The author is an analyst for NH Investment & Securities. He can be reached at jooyh@nhqv.com -- Ed.
Lotte Rental is seeking to strengthen the competitiveness of its car rental business by expanding its used car rental business and introducing membership services. The firm aims to take the lead in the ultra-short-term car rental market by expanding its stake in SOCAR.
Focus on strengthening competitiveness of car rental business
We maintain a Buy rating and TP of W40,000 on Lotte Rental. The company is targeting 2025 sales of W3.67tn and OP of W490bn, and to achieve this, it is promoting the development of its used car rental business and expanding its overseas business. In particular, the used car rental business will take aggressive steps next year to boost its used car rental fleet expansion to 2,500 units per month, up from the current 1,700 units.
A greater stake in SOCAR is also an important development. Lotte Rental has decided to purchase SK Inc’s entire 17.9% stake in SOCAR, which will bring its total stake to 32.9%. This should enhance the firm’s competitiveness in the car-sharing market, which has been lacking, and is also considered meaningful in terms of purchasing potential competitors.
In addition, Lotte Rental is preparing to renew its brand. The company intends to reorganize its business structure into B2C (MYcar) and B2B (Bizcar) businesses, and strengthen its membership services that include door-to-door (D2D) auto maintenance for all product categories.
3Q23 preview: Expect OP of W85.8bn (-9% y-y)
We forecast consolidated 3Q23 sales of W692.6bn (-4% y-y) and OP of W85.8bn (-9% y-y). The y-y drop in performance is not due to worsening sales operations, but rather a change in strategy to expand the used car rental business. When selling a used car, profit related to the sale is recognized all at once, but when a used car is turned into a rental car, related sales and profit are recognized over the rental contract period. As a result, there may be a negative impact on short-term performance, but there is no reason for concern, as the total profit earned through used car rentals should be higher over the mid/long term.