Translation: Original published in Finnish on 08/17/2026 at 08:35 am EEST

KH Group's Q2 earnings exceeded our expectations in terms of both revenue and especially profitability. The positive surprises in the report were the turnaround in KH-Koneet's Swedish business and additional visibility into NRG's strong order book. In our view, a strong Q2 creates good conditions for KH Group to issue a positive earnings revision during the rest of the year. In connection with the report, we have clearly raised our estimates for the coming years, as a result of which we raise our target price to EUR 0.70 (was EUR 0.55). We update our recommendations to Accumulate (was Reduce).

The review period was strong

KH Group's revenue of 62.3 MEUR clearly exceeded both our estimate and the comparison period's level. The estimate beat was attributable to both subsidiaries: KH-Koneet's revenue grew by 12%, while NRG's revenue grew during the quarter. Both subsidiaries improved their material margin, which emphasized earnings growth. The comparable EBIT of 4.3 MEUR clearly exceeded our 2.4 MEUR estimate. However, based on management's comments, it is good to look at H1 as a whole when assessing development, to account for timing-related factors. Despite this, KH Group’s development has been strong. What was particularly relieving in the interim report was that it showed signs of a profitability turnaround in KH-Koneet's Swedish business, which is critical for the company's long-term growth. KH-Koneet's Swedish EBIT settled at 0.6 MEUR in H1, a clear improvement from -0.7 MEUR in the previous year. At the same time, KH-Koneet's strong performance dispelled concerns about the continuity of operations related to the CEO change. KH Group's balance sheet remained leveraged at the end of the review period, but with improved profitability, debt levels appear more controlled than before. The Group’s net debt/EBITDA ratio was 3.2x at the end of the review period.

We feel the company has the preconditions for a positive earnings revision

In connection with the earnings release, KH Group reiterated its guidance, indicating growing revenue and improving comparable EBIT. After Q1, the company was clearly behind the previous year. However, following a strong Q2, we believe the company still has the potential for a positive earnings revision, provided there is no unexpected weakening in KH-Koneet's cyclical demand environment. We believe our comparable EBIT estimate of 10 MEUR for the current year is clearly above the comparison period (2025: 6.3 MEUR). In connection with the report, we raised our EBIT estimates for the coming years by some 20%. The estimates change is partly due to the strong Q2 performance of the subsidiaries. For NRG, we made clear upward revisions to our near-term estimates, as the company's order book reached a new record high, with deliveries extending to 2029. In addition, KH Group estimates that it will achieve annual savings of around 1 MEUR starting in 2027 by standardizing IT services and financial administration functions, and by relocating the Group's head office to Klaukkala.

Valuation attractive as cyclical recovery continues

Based on our estimates for this year, KH Group's valuation is neutral or slightly elevated (P/E 14x, EV/EBIT 10x), but with our next year's estimates, the valuation becomes attractive (P/E 8x, EV/EBIT 9x). Our estimates require a clear improvement in KH-Koneet's earnings, the conditions for which appear better than before, based on the promising profitability development of the Swedish business. 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 0.82 per share for the group, although the model relies on a sustainable improvement in profitability.