Kubota Earnings: Expect Mild Near-Term Revenue Impact From Macro-Headwinds; Outlook Unchanged

We leave our fair value estimate for Kubota unchanged at JPY 2,700. Despite the better-than-expected 2023 results, we continue to project 2024 revenue to be JPY 2.9 billion, implying a 2.6% year-on-year decline, which is largely in line with guidance and well above prepandemic levels. The mild revenue decline in 2024 is due to the macroeconomic headwinds, but we project a medium-term recovery of tractor sales from 2025. We believe the positive share price reaction suggests some of the concerns over a material top-line decline from the macroeconomic headwinds have eased. However, we believe its shares remain undervalued, as its medium-term prospects are underestimated by the market. We forecast a steady-state revenue CAGR of 4% between 2024 and 2028, driven by equipment upgrades and parts sales from maintenance, as farming/landscaping and residential construction activity pick up.