The author is an analyst of NH Investment & Securities. He can be reached at email@example.com. — Ed.
Despite peak-out concerns, record-high quarterly earnings are set to continue for Lotte Rental in 2Q22.
Situation differs from that of Carvana
– We maintain a Buy rating and TP of W61,000 on Lotte Rental.
– Lotte Rental’s share price, which had been rising on momentum from entering the used car B2C market, has been weak since April. We attribute the share price slide to both a share price plunge for Carvana (the US’s number-one used car seller) and interest rate hike concerns.
– However, as the situations for Carvana and Lotte Rental are clearly different, it would be unfair to gauge respective share prices on the same basis. Unlike Carvana’s shift to a decline in used car sales in 1Q22 and sharp increase in net losses, Lotte Rental is expected to enjoy record-high quarterly OP in 2Q22. Meanwhile, higher interest rates can likely be offset by hikes to rental car fees. Currently trading at a P/E of roughly 10x, Lotte Rental looks attractively valued in light of its healthy sales and OP.
2Q22 preview: To log record-high quarterly earnings once again
– Lotte Rental is predicted to post 2Q22 sales of W675.1bn (+11% y-y) and OP of W74.6bn (+22% y-y).
– In 2Q22, auto rental sales are estimated to climb 13% y-y. The effect of a significant increase in long-term car rental orders in 1Q22 should persist for the time being, as three~five year contracts are common. Even if interest rates continue to rise, the chances of significant damage to profitability are limited, as the firm can respond by raising car rental fees.
– Continued growth is forecast for the used car sector. Although the average sales price of used cars has fallen slightly q-q in 2Q22 to W13.8mn, the figure remains high on a y-y basis. Robust OPM of over 20% is expected to sustain, and unlike in 1Q22, the number of used car auctions has not decreased this quarter.