[Click eStock] "Lotte Rental, Not a Peak Out... Earnings Growth Continues"

Long-term rental cars account for 82%... Sales impact due to travel resumption less than 1%

[Asia Economy Reporter Minwoo Lee] Even if overseas travel resumes, the impact on Lotte Rental is expected to be limited. This is because the proportion of business-to-business (B2B) transactions is much larger than that of business-to-consumer (B2C) transactions, so performance fluctuations due to travel demand are not significant.

On the 8th, NH Investment & Securities newly issued a 'Buy' rating and a target price of 61,000 KRW for Lotte Rental based on this background. The closing price on the previous trading day was 39,450 KRW.

Since its listing on August 19, the stock price, which has been declining below the public offering price of 59,000 KRW, is analyzed to reflect somewhat excessive concerns. Younghoon Joo, a researcher at NH Investment & Securities, said, "Despite a solid No. 1 position in the rental car market, expansion into the car-sharing business, and continuous strong performance throughout the year, the stock price has been sluggish since listing," adding, "Concerns such as a slowdown in rental car growth due to the resumption of overseas travel, interest rate hikes, and a peak-out in performance caused by falling used car prices due to the resolution of the semiconductor shortage for vehicles have influenced this."

First, the decrease in rental car demand due to the resumption of overseas travel is limited only to the Jeju Island region. This is because Jeju accounts for only 15% of the entire rental car market. Lotte Rental's rental car sales composition is 49% long-term rental cars (B2B), 33% long-term rental cars (B2C), and 18% short-term rental cars. The proportion of long-term rental cars, which is unrelated to travel demand, is much higher than that of short-term rental cars related to travel demand.

Researcher Joo emphasized, "Even if Jeju Island's rental car demand in 2022 conservatively decreases by 10% compared to this year, the negative impact on overall company sales would be less than 1%. Long-term rental cars, which account for 82% of rental car sales, generally have a contract period of four years, so they are not affected by short-term market changes. The B2C segment has shown strong growth, with an average sales growth rate of 17.2% over the past three years."

Concerns about increased financing costs due to interest rate hikes were also refuted. With the inflow of 420 billion KRW from the public offering following the listing, Lotte Rental's debt ratio is estimated to have decreased from 657% in 2020 to 393% in 2021, and its credit rating has already been upgraded reflecting this. The corporate bond interest rates maturing in 2022?2023 are higher than the overall average (2.3%), so refinancing is expected to reduce interest expenses rather than increase them. Although used car prices have reached a short-term peak, it is expected that used car prices will also rise alongside new car prices if new car prices increase.