[Click eStock] Lotte Rental Presents Conservative Guidance... Target Price Down 28%

NH Investment & Securities Report

[Asia Economy Reporter Minji Lee] NH Investment & Securities maintained a buy rating on Lotte Rental on the 7th, while lowering the target price by 28% to 44,000 KRW. This adjustment reflects a conservative outlook on the industry this year, resulting in reduced earnings estimates.

On a consolidated basis for the fourth quarter, sales and operating profit recorded 689.8 billion KRW and 65.5 billion KRW respectively, marking a 12% and 5% increase compared to the same period last year. However, these figures fell short of market expectations.

Auto rental business sales increased by 11% year-on-year. Although the effect of increased long-term rental car orders persisted throughout last year, growth slowed slightly this year due to rising rental fees caused by interest rate hikes. Sales in the used car segment rose 17% compared to the same period last year. The average used car transaction price in the fourth quarter was 13.7 million KRW, maintaining price stability contrary to market concerns.

This year, the company has provided a sales guidance of 3-5% growth. Operating profit is expected to remain at last year’s level. The conservative figures reflect concerns over a slowdown in long-term rental car demand due to rising interest rates. Researcher Younghoon Joo of NH Investment & Securities stated, “As concerns over the rental car industry were factored in, the EV/EBITDA valuation was adjusted from 3.9 times to 3.7 times,” adding, “The corporate value of Socar, in which the company has equity investment, also declined.”

The company’s key focus this year is entering the used car B2C business. Despite the deregulation of the used car sales business as a livelihood-suitable industry in March last year, entry into the B2C market has been delayed due to business coordination issues with related associations. Researcher Younghoon Joo explained, “The coordination issues are expected to be resolved by April,” and “Full-scale business operations should be possible starting in the second half of the year.”