Kubota’s Q2 Slightly Better Than Expected; Cautious 2020 Guidance Provided; Shares Fairly Valued

After taking into account the slightly-better-than-expected second quarter 2020 results, we raised our fair value estimate for Kubota to JPY 1,660 from JPY 1,600. 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 second-quarter 2020 EBIT came in slightly above our expectations, decreasing by 11.8% year over year to JPY 51.2 billion from JPY 58.1 billion on the back of a 9.3% year-over-year decrease in revenue to JPY 444.6 billion from JPY 490.1 billion. The lower EBIT was mainly attributable to a significant decline in its farm and industrial machinery division, which saw EBIT declining by 12.5% year over year to JPY 56.7 billion from JPY 64.8 billion. Dividend per share of JPY 17 has been proposed, unchanged from the same period last year.