Lotte Global Logistics IPO Valuation Analysis

• Our base case valuation of Lotte Global Logistics is implied market cap of 560 billion won, which represents target price of 13,454 won per share.

• We have a negative view of this IPO as our target price does not provide a meaningful upside to the IPO price range.

• Four major factors we are negative on this IPO include lack of sales growth, excessive competition (Coupang and CJ Logistics), mystery of put option clause, and highly geared balance sheet.

Comparable Companies Valuation Analysis

Our base case valuation of Lotte Global Logistics is implied EV of 2.1 trillion won or implied market cap of 560 billion won, which represents target price of 13,454 won per share. The high end of the IPO price range is 13,500 won.

Given the lack of upside to the target price, we have a Negative view of this IPO. Our target price is based on EV/EBITDA valuation multiple of 5.8x our estimated net profit of 360 billion won in 2025. Our valuation multiple is 5% discount to CJ Logistics' valuation multiple in 2025.

The following are the major reasons why we are negative on this IPO:

• Lack of sales growth - The company has recorded two consecutive years of negative sales growth (-9.6% YoY in 2023 and -1.1% in 2024). This is very concerning since its major competitors CJ Logistics and Hanjin Transportation had better average sales growth figures in the past two years (-2.2% YoY in 2023 and 5.2% in 2024).

• Coupang - Coupang has been determined to destroy all its competition in Korea, especially for last mile delivery. In 2019, Lotte Global Logistics had 13.8% market share in the domestic delivery services after CJ Logistics (47.2%). However, Coupang surged to number one market share in the domestic delivery services (37.6%), followed by CJ Logistics (27.6%), and Lotte Global Logistics (10.3%) in 2024.

• Put option clause - There is an important put option clause involving nearly 293 billion won. (see the last section in this insight). Although Lotte Global Logistics is not responsible to paying out this cash on its own, other Lotte affiliates will need to be burdened with this payment. There is also some mystery as to who LLH is that will exercise this put option.

• Highly geared balance sheet - The company has a leveraged balance sheet. Debt ratio was 341% and net debt to equity ratio was 259% at the end of 2024. On the other hand, the comps had an average debt ratio of 153% at the end of 2024.

• Not all clear if the company could sustain its operating profit growth - Although the company has managed to improve its operating margin significantly from 1.8% in 2023 to 2.5% in 2024, it is not all clear if it could continue to sustain growth operating margin expansion, especially because of the lack of meaningful sales growth.