Kubota: Initiating Coverage of Wide-Moat Compact Farming/Construction Machinery Manufacturer

We initiate Kubota with a wide economic moat rating, supported by its vast dealer network and brand/reputation. Our fair value estimate of JPY 2,700 is based on the expectation of a near-term slowdown in demand for small-size tractors followed by a recovery from the second half of 2024, once dealers finish digesting their accumulated inventory. We believe most of the near-term downside risks are priced into the share price and see upside potential, as the market is underestimating the firm’s medium-term prospects. With its expertise in compact tractors/construction machinery as well as rice farming equipment, Kubota is strongly positioned to grow along with global farming activity/infrastructure spending, landscaping/lawncare demand in the U.S., and agricultural mechanization in Asia. Further, we expect the influx of new users from the pandemic boom will translate to future sales from equipment replacement/upgrades, additional tractor attachments called implements and spare parts.