Translation: Original published in Finnish on 5/6/2026 at 7:00 am EEST.

KH Group's Q1 profitability was at a low level due in part to timing-related factors. However, management commentary regarding the outlook and Q2 was positive. Despite a weak start to the year, the company reiterated its guidance for an improving result. Achieving this requires a strong performance in the coming quarters, although inflationary pressures and elevated interest rates due to the war in Iran increase uncertainty in the business environment. We reiterate our Reduce recommendation and revise our target price to EUR 0.55 (was EUR 0.60).

Profitability was under pressure in Q1

The revenue of both KH Group's subsidiaries grew by 7% year-on-year, which was slightly below our expectations. KH-Koneet's growth was driven by the Swedish machinery trade, while the Finnish business's revenue decreased by 7% due to a winter with little snow and delayed deliveries from machine manufacturers. NRG's performance, which is sensitive to delivery timing, was impacted by a delivery that shifted to Q2. KH Group's comparable EBIT of -1.1 MEUR was below both our forecast of 0.9 MEUR and the comparison period's level of 0.2 MEUR. Profitability declined for both subsidiaries. KH-Koneet's gross margins were under pressure in Q1 in both operating countries, and the comparable EBIT of -1.1 MEUR clearly deteriorated from the comparison period's -0.1 MEUR. NRG's profitability was burdened by the revenue mix being weighted towards low-margin brokerage and front-loaded costs related to future deliveries. At the end of the review period, KH Group's net debt/EBITDA ratio was 4.1x, which still leaves clear room for balance sheet strengthening.

Comments on the outlook were positive, but the earnings guidance leaves no room for weakness in the remainder of the year

In connection with its Q1 report, KH Group reiterated its guidance, which anticipates revenue growth and an improvement in comparable EBIT. Management's comments regarding the outlook indicate confidence in Q2. Given the weak start to the year and the very strong comparable figures ahead in Q4, achieving the earnings guidance requires a strong performance in the remainder of the year. Thus, the weakness in KH-Koneet's Finnish operations cannot continue, nor can the pressured sales margins. Our comparable EBIT estimate of 6.7 MEUR is slightly above the comparison period. We expect significant earnings growth from KH-Koneet in the coming years, from last year's cyclical bottom. Due to the weak demand environment, the company has not been able to fully capitalize on its growth investments in recent years, which, in our view, strengthens the earnings growth outlook for the coming years. Despite KH-Koneet's growth in recent years, earnings have declined so far, which, in our view, raises concerns about the profitability of the Swedish growth. As in the previous year, we expect NRG to have a very good current year, after which profitability will normalize to around 2.4 MEUR in our forecasts. This level is historically good, and the business creates significant value with it. However, this requires a moderation in profitability compared to 2025–2026.

Discouraging valuation despite positive growth outlook

With our current year estimates, KH Group's EV/EBIT multiple is at a high 15x level, while with our estimates incorporating a significant earnings improvement next year, the multiple is at a neutral 10x level. However, due to KH Group's low relative profitability and significant financial leverage, earnings-based valuation is sensitive to even small forecast changes. Our DCF model, which indicates longer-term potential, implies a value of EUR 0.67 per share for the group, although the model relies on a sustainable improvement in profitability. In our view, it is challenging to rely on KH Group's long-term potential until we see sustainable signs of an earnings turnaround and KH-Koneet's ability to create value through international growth.