Kiwoom Securities announced on July 22 that it has raised its target price for Lotte Rental from 41,000 won to 45,000 won, an increase of 9.8%, citing the growth of the used car long-term rental business as a factor for stable profitability. The investment recommendation remains a 'buy.'
Shin Yoon-cheol, a researcher at Kiwoom Securities, evaluated that Lotte Rental has been acting as a defensive stock amid market volatility. He noted, "In the past month, the stock price has risen by 27.7%, contrasting sharply with the 26.0% decline in the KOSPI during the same period," and added, "This trend is expected to continue until Lotte Rental prioritizes aggressive growth over profitability improvement."
Kiwoom Securities forecasts that Lotte Rental will report second-quarter revenues of 771.6 billion won and operating profit of 86.5 billion won, reflecting year-on-year growth of 3.0% and 12.1%, respectively, in line with market consensus.
By business segment, the long-term used car rental is expected to drive performance. The success rate of contracts for long-term used car rentals listed online exceeded 90%, indicating a high inventory turnover rate. Instead of reducing the volume of used cars sold, the company is utilizing them as long-term rental vehicles, which has led to a rapid increase in rental cars. Shin stated, "Lotte Rental has structurally secured an operating profit margin of around 11%."
In contrast, the car-sharing service 'G car' has been negatively impacted by rising fuel prices. Due to the business structure where the company bears fuel costs, it has been challenging to reduce losses. To achieve its goal of a 50% reduction in operating losses this year, a system that periodically links fuel costs to rental fees is necessary, according to the analysis.
Kiwoom Securities also sees the potential for a new phase in the major shareholder change process. Lotte Group is currently conducting due diligence related to a stake sale with TPG, and given that a previous acquisition by Affinity PE was thwarted by the Fair Trade Commission's prohibition on corporate mergers, it is likely that alternative methods such as a public buyout will be pursued for management control.
Shin remarked, "For Lotte Rental's management to pursue more aggressive stock price support and growth, the prolonged major shareholder change needs to be resolved first. Currently, the management is focused on financial soundness and profitability, which highlights its defensive appeal in a downturn, but it may be relatively neglected in a market upturn."
* This article has been translated by AI.
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