Kubota’s 1Q 2020 Below Expectations; 2020 Guidance Removed; FVE Lowered on Near-Term Uncertainties

After taking into account the weaker-than-expected first-quarter 2020 results and lowering our revenue growth and EBIT assumptions, particularly for 2020 and 2021, we cut Kubota’s fair value estimate to JPY 1,600 from JPY 1,780. 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 first-quarter 2020 EBIT came in below expectations, decreasing by 42.4% year over year to JPY 30.5 billion from JPY 52.9 billion on the back of an 8.6% year-over-year decrease in revenue to JPY 439.5 billion from JPY 480.7 billion. The lower EBIT was mainly attributable to a significant decline in its farm and industrial machinery division, which saw EBIT declining by 40.8% year over year to JPY 30.5 billion from JPY 51.5 billion.