Kubota’s 2020 Results Slightly Above Guidance; 2021 Guidance Above Our Expectations; Fairly Valued

After rolling forward our model and factoring in the better than-expected 2021 guidance, we raise our fair value estimate for Kubota to JPY 2,280 from JPY 1,830. 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 priced in. Kubota’s full year 2020 EBIT was slightly above its guidance, decreasing by 13.1% year over year to JPY 175 billion (guidance of JPY 170 billion) from JPY 202 billion on the back of a 3.5% year-over-year decrease in revenue to JPY 1.85 trillion from JPY 1.92 trillion. The lower EBIT was attributable to negative impacts of COVID-19 across all divisions, in particular its farm and industrial machinery division, which saw EBIT declining by 11.5% year over year to JPY 179.6 billion from JPY 204.5 billion. For the fourth quarter of 2020, EBIT increased by 28.0% year over year to JPY 45.4 billion on the back of an 8.1% year-over-year increase in revenue to JPY 496 billion, mainly driven by stronger recovery in its farm and industrial machinery division. A dividend per share of JPY 19 has been declared, bringing the full year dividend per share to JPY 36, in line with guidance.