, P.O. Box 7
Espoo, FI-02150, Finland
T +358 204751
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type
Employees 61,439