Hyundai Motor Securities raises Lotte Rental target price to 59,000 won on TPG deal
In short
Hyundai Motor Securities raised its target price for Lotte Rental from 46,000 won to 59,000 won and kept its buy rating. It expects shareholder returns and business strategy to strengthen once the change of major shareholder to TPG is completed after an extraordinary shareholders' meeting on 30 October.
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Hyundai Motor Securities raised its target price for Lotte Rental from 46,000 won to 59,000 won and maintained its buy rating, Chosun Ilbo and Yonhap reported on 21 October. Asia Economy, in a report published on 22 October, gave the same figures. The previous closing price was 50,900 won, and Yonhap said the new target is about 16% higher. [ 1 , 2 , 3 ]
Hyundai Motor Securities analyst Jang Munsu (장문수) said the change of major shareholder would bring stronger shareholder returns and business strategy. Lotte Rental is to hold an extraordinary shareholders' meeting on 30 October, elect two directors from the side of TPG, and complete the change of major shareholder, including payment of the acquisition price. Yonhap described TPG as a global private equity manager. [ 1 , 2 , 3 ]
Jang said uncertainty over operating and shareholder-return strategy would ease gradually once the TPG acquisition is complete, according to Chosun Ilbo and Asia Economy. Asia Economy quoted him as saying the current share price already reflects expectations of improved shareholder value after the change of major shareholder. [ 1 , 3 ]
Yonhap said Jang raised the target price-to-earnings multiple from 12.3 times to 14.3 times, the upper end of the past three years. He explained that Lotte Rental was previously given a high multiple when it shifted from used-car sales to rental to improve profitability, which he said resembles its recent business structure. The 12-month forward earnings per share estimate used for the target was raised from 3,910 won to 4,197 won. [ 2 ]
For the third quarter, Hyundai Motor Securities forecast consolidated revenue of 777.1 billion won, up 2.5% from a year earlier, and operating profit of 92.0 billion won, up 3.4%, according to Chosun Ilbo. Chosun Ilbo said this is 0.4% below the market consensus of 92.4 billion won, while Yonhap said it broadly matches that consensus. [ 1 , 2 ]
On the used-car business, Chosun Ilbo quoted Jang as saying Middle East unrest and interest rate rises hit export and retail supply chains and cut profit sharply from a year earlier. He said the company defended earnings in its core business by shifting volume to wholesale channels while long- and short-term rental grew strongly. Yonhap likewise said rental growth offsets lower used-car sale profit linked to Middle East unrest. Asia Economy quoted Jang as saying difficulties remain, including eased expectations of rate cuts, but that the effects of strengthening the core business, such as expanding scale and cutting costs, would continue. [ 1 , 2 , 3 ]
Why it matters
The reports show how an analyst is pricing the planned change of Lotte Rental's major shareholder to TPG. The documents give no view beyond this single analyst's forecasts.
Key facts
- Hyundai Motor Securities raised its target price for Lotte Rental from 46,000 won to 59,000 won and maintained its buy rating. [ 1 , 2 , 3 ]
- The previous closing price was 50,900 won, according to the reports on 21 October. [ 1 , 2 ]
- Lotte Rental is to hold an extraordinary shareholders' meeting on 30 October to elect two TPG-side directors and complete the change of major shareholder, including payment of the acquisition price. [ 1 , 2 , 3 ]
- Analyst Jang Munsu forecast third-quarter consolidated revenue of 777.1 billion won (up 2.5% year on year) and operating profit of 92.0 billion won (up 3.4%). [ 1 ]
- The operating profit forecast is slightly below the market consensus of 92.4 billion won. [ 1 , 2 ]
- The target price multiple was raised from 12.3 to 14.3 times earnings, and the 12-month forward EPS estimate from 3,910 won to 4,197 won. [ 2 ]
Confirmed by several sources
- Hyundai Motor Securities raised its Lotte Rental target price from 46,000 won to 59,000 won and kept its buy rating. [ 1 , 2 , 3 ]
- Lotte Rental plans to elect two TPG-side directors at an extraordinary shareholders' meeting on 30 October and complete the change of major shareholder, including payment of the acquisition price. [ 1 , 2 , 3 ]
- Hyundai Motor Securities forecast third-quarter operating profit of 92.0 billion won, up 3.4% year on year, against a market consensus of 92.4 billion won. [ 1 , 2 ]
Still unclear
- Whether the forecast operating profit is a slight miss or broadly in line with consensus. One outlet describes it as 0.4% below the 92.4 billion won consensus; another says it broadly matches the consensus.
- Which external factors weigh on the used-car business. One outlet quotes the analyst citing Middle East unrest and interest rate rises; another quotes him citing easing expectations of rate cuts and the shift of used-car exports to the Middle East to retail and rental.
- The date of the report. Two outlets say Hyundai Motor Securities issued the report on 21 October; one outlet, published on 22 October, says 22 October.