[Into the Stock] Lotte Rental That Has Never Surpassed Its IPO Price

by Lee Seonae

Published 14 Oct.2021 11:19(KST)

[Into the Stock] Lotte Rental That Has Never Surpassed Its IPO Price

[Asia Economy Reporter Lee Seon-ae] 59,000 KRW. This is the public offering price of Lotte Rental, the No.1 car rental company in Korea. Except for the first day of listing on August 19, the stock price has never exceeded the public offering price. As of the closing price on the 13th, investors in Lotte Rental’s IPO shares are facing a 36.7% loss. Investors are anxiously wondering how long the lowest price streak will continue.

On the 14th, Lotte Rental’s stock opened at 37,950 KRW. Although it started with an increase, it still has not recovered to the 40,000 KRW range. Experts evaluate this as a predicted downward trend. During the listing preparation process, both the demand forecast competition rate for institutional investors and the general subscription competition rate were relatively low. From the beginning, the market’s outlook was unfavorable. However, the general consensus among experts is that the rate of stock price decline is excessive. They believe concerns about future business conditions have been overly reflected.

The securities industry does not provide investment opinions or target prices for Lotte Rental, but they unanimously agree that the current stock price is excessively undervalued. Jinwoo Kim, a researcher at Korea Investment & Securities, stated, “Lotte Rental’s current stock price corresponds to a price-earnings ratio (PER) of only about 11 times, whereas peer car rental companies trade around a PER of 20 times, indicating an unwarranted discount for the leading company.” He emphasized, “Moreover, if the value of Green Car is calculated separately, the undervaluation becomes even more severe.” He added, “Conservatively applying a price-to-sales ratio (PSR) of 5 times (the average for mobility companies) to Green Car’s expected 2021 sales of 160 billion KRW results in a value of at least 800 billion KRW. Currently, Lotte Rental’s PSR and enterprise value to EBITDA (EV/EBITDA) ratios are excessively low compared to peers, signaling the need for a reevaluation of Lotte Rental’s competitiveness.”

The outlook on Lotte Rental’s growth potential is also positive. Lotte Rental operates car rental, used car sales, general rental, and car-sharing businesses. It is the largest car rental operator in Korea with approximately 240,000 registered vehicles and also owns used car auction sites handling returned vehicles and consigned or purchased cars. The general rental segment deals with industrial equipment such as telecommunications measuring devices, OA equipment, aerial work platforms, forklifts, and consumer goods for individual customers. Its subsidiary Green Car operates a car-sharing service with over 8,000 ultra-short-term rental vehicles.

DB Financial Investment forecasts that Lotte Rental will record consolidated sales of about 2.5 trillion KRW this year, with an operating profit margin approaching 10% and controlling shareholder net income exceeding 100 billion KRW. Researcher Kyung-ha Yoo stated, “Due to new car supply disruptions, profitability in the used car segment has greatly improved, while the car rental segment, having ended overheated competition, continues gradual growth. The transition to electric vehicles could accelerate this growth.” He emphasized, “The mobility segment managed by Green Car has maintained an operating profit trend since last year.” He added, “Lotte Rental resumed dividends in 2019 after six years, and dividends are expected to increase further in the 2021 fiscal year, which saw a sharp profit surge. The upstream market is growing, profits are soaring, dividend capacity is expanding, yet the stock price has significantly declined.”