Otis Worldwide (OTIS) Morgan Stanley‘s 12th Annual Laguna Conference 2024 summary

Market environment and regional performance

• New equipment market remains challenged globally, with slight improvement expected in the Americas for the second half of 2024; rates continue to impact project starts.

• Europe saw a market decline last year but is stabilizing; Middle East and Southern Europe outperform other subregions.

• Asia Pacific is strong, with India and Southeast Asia showing high growth post-elections; Korea is normalizing.

• China’s new equipment market has declined 10% annually for three years, reducing its share of total revenue.

• Infrastructure and industrial segments in China remain robust, while residential is weak; Tier 1 and 2 cities outperform lower tiers.

Strategic pivots and business mix

• Shifted focus in China from new equipment to service, doubling the service portfolio in four and a half years.

• Service now comprises a third of China revenue, with new equipment at 10% of total revenue.

• Service margins in China are higher than new equipment, and modernization margins match new equipment.

• Global revenue is balanced across Americas, Europe, and Asia, providing resilience against regional downturns.

• Mod and service are positioned as key growth drivers, especially as the installed base ages.

Service and modernization growth

• Service portfolio growth is sustainable above 4%, with 2.3 million units under service and 100,000 added annually.

• Retention rates are industry-leading at just under 94%, with a goal to reach 95%.

• Modernization market is expanding rapidly, with 800,000 units in China reaching 15 years of age in 2024 and more each year.

• Modernization is now industrialized, with standardized Gen3 and Gen360 packages, driving profitability above new equipment.

• Mod market is expected to grow high single- to double-digit for years, with fewer competitors than new equipment.