The Hertz Corporation, a subsidiary of Hertz Global Holdings Inc. (HTZ), announced that its Chinese car rental partner, CAR Inc., has launched an initial public offering (IPO) of 426 million shares on the Hong Kong stock exchange last week. The largest Chinese car rental brand plans to use the proceeds from the IPO to expand its rental fleet.
This fleet expansion will enhance the co-branded fleet operated by Hertz through more than 600 directly operated CAR service points, hence providing the company a scope to make it big in the Chinese market. Hertz, which has 19% stake in CAR since Apr 2013, also announced its intent to invest another $30 million in the company’s IPO.
In its prospectus, CAR revealed that this fleet expansion is aimed at fulfilling the rising demand for car rental services in China, which is poised for a 14% compounded annual growth rate (CARG) by 2018, according to a study. Apart from expansion of its fleet size, the Hertz-CAR partnership intends to explore newer Chinese markets through this IPO. As of Jun 30, 2014, CAR had operations in 70 major cities and 162 small cities.
CAR boasts of an unmatched car rental fleet in China, four times larger than the country’s second-largest car rental operator and larger than aggregate fleet size of the nation’s nine largest car rental companies. The company has shown a substantial growth in recent years, expanding its fleet size from 25,845 vehicles in Dec 2011 to 52,498 vehicles in Jun 2014. Moreover, the company’s customer base has grown four-fold over the same period from about 450,000 to 1.962 million.
Hertz operates its car rental business under Hertz, Dollar, Thrifty and Firefly brands in North America, Europe, Latin America, Asia, Australia, Africa, the Middle East and New Zealand. Hertz is the number one airport car rental brand across the globe with about 10,090 corporate and licensee locations in nearly 145 countries.
However, the company currently carries a Zacks Rank #4 (Sell) due to accounting mishaps that led it to postpone its first-quarter fiscal 2014 earnings announcement and related 10-Q filing. The earnings release scheduled for Jun 9 was delayed due to the identification of certain errors in its financial results for 2011 and the need to restate the same as well as make relevant corrections in its 2012 and 2013 statements.
Other Stocks to Consider
Some better-ranked stocks in the same industry include Avis Budget Group Inc. (CAR), Cardtronics Inc. (CATM) and Core-Mark Holding Co. Inc. (CORE). While Avis Budget sports a Zacks Rank #1 (Strong Buy), Cardtronics and Core-Mark carry a Zacks Rank #2 (Buy).
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