Translation: Original published in Finnish on 3/23/2026 at 8:51 am EET.

KH Group's strong Q4 figures were already known based on the preliminary data provided by the company. At current cyclical lows, KH Group's stock is expensive (EV/EBIT 16x), but from its current level, its subsidiary KH-Koneet has significant room to improve its performance. While our forecasts indicate long-term undervaluation driven by anticipated earnings growth, additional evidence is needed regarding the sustainability of the earnings turnaround and KH-Koneet's capacity to strengthen its Swedish operations' profitability. We reiterate our Reduce recommendation and EUR 0.60 target price.

Really strong finish to a weak year

With KH Group's positive earnings warning issued in February, the figures for the strong Q4 report were already largely known. KH Group's Q4 revenue grew by 3% to 63.3 MEUR, driven by KH-Koneet. KH Group's comparable EBIT was a strong 4.2 MEUR in Q4, meaning that the previous year's result relied almost entirely on the last quarter.  Both subsidiaries improved their profitability in Q4. KH-Koneet's comparable EBIT rose from a strong comparison period, driven by top-line growth. NRG's comparable EBIT, in turn, strengthened due to improved production efficiency, the positive  FX impact on earnings, and what we estimate to be a better sales mix than last year. Contrary to our expectations, the previously communicated negative earnings impact of 3.3 MEUR from the Indoor Group divestment was almost entirely offset by a previously recognized provision of 2.4 MEUR, resulting in reported figures that were stronger than we anticipated. However, this does not affect the overall picture of the story. With the divestment of Indoor Group, KH Group's key balance sheet figures are now stronger than before, and according to the company, the availability of financing for its subsidiaries has improved.

No major surprises in the outlook

KH Group issued guidance indicating growing revenue and improving comparable EBIT, which met our expectations. Our estimate changes for the next few years remained small. We believe KH-Koneet has the potential for significant earnings growth, supported by the cyclical recovery of the construction sector. While the Finnish business is clearly value-creating in our view, KH-Koneet needs to improve the profitability of its machinery dealership in Sweden for international growth to also enhance shareholder value. We believe KH Group has a good starting position for the current year: cyclical machinery sales have shown signs of recovery since last year, and NRG's order book is at record levels. The war in the Middle East has weakened predictability due to inflationary and interest rate pressures. For KH-Koneet's cyclical end market, a prolonged war would naturally be detrimental. The situation could support demand for NRG, as the defense sector is a key customer for the company. We expect significant earnings growth from KH-Koneet in the coming years, starting from last year's cyclical low. Due to the weak demand environment, the company has not been able to fully capitalize on its growth investments in recent years, which in our view strengthens the earnings growth outlook for the coming years. As in the current year, we expect NRG to have a very good year in 2026, after which profitability will moderate in our forecasts to around 2.4 MEUR as demand normalizes. Historically, this is a good level, but a clear drop compared to 2025-2026.

Discouraging valuation despite positive growth outlook

Based on 2025 figures, KH Group's EV/EBIT multiple is at a very high 16x level, while with our estimates incorporating a significant earnings improvement for the current year, it remains elevated at 12x. 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 0.70 per share for the group, although the model relies on a sustainable improvement in profitability.