[Click eStock] "Lotte Rental, Harvesting Results from Business Structure Reorganization"

Kiwoom Securities analyzed on the 14th that Lotte Rental will begin to reap the results of its business structure reorganization.

Lotte Rental is expected to record earnings in line with market expectations for the first quarter of this year. Shin Yoon-chul, a researcher at Kiwoom Securities, analyzed, "Lotte Rental is expected to record Q1 sales of 690.6 billion KRW (up 5.1% YoY) and operating profit of 66.8 billion KRW (up 17.4% YoY), meeting market expectations (sales of 711.4 billion KRW, operating profit of 69.7 billion KRW)."

Looking at each segment, in the long-term auto rental sector, profitability is improving as the new used car long-term rental business gradually grows. Researcher Shin analyzed, "The new used car long-term rental business, which has higher profitability compared to new car long-term rental, is gradually growing, confirming a margin improvement trend."

In the used car sales segment, profitability recovery is gaining momentum. He evaluated, "Margins had been compressed for a while due to volume dispersion caused by the new used car long-term rental business, but a turnaround occurred starting from Q1, when the B2C used car sales new business was launched."

The car-sharing segment is reducing losses through efficiency improvements. He explained, "By selling low-profitability vehicle models to improve utilization rates and reorganizing mainly around customer groups with low accident rates, the deficit is being reduced."

Meanwhile, the short-term auto rental segment is expected to show somewhat disappointing performance due to a decrease in foreign tourists. However, Researcher Shin added, "This is also expected to gradually recover."

Separately from business performance, uncertainty issues related to changes in major shareholders still exist for Lotte Rental. Researcher Shin said, "There is a possibility of changes in Lotte Rental's existing mid-term business plan, shareholder return policy, and management, and related questions dominated the Q&A session," adding, "Lotte Rental indicated that the resolution of uncertainty is expected by August this year, when the Fair Trade Commission's corporate merger review is expected to be completed."

From a financial structure perspective, Lotte Rental's debt ratio, which is lower than the industry average, is expected to act as growth potential going forward. He pointed out, "Currently, Lotte Rental's debt ratio is 377%, and after issuing new shares worth 211.9 billion KRW to Affinity, it is expected to decrease to 350%, which is significantly lower compared to SK Rent-a-Car's 590% and Hyundai Capital's 620%."

He continued, "Judging from the SK Rent-a-Car case, Lotte Rental is also likely to expand its debt ratio in the future to aggressively increase the number of vehicles and expand its market share in the long-term auto rental market," adding, "This could also lead to increased negotiation power for Lotte Rental regarding new car purchase prices and auto insurance premiums with automakers and insurance companies."

Researcher Shin emphasized, "As concerns about the slowdown in the pace of global interest rate cuts are raised, it will be difficult to expand the debt ratio all at once, and uncertainty regarding major shareholders also exists," but stressed, "In the recent market environment exploring a tariff-free zone, there is no reason for Lotte Rental to be left out."