Kubota Earnings: Expect Dealer Inventory Adjustments to Affect Sales in Near Term

Despite Kubota's stronger-than-expected September-quarter revenue growth of 6% year on year, supported by the weak yen, our outlook is largely unchanged. We continue to expect the company's revenue to be affected by dealer inventory adjustments and weaker retail sales of tractors and construction machinery in the following quarters. Our revenue projection from fiscal 2024 is unchanged, as we assume revenue to remain flat (after growing 10% in 2023), assuming a top-line recovery from the second half of 2024. We maintain our revenue forecast of a 3.5% compound annual growth rate between 2023 and 2027 and leave our fair value estimate intact at JPY 2,700 per share. We believe the shares are undervalued as the market is overlooking Kubota's medium-term prospects, driven by further farming activity and infrastructure spending as well as higher spare-parts sales, supported by the influx of new machinery users during the pandemic.