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Otis Worldwide Corp Ordinary Shares OTIS

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Going Down? Elevator OEMs Have Material Exposure to Chinese Property Market

Analyst Note

| Denise Molina, CFA |

The Chinese property sector is under pressure from the latest weakening land and building sales, government-directed tightened credit, and heavily indebted large developers, presenting risks to our valuations of elevator original equipment manufacturers, or OEMs, Kone, Schindler and Otis. Should Chinese new elevator equipment demand decrease by 10%-20%, we estimate 7%-18% downside risk to our current fair value estimates, or FVEs, for these three companies. China's property sector is a key driver of sector growth, accounting for around 60% of new elevator equipment demand. In the last decade, underlying demand has been supported by relatively low urbanization rates. However, China's urbanization rate is now 61%, from 51% in 2012, boosted by years of property sector growth and a narrowing gap with more mature markets.

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Company Profile

Business Description

Otis is the largest global elevator and escalator supplier by revenue. In 1854 Otis’ founder and namesake, Elisha Graves Otis, invented a safety mechanism that prevented elevators from falling if the hoisting cable failed. As the largest global OEM, over decades Otis has built a base of 2 million elevators under service. Its business model is much the same as that of its competitors Kone, Schindler, and Thyssenkrupp. Otis operates a razor and blade model where it manufactures and installs elevators at a low profit to build an installed base that will provide high profits from service in the years thereafter.

One Carrier Place
Farmington, CT, 06032
T +1 860 233-6847
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 69,000