[Click eStock] "Redcap Tour, Long-term Growth Outlook for Rental Cars"

[Asia Economy Reporter Ji Yeon-jin] KB Securities evaluated Redcap Tour's travel and rental car business portfolio, which is centered on business-to-business (B2B) transactions, as very attractive amid uncertain economic outlooks.

Redcap Tour operates a B2B-focused travel business as well as a rental car business including car rentals and used car sales. It has numerous clients centered around LG, LS, LX, and GS affiliates, as well as Hyundai Glovis and Daewoo Construction. It also secures foreign corporate clients through strategic partnerships with global companies such as AMEX, the world's number one commercial travel company based in the U.S.

In the first quarter of this year, sales amounted to 60.6 billion KRW, a 4.5% decrease compared to the same period last year, but operating profit is expected to increase by 45.8% to 11.2 billion KRW. Net profit is also projected to rise by 48.6% to 7.2 billion KRW. Although rental car sales declined by 5.6% during this period, travel sales, which had decreased due to COVID-19, increased by 22%, and the long-term rental car segment has grown significantly, surpassing 20,000 vehicles for the first time in Q2 2019 and reaching 22,826 vehicles in Q1 this year.

Im Sang-guk, a researcher at KB Securities, stated, "The expansion of long-term rental contracts leading to an increase in rental car fleet size is a factor driving earnings growth," adding, "The travel sector is expected to expand its market share through steady efforts to attract corporate clients."

Over the past two years, the number of B2B specialized travel agencies has significantly decreased due to COVID-19, and the recent rapid expansion of overseas routes by airlines is expected to act as a positive factor. This is because market share growth and profit recovery are anticipated with the full-scale expansion of overseas business trip demand.

It is also evaluated as having steady dividend appeal. Redcap Tour has paid dividends for 13 consecutive years since 2009, maintaining a dividend yield of 3-5%. The dividends per share for the past three years were 800 KRW in 2019, 600 KRW in 2020, and 800 KRW last year.

However, researcher Im noted, "Due to the nature of the B2B-centered business structure, there are some limitations to growth," and added, "The uncertainty caused by COVID-19 remains a variable."