Kubota Earnings: We Expect Near-Term Headwinds, but Maintain Outlook for Recovery in Fiscal 2025

Although Kubota’s June-quarter sales were up 9% year on year, slightly above our previous estimate, as price rises and relatively resilient demand for construction machinery (mainly compact track loaders) in North America offset weak tractor sales in the region. We continue to project flat revenue growth for fiscal 2024 after weaker tractor/mini-excavator sales in North America/Europe and a stronger yen in the second half. However, we believe the market is overly concerned about sales in North America due to high dealer inventories of key products such as midsize tractors and mini-excavators. While we expect headwinds to persist for at least the next two quarters, we forecast channel inventory levels to normalize by the end of the year and project 5% revenue growth in fiscal 2025, driven by new home sales and a pickup in farming activity. We maintain our fair value estimate of JPY 2,900 and believe the company's shares are undervalued.