이 기사는 2021년 10월 06일 07:58 thebell 에 표출된 기사입니다.

A fund manager said that K Car, a South Korean used car retailer slated to go public later this month, is undervalued, citing several reasons including the strong growth potential of the company’s online business.

BNK Asset Management fund manager Kim Seon-woo told the bell on the phone earlier Friday that K Car’s initial public offering price of 25,000 won ($21.03) per share is undervalued. The used car company last week slashed the IPO price by nearly 30% after weaker-than-expected orders from institutional investors.

“First of all, market conditions were bad to lure investors at home and abroad,” Kim said of the reasons for the weak reception of K Car. “Secondly, Lotte Rental’s sluggish stock price is likely to have affected the demand for K Car’s stock as investors mistakenly thought that the two companies are similar.”

Lotte Rental, a South Korean car rental company, went public on August 19. Its stock has since fallen below the IPO price of 59,000 won per share and recently traded at 36,600 won.

The used car and car rental industries have completely different business models. A car rental company needs a fleet of rental vehicles, which requires a large amount of capital expenditure. In contrast, a used car retailer, which keeps purchased used cars until they find new owners, can grow rapidly without a large capital investment as long as it has a competitive edge.

“K Car has a much higher capital and asset efficiency with its return on equity and return on assets ratios standing at 14.1 and 7.1 in 2020, compared to 3.7 and 0.4 for Lotte Rentral,” an industry insider said. “It is incorrect to say that the two companies are peers.”

Another reason for K Car’s stock being undervalued is a cautious approach by domestic institutional investors, Kim said. Two thirds of the orders from domestic institutions were placed at the bottom of the company’s initial price range or lower.

This contrasts with foreign institutional investors, with more than 90% of their bids placed at the upper end of the initial price range.

“Foreign institutional investors placed orders at favorable prices because they have successful experience of investing in used car retailers such as US-based Carvana,” Kim said. “But domestic institutional investors seem to have taken a more cautious attitude because K Car is the first South Korean used car company to be listed in the country’s stock market.”

Kim believes K Car’s online business has strong growth potential, as the company has emphasized, considering a high barrier to entry.

“After my analysis and a meeting (with K Car), I felt the online used car market has a high barrier to entry,” Kim said. “After all, quality and trust are the two most important factors even in the online used car market and these cannot be earned overnight. K Car, which has been in the industry for 20 years, has the highest reputation for quality delivery.”

Kim also said, “K Car is the dominant player in the online market with over an 80% share. It also has a competitive edge distinguishing itself from rivals, such as SK Encar and KB Chachacha, which just rely on brokerage fees and advertising revenue. Unlike K Car, they do not offer quality assurance services.”

Kim expects the growth in K Car’s online business will lead to a stronger dominance of the company as big data from customers can be utilized to enhance services.

“Customer data accumulated with the growth of the company’s online business will likely be used to further enhance management efficiency in the future,” said Kim.

“Such competitiveness would not be earned in a short period of time, and thus it is likely that K Car will be able to maintain its market dominance even if large conglomerates enter the market.” (Reporting by Kyung-ju Lee)