Kiwoom Securities on the 22nd called Lotte Rental a defensive stock that shines in a downturn, citing its stable revenue structure and the positive prospects around a change in the largest shareholder. It maintained a "buy" recommendation and raised its target price to 45,000 won from 41,000 won. The previous session's closing price was 36,700 won.
Shin Yoon-cheol, an analyst at Kiwoom Securities, said, "Lotte Rental's one-month share price gain came to 27.7%, moving in the opposite direction of the KOSPI index, which fell 26.0% over the same period," and noted, "This year it is increasingly establishing itself as a hedge-type stock."
During the KOSPI rally in the first half, it was stuck in a range and overlooked, but in the recent index correction phase it has been playing the role of a classic defensive stock that blocks downside risk.
Kiwoom Securities estimates Lotte Rental's second-quarter revenue at 771.6 billion won, up 3.0% on-year, and operating profit at 86.5 billion won, up 12.1%, which is expected to be in line with market expectations.
For G car, a car-sharing service, the surge in fuel costs in the second quarter likely prevented a significant narrowing of losses. Unlike rental cars, in car sharing the company bears fuel costs. Shin said, "To meet targets, it needs a system that periodically links pump prices to driving fees."
However, the high-margin long-term rental for used cars segment showed solid growth and drove overall results. In the second quarter, the contract success rate for used cars listed online for long-term rental exceeded 90%, reflecting rapid inventory turnover. By reducing the number of used cars sold and instead deploying more into the long-term rental business, net additions of vehicles in the auto long-term rental segment are accelerating. As a result, it is assessed to have secured operating margin strength in the 11% range.
The change in the largest shareholder is also entering a new phase. Lotte Rental said the current largest shareholder, Lotte Group, has been in talks with private equity firm TPG about selling its equity stake.
The main reasons the past acquisition by Affinity Equity Partners fell through due to a corporate merger ban by the Korea Fair Trade Commission were excessive market influence and issues over a third-party allotment paid-in capital increase. But Shin assessed that TPG has few direct conflicts of interest with Lotte Rental's business, making it likely that an acquisition of management control would proceed by means other than a third-party allotment paid-in capital increase, such as a tender offer.
Shin said, "For Lotte Rental to pursue a more aggressive share-price boost and top-line growth, the change in the largest shareholder needs to be wrapped up smoothly," adding, "For now, it is maintaining a management stance focused on financial soundness and profitability, so it could again be overlooked if a bull market arrives, but in the current correction it is highly attractive as a stable hedge stock."