[Click eStock] Lotte Rental, Concerns Over Shareholder Return Uncertainty... Target Price Downgraded

Kiwoom Securities lowered the target price for Lotte Rental from 40,000 KRW to 34,000 KRW on the 16th, citing uncertainties due to the change in major shareholders and sluggish stock performance caused by delays in interest rate cuts. The investment rating was maintained at 'Buy.'

원본보기 아이콘

Shin Yoon-chul, a researcher at Kiwoom Securities, stated in a report released that day, "Lotte Rental, perceived as a beneficiary of interest rate cuts, is facing difficulties in stock price recovery amid growing expectations that the pace of rate cuts will slow down. Additionally, the change in major shareholders raises uncertainties regarding potential changes to the mid-term business plan and shareholder return policies presented at the '2024 CEO IR Day,' which is also being reflected in the stock price. It is expected that the market will take some time to absorb these factors, leading to the downward revision of the target price."

Lotte Rental's fourth-quarter sales are projected to reach 725.1 billion KRW, a 10.7% increase year-on-year, while operating profit is expected to be 72.1 billion KRW, up 35.6%, both falling short of market expectations.

Although the inflow of foreign tourists, a high-margin customer segment in the short-term auto rental sector, had been expanding due to the weak Korean won, short-term auto rental demand unexpectedly contracted since early December last year amid political instability. Annual financial costs are estimated to have increased by approximately 20 billion KRW compared to the previous year. Furthermore, the opening of the B2C used car platform, which was expected to contribute to increased sales in the fourth quarter after its launch in October last year, was postponed to February this year, according to Shin.

He added, "The 2025 annual sales target for the B2C used car platform is 300 billion KRW. As this new business is expected to contribute significantly to earnings, an update on the business progress is anticipated during the fourth-quarter earnings conference call."

Regarding speculation that Lotte Rental might serve as a gateway for BYD's entry into the Korean automobile market, coinciding with the change in Lotte Rental's major shareholders, Shin assessed, "Since Lotte Rental's main business is B2B corporate car rentals, which contribute significantly to sales, if domestic companies' rental demand for BYD vehicles is not substantial, Lotte Rental is unlikely to proactively purchase BYD vehicles."

He also viewed the possibility of a credit rating downgrade as low. Shin said, "Most credit rating agencies that recently assigned credit ratings to Lotte Rental have already applied conservative ratings that exclude funding stability, considering issues such as the Legoland incident, independently of the change in major shareholders. Lotte Rental, which recently pursued a public bond issuance for refinancing purposes, is expected to lower or maintain its weighted average cost of capital through additional refinancing processes in 2025."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.