Kubota’s Q3 2020 Better Than Expected; 2020 Guidance Raised; Shares Fairly Valued

After taking into account the better-than-expected third-quarter 2020 results largely attributable to higher sales in Asia, we raised our fair value estimate for Kubota to JPY 1,830 from JPY 1,660. Our narrow moat and stable moat trend ratings remain intact. We think the shares are fairly valued at the current price as the long-term earnings growth of the company driven by growing demand has been factored in. Kubota’s third-quarter 2020 EBIT came in above our expectations, decreasing by 12.7% year over year to JPY 48.2 billion from JPY 55.2 billion on the back of a 3.5% year-over-year decrease in revenue to JPY 472.6 billion from JPY 489.9 billion. The lower EBIT was mainly attributable to a decline in its farm and industrial machinery division, which saw EBIT declining by 13.2% year over year to JPY 48.8 billion from JPY 56.0 billion.