KONE Q1'25: We got what we paid for

Translation: Original published in Finnish on 05/02/2025 at 08:17 am EEST

KONE’s Q1 figures were quite well in line with our and the market's expectations. The overall picture of the report turned slightly to the positive side, driven by the order intake that slightly exceeded expectations. The revised guidance for this year was also in line with our expectations ahead of the report, and thus, the estimate changes were marginal at group level. Reflecting this, we reiterate our EUR 55 target price, but as the share price has risen, we lower our recommendation to Reduce (was Accumulate).

The Q1 report was well in line wth our expectations

In Q1, KONE’s revenue grew by 4%, which was in line with our and consensus estimates. However, the revenue structure was more aftermarket-heavy than we expected. In Q1, KONE's adjusted EBIT amounted to 280 MEUR, which exceeded our estimate slightly but was in line with the consensus. This corresponded to an adjusted EBIT margin of 10.5%, in line with market expectations. In contrast, the reported order intake in Q1 (2,378 MEUR, +6% y/y) slightly exceeded both our (Inderes' estimate +4% y/y) and the consensus forecast (2,303 MEUR, +3% y/y). The order increase was double-digit outside China and especially strong in Modernization. The margin of orders declined slightly year-on-year, driven by China, while the margin of orders was more stable in the rest of the world.

Revised guidance in line with market expectations

In connection with the report, KONE specified its guidance for the current year and estimates that its revenue will grow by 1-6% in comparable currencies (previously expected to grow slightly). On the other hand, it expects the adjusted EBIT margin to be 11.8-12.2% (previosuly, improvement in EBIT is expected to continue). This was also quite well in line with the consensus expectation before the report and with our estimates. Correspondingly, the company slightly lowered its market outlook for New Building Solutions in North America due to increased uncertainty in the business environment. For Europe, the company raised its outlook and expects the market to grow slightly. Otherwise, the outlook was unchanged and especially the modernization market is expected to grow rapidly in all geographical areas. In China, the company expects New Building Solutions to continue to decline at a double-digit rate this year. Encouraging was that the company commented that it had seen the first signs of activity stabilizing in the region towards the end of the year.

In line with the overall picture, we only made minor estimate revisions regarding the revenue structure. However, the impact on group-level forecasts was mainly cosmetic. We still expect KONE’s revenue to grow by some 4% this year and the adjusted EBIT margin to reach 12.2%. We also still expect the company to continue to achieve the targeted margin improvement (2027 adj. EBIT-%: 13-14%) on schedule through strategic efficiency measures and an improved sales mix.

We think the share is correctly priced

With our updated forecasts, the EV/EBIT ratios considering KONE’s strong balance sheet in 2025 and 2026 are approximately 20x and 18x. The corresponding P/E ratios are around 26x and 23x. Overall, we think the multiples are at a justified level for a defensive quality company like KONE, but see no upside in them, also considering the elevated uncertainties related to the global economy. Therefore, we estimate that the expected return on the stock is based on a dividend yield of just under 4% over the next 12 months. Our view of the stock being fully priced is also supported by our DCF model, which emphasizes long-term potential and is roughly in line with the share price.