Kubota Reports In-Line 2019 Results; Largely Flat 2020 Guidance Below Our Expectations; FVE Lowered

After rolling forward our model and factoring in the lower-than-expected 2020 guidance, we cut our fair value estimate modestly for Kubota to JPY 1,780 from JPY 1,810. 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 2019 EBIT was in line with its guidance, increasing 6.5% year over year to JPY 202 billion from JPY 189 billion on the back of a 3.8% year over year increase in revenue to JPY 1.92 trillion from JPY 1.85 trillion. The higher EBIT was attributed to improvements across all divisions, in particular its water and environment division, which saw EBIT improving 35% year over year to JPY 26.7 billion from JPY 19.9 billion. For the fourth quarter of 2019, EBIT decreased by 13.2% year over year to JPY 35.5 billion on the back of a 5.5% year over year decrease in revenue to JPY 459 billion, mainly driven by weaker performance at 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.