RBC has upgraded Kone Oyj to Sector Perform, raising its price target to €57 as the elevator company's growth strategy begins to pay off. Kone's focus on modernization and service businesses is driving organic sales growth, expected to reach approximately 6% in both 2026 and 2027. China, once a dominant market, now accounts for less than 10% of Kone's total sales, a significant decline from previous years.

RBC highlights Kone's successful introduction of 'partial-mod' offerings, which appeal to customers seeking lower upfront costs and reduced downtime. The service segment has shown impressive performance, with 8.1% year-to-date comparable sales growth, outperforming competitor Otis. Looking ahead, RBC forecasts 130 basis points of adjusted EBIT margin expansion from 2025 to 2027, driven by diminishing China new building sales headwinds, a rapidly scaling modernization business, and ongoing efficiency initiatives.

Kone’s valuation at 19.7x 2026 estimated EV/EBITA is considered fair, compared to Schindler at 18.7x and Otis at 15.6x. This upgrade reflects RBC's confidence in Kone's strategic direction and its ability to navigate market challenges through innovation and service excellence. Kone's strategy shift towards modernization and service is a pivot from its traditional reliance on new construction projects, particularly in China.

This adjustment is crucial as global construction trends show a slowdown in new building projects. By emphasizing modernization, Kone is tapping into a growing market demand for upgrading existing infrastructure, especially in urban areas. The company's 'partial-mod' offerings are innovative, providing a cost-effective alternative to full elevator replacements.

This approach not only reduces upfront costs for customers but also minimizes disruption, which is critical for high-traffic buildings. The service segment’s outperformance is a testament to Kone’s commitment to maintaining and enhancing its installed base. The company’s focus on service excellence has allowed it to outpace competitors like Otis, which is struggling to match Kone’s growth rates.

As Kone continues to expand its service capabilities, it is well-positioned to capture a larger share of the maintenance and repair market. This strategy is likely to yield long-term benefits, as recurring service revenues provide a stable income stream and enhance customer loyalty.