Industrials

Report by Paragon Intel

Judy Marks is a poor fit for the CEO role. Her tenure has been marked by share-price underperformance, repeated guidance cuts, underinvestment in innovation and purging experienced internal talent to make way for inferior DEI placements. Facing a weak China market, Marks has relied on repeated restructurings that have further hurt morale and credibility. Paragon’s research draws on interviews with former senior executives from OTIS, Siemens and Dresser-Rand, revealing a sharp contrast between her stronger reputation at Siemens and overwhelmingly negative feedback from OTIS insiders. Sources cite a fear-based culture, weak grasp of the core service model and poor capital allocation. Paragon argues Marks’ leadership style is misaligned with the company's need for stability, operational discipline and reinvestment.

Industrials

Report by Silk Road Research

In SRR’s 3Q23 China survey report, channel checks indicated that KONE had outperformed the industry in terms of orders growth for the first time in over a year. SRR's latest dealer checks reveal that this outperformance has continued. While easy comps is one factor, industry contacts also cited management turnover at OTIS Electric (new China CEO effective Sept 1st) as having introduced a degree of uncertainty into the company, which may be benefiting KONE in the near-term. Other major brands mentioned for recent outperformance are Fujitec and Thyssen with Toshiba, Canny, Schindler and Yungtay underperforming.

Industrials

Report by Silk Road Research

The % of dealers expecting positive orders growth in 2023 exceeded those expecting the opposite by a net +20%, the highest in four quarters. Industry sentiment improved to a six-quarter high, although remained below 2020/21 levels. SRR’s survey readings also indicated a stable pricing environment. While customer receivables have improved from a year ago, SRR’s June reading was the lowest in 13 months. That said, this metric remained above levels seen prior to recent government measures aimed at improving the liquidity conditions for developers, with the recent extension of those initiatives through 2024 seen as a positive. Relevant stocks: OTIS, KONE, Schindler, Yungtay and Canny.

Industrials

Report by Abacus Research

Has proven itself to be resilient and defensive with significant improvements over the last few years - OTIS shares can generate an IRR of 10-13% with less than market risk and limited downside. Its market share will continue to increase because of digitisation in the industry, which favours the OEM, a meaningful change vs. 5 years ago. The Services business (84% of profits) can continue to deliver ~6% growth while improving operating margins. Abacus sees EPS growth of 10-12% for the next few years, fading to ~9-10%. Plus a dividend yield of 1.7%. Stock should hold its multiple.

Industrials

Report by Silk Road Research

China channel checks reveal underperformance in order activity - rather than being driven by the expected differences around pricing / financing terms between major OEMs, SRR’s industry contacts cite a combination of above-average exposure to distressed developers, replacement of an industry veteran with an outsider to lead its China business, and increased competitiveness of OTIS and domestic brands as key drivers of its underperformance. SRR estimates KONE may have lost up to ~150 bps of share over the past 12 months.

Report by Silk Road Research

SRR's channel checks point to orders growth in the negative 15-25% Y/Y range through August - worse than the negative 5-15% range that occurred in 1H22, despite an easier comp. Although their early September read is slightly better, it may not be enough to lift the quarter especially since there have also been less-than-encouraging reports of industry layoffs at Elevator OEM factories in the Shanghai region. OTIS and Hitachi appear to have held / gained market share 3QTD and YTD, while Schindler and Thyssen have lagged. After a strong 1H22 KONE appears to be struggling.

Industrials

Report by Silk Road Research

Industry checks reveal a much better-than-expected order environment QTD - orders through the first two months of the year expected to only be down low to mid-single digit range (NB 1Q22 represents toughest comp of the year; 1Q21 orders >+20% y/y). Infrastructure orders are strong (provides further evidence of a pick-up in fiscal stimulus); Residential orders are down, but less-than-feared and absolute orders are well above 2019 levels. Given the downbeat forecasts by large Elevator OEMs such as Kone and Otis, SRR sees more upside than downside to expectations for the full year

Autos / Industrials

Report by Silk Road Research

More Asian countries are currently under some form of lockdown than at any point in the past year. This includes Taiwan, Thailand and Vietnam - all key source countries for global supply chains. SRR’s contacts in the Automotive and Automation industries now expect supply chain bottlenecks to persist for the remainder of the year with Logistics contacts expecting air and ocean freight to remain tight through to June 2022! SRR’s top picks for China exposure in H2 include Otis, ABB, Schneider Electric, Siemens, Yaskawa, Fanuc, Aptiv, Nio and Volkswagen.

Industrials

Report by Silk Road Research

Absolute level of demand inconsistent with China downturn scenario; OTIS share gains continued; prefer OTIS over KONE - 2Q21 Elevator orders were cited in the +20-40% range relative to 2019 (+10-20% y/y) and with most manufacturers only forecasting order growth of +0-10% y/y for 2021, bias to management guidance remains to the upside. OTIS’ strategic initiatives continue to bear fruit - more competitive and aggressive marketing is leading to increasingly sustainable share gains. Shanghai Mitsubishi has lagged significantly through 1H21 with KONE also underperforming.