Used Car B2C Platform Scheduled to Debut in Oct.
The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com. -- Ed.
Defying concerns of an earnings peak-out, Lotte Rental’s reset its quarterly record even higher in 2Q22. Positive share price momentum is expected from the upcoming launch of an online used car B2C platform.
Enjoying both earnings growth and share price momentum
We maintain a Buy rating and a TP of W61,000 on Lotte Rental.
Defying concerns of an earnings peak-out, Lotte Rental’s used car sales and auto rental sales are both continuing to climb. Also favorable, we believe that any damage to profitability from interest rate upcycle effects can be dealt with via rental fee hikes.
Lotte Rental’s used car online B2C platform, its new earnings growth catalyst, is scheduled to debut as planned in October following internal testing in 3Q22. With the platform targeting to handle 250,000 cars pa by 2025, the extent of future earnings and EV improvement should both correlate with the success of the platform.
2Q22 review: Again resets quarterly earnings record
Lotte Rental posted consolidated 2Q22 sales of W683.9bn (+12% y-y) and OP of W79.4bn (+30% y-y), with OP beating both our estimate and consensus.
Sales at the auto rental division upped 12% y-y thanks to a rising number of long-term rental car lease contracts, which rose 30% y-y in 1H22, in turn widening the portion represented by B2C long-term rental cars among the firm’s total rental car contracts to 46% (versus 36% in 2018). We believe that this high sales growth trend will sustain for now, noting that the long-term lease contracts run for 3~5 years.
Used car sales also strengthened 12% y-y. Lotte Rental’s used car ASP stood at around W13.8mn in 2Q22, a level slightly lower than that seen in 1Q22 (W14.4mn). We attribute this modest decline to simply an increase in the company’s portion of compact car sales, not a downturn in the used car market itself—in fact, profit per used car sale showed q-q improvement, helping to lead to the overall 2Q22 earnings surprise.