Lotte Rental's New Owner TPG Brings Impact... Target Price Raised by 13% [Click eStock]

Daishin Securities: Dividend Increase Expected Next Year

On August 20, Daishin Securities raised its target price for Lotte Rental, the leading company in the domestic rental car market by market share, by 13.2% from 53,000 won to 60,000 won. Daishin stated that the change in Lotte Rental's largest shareholder to a private equity fund is "not the end, but the beginning." The investment recommendation remains 'Buy.' On August 19, Lotte Rental's closing price was 46,850 won.

Lotte Rental's largest shareholder changed on August 11. Hotel Lotte (holding 38.14%) and Busan Lotte Hotel (23.04%), the previous major shareholders, signed a stock purchase agreement (SPA) to sell all their shares to private equity firm TPG (Texas Pacific Group) at 59,000 won per share, totaling 1.3 trillion won.

After the acquisition is completed, TPG will hold a 61.17% stake. Although final approval from the Fair Trade Commission remains, the deal is expected to go through because it does not result in a monopoly and the acquisition is being financed entirely with TPG’s own capital, without any bank acquisition finance or new fundraising.

Kangho Park, a research analyst at Daishin Securities, acknowledged that the stock price has already risen sharply on the acquisition news, but still sees room for further upside. Lotte Rental’s share price had fallen as low as 27,100 won on June 26 and then surged by 72.9% to August 19. Park commented, “With confirmation of the largest shareholder change, there is keen interest in whether the stock will continue to rise,” adding, “We believe there is still further upside potential.”

He also assessed that the price pressure is not excessive. The 59,000 won per share offered by TPG matches the initial public offering price in 2021. Given that both revenue and profit have grown since the IPO, this price represents a premium for securing the largest shareholder position. Even at 59,000 won per share, the projected price-to-earnings ratio (PER) for 2027 is 10.2x, and the price-to-book ratio (PBR) is 1x, which makes the valuation of the company attractive.

The company’s fundamentals remain solid. Lotte Rental’s revenue this year is expected to reach a record-high of 3.0786 trillion won, up 5.5% year over year, and its operating profit is projected to jump 13% to 352.9 billion won. Park expects the final acquisition to be completed between the end of this year and early next year and forecasts that 2027 dividends will be increased on the back of these record results. The company is expected to boost dividends in the first year following the acquisition, benefiting both investors and the largest shareholder.

There is also room for further market share expansion. Lotte Rental, having been subject to Lotte Group’s debt ratio guidelines, recorded a debt ratio of 372% last year, lower than SK Rent-a-Car, the market's number two player, which had 574%. The report notes that increasing leverage to expand the short-term rental car fleet would further widen the gap with the runner-up. The number of foreign visitors to Korea this year increased by 20.4% year over year, and another increase is expected next year, creating favorable conditions for short-term rental demand. The used car rental and sales segments also continue to grow.

The fact that TPG is the second-largest shareholder of Kakao Mobility is also noteworthy. Park highlighted, “There will likely be great interest in synergy effects and value creation in areas such as the sharing economy, autonomous driving, and total mobility solutions,” adding, “We also expect synergies as a result of integrating diverse rental services and convenient options on Kakao’s platform, as well as in the used car rental and sales businesses.”

This content was produced with the assistance of AI translation services.