K Car Co., Ltd. (A381970) Earnings Call Transcript & Summary

Good morning. This is Eun-Hee Kwon, Head of IR at K Car. Thank you for joining the 2025 Q3 Earnings Call. This session will be sequentially translated into English. First, our CEO, In-Guk Jung, will explain the business results followed by a look at the financial results by CFO, Moo-Geun Bae. During the Q&A session Head of Marketing, Ho-Il Chun; and Head of Planning, Jin-Moon Jung, will also be available to answer your questions. For details, please refer to the earnings presentation material provided in Korean and English available at K Car's IR website, which is kcar.irph.co.kr, as well as Korea Exchange's kind website. The results announced today are based on K-IFRS estimated results and are subject to change during the review by the external auditor. All forward-looking statements may have material difference from actual business results due to changes in macroeconomic and market conditions. Now first, our CEO, In-Guk Jung, will take you through the business highlights.

This is In-Guk Jung, CEO of K Car. Thank you, shareholders and investors for joining us this morning for the earnings call. In Q3, K Car, again set a new record in quarterly performance surpassing market expectations. Used car retail sales and auctions both recorded even growth, delivering both volume growth and better profitability. Revenue in Q3 was KRW 665.5 billion, setting a new quarterly high 3 quarters in a row. Model data shows that total used car market trading volume number of vehicles grew by only 3.5% during the same period, while K Car grew by 9.8%, significantly above industry average. This is clear proof of K Car's economic moat and differentiated execution capabilities at work. Meaningful achievements were also made in profitability. Gross profit and operating profit increased 18.4% and 40.3% Y-o-Y, respectively, both hitting new record highs. Such bottom line achievements is attributed to not just growth in scale, but also a combination of qualitative gains in unit economics, efficient expense management and operational leverage of scale. We will continue to implement a strategy of efficiency-centric growth to improve our cost structure in line with top line growth. According to Bank of Korea's Consumer Sentiment Index, consumer sentiment has turned around to an upward trends since May, which has been positive for recent used car demand. K Car has been nimbly responding to market change using our price competitiveness, product diversity, data-driven demand forecasting and OMO strategy. We have also been strengthening our competitiveness in customer accessibility and service quality by leveraging our 50 branches, including auction centers nationwide. The focus for the remainder of the year will be stable growth and enhancing profitability as the market leader. Now let me take you through the performance details. Q3 total vehicles sold was 42,476, which is a 9.8% growth Y-o-Y and 10.4% growth Q-o-Q, setting a clear growth trajectory. Inventory turnover was 12x and days in inventory, 30 days, showing additional efficiency gains from Q2's 10.8x and 34 days, respectively. Retail sales volume increased by 9.4% Y-o-Y, by channel, online retail sales was 17,462 vehicles, which is 7.4% Y-o-Y growth and 55.6% of all retail sales. Off-line sales was 13,970 vehicles, which is a 12.1% increase showing well-balanced growth across channels. The Korean used car retail market grew by only 1.6% Y-o-Y according to model vehicle registration data and K Car has continued to outgrow the market average by a large margin based on efficient inventory management and granular demand forecasting capabilities. This year's solid demand is continuing into Q4, which usually is a slow quarter seasonally and this suggests that the positive growth trend may continue to year-end, supported by improving customer by improved consumer sentiments. Auction sales also set a new record high of 11,044 units, growing 11.1% Y-o-Y. The strong used car export demand in the first half had leveled off temporarily, but picked up again from September, leading to both domestic and export growth. Our auction centers are seeing growing volume and enjoy a stable growth structure. We have been diversifying our auction vehicle sourcing channels to meet the growing auction demand, and have been analyzing the characteristics and demand patterns by country and by dealer in greater detail through a demand forecasting systems. We use this insight to consciously source vehicles with higher turnover and margin, which contributes to qualitative growth and margin improvements for our auction business. Q3 retail ASP was KRW 17,960,000, which is a 4.2% increase Y-o-Y. Auction ASP also increased by 16.4% to KRW 5.33 million. We are seeing a clear bifurcation of demand base according to price point, so while on one hand, demand is consistently growing for value vehicles driven by economics. On the other rational consumers looking for near new used vehicles are also growing, thanks to higher new car prices, and stronger confidence about used car quality. K Car is effectively writing this market change using its wide product lineup that covers broad price ranges and models to effectively absorb the expanding demand. In particular, we are focusing on granular inventory mix management and reconditioning capabilities to keep ASP on a stable upward trend and strengthen our profit base. Page 5 looks at the retail GPU and sourcing channels. Q3 retail GPU was KRW 1.7 billion, returning to the historic high that we had reported back in Q1. This is a 9.1% Y-o-Y growth, continuing the stable improvement trend. K Car's focus is on driving structural improvement of profitability without relying on temporary factors. We have maximized turnover and inventory efficiency by systematically combining all sales channels such as online, offline and auction with each vehicle type and age. Also, with the recent shift in used car buyers away from price-centric to quality and warranty, the combined sales of value-added services such as warranty products continues to rise. This shows how consumer trust towards the used car is growing and also how the demand for services after purchase is structurally expanding, and this is a trend that contributes to our shift towards a high-value add profit model and see both stable GPU. K Car as a company has never stopped growing since its foundation, but Q3 this year was particularly more meaningful in that we achieved meaningful growth in both size and profitability and further solidified our position as the company leading the change in the Korean used car market. Many are trying to enter the certified used car market, but K Car once again proved its position as the leader of the market with its differentiated product competitiveness and supreme execution ability. At a time when consumer sentiment is gradually recovering and consumer expectations and purchasing patterns are rapidly shifting, K Car will continue to maximize the demand concentration effect using its clear competitive edge and execution ability and maintain sustainable growth. I believe Q3 performance was not transient, but the start of sustained growth that drives enterprise value increase and meet our shareholders' expectations in the future. Now our CFO, Moo-Geun Bae, will take you through the detailed financial results.

Good morning. This is K Car's, CFO, Moo-Geun Bae. First, regarding our dividends, today, the company's Board approved KRW 300 per each common share as the cash dividend for Q3 2025, scheduled to be paid out during the last week of November. To start with Q3 revenue. Q3 revenue was KRW 665.5 billion, which is a 14.8% growth Y-o-Y and a 9.3% growth Q-o-Q. Sales volume increased 9.8% Y-o-Y and ASP increased by 5%, and the revenue increased Y-o-Y for both retail and auction. Retail revenue was KRW 584.5 billion which is a 14% Y-o-Y growth and a new record high. This is explained by a 9.4% growth in number of vehicles and a 4.2% growth in ASP. Auction revenue was KRW 62.2 billion, which is up 29.2% Y-o-Y increase and also a quarterly record high again. Number of vehicles increased by 11.1% and ASP by 16.4%. The other financial data points such as other revenue, revenue channel by mix and detailed indicators are presented throughout pages 8 through 11 of your presentation for your reference. To look at our profitability, gross profit in Q3 was KRW 68.8 billion, which is 18.4% Y-o-Y increase and a new record high. Gross profit margin was 10.3%, a 0.3 percentage point gain Y-o-Y. Main contributors to improve profitability are our improved inventory turnover efficiency and increased service sales, which are examples of how we have been working at structural improvement of our profitability. In particular, shorter days in inventory increases inventory turnover and stabilize margins at the same time. Also, this year, the Chuseok holidays fell in Q4, unlike last year when the holiday was included in Q3, creating a base effect from less nonbusiness days, in Q3 of this year. That said, this year, the Chuseok holidays do not appear to have had noticeable negative impact on either used car sales or profitability, which is a sign that the used car demand base itself is growing more stable. Our Q3 SG&A was KRW 44.8 billion, which is a 6.7% of our revenue. This is the first quarter since 2022 third quarter that our SG&A to revenue ratio has come down to 6% range and reflecting the operational leverage gain from increased revenue. Operating profit was KRW 24 billion, which is a 40.3% Y-o-Y increase and highest ever on a quarterly basis. Volume growth combined with greater expense efficiency led to meaningful gains in the pace and magnitude of profitability gain. OP margin was 3.6%, which is a 0.6 percentage point gain Y-o-Y demonstrating that our gains are not short-term efficiency improvement, but a sustainable change in the profit structure itself. We are continuing efforts to enhance overall productivity and operational efficiency, including work automation, database decision-making systems and increasing the share of contactless transactions. Thanks to such structural changes, our cost structure is becoming more flexible, and we continue to deliver qualitative growth -- or qualitative growth, balancing both growth in scale and profitability. Lastly, Page 14 shows the CapEx trend. Q3 CapEx was KRW 0.8 billion, roughly 0.1% of revenue. Major investment items include the IT infrastructure upgrades and also installing automatic photography systems in our branches. We expect full year CapEx to be somewhat lower than last year, reflecting our approach of keeping capital execution efficient, while maximizing use of our existing infrastructure to drive growth. Next year, we plan to actively open new branches as part of our strategy of developing infrastructure to support midterm growth by preempting future demand growth as K Car's market power continues to increase. Now that said, our branches are capital light. And so even with all four branches newly opened as scheduled, CapEx to revenue ratio is expected to be similar to this year. So next year, we will keep our stance of efficient capital management and stable financials to drive growth. Please refer to the presentation material and fact sheet available on the IR website and kind public disclosure service for detailed financial and business data points. We sincerely thank shareholders and our investors for your support and trust. And on that note, I end my presentation on financial results. Thank you.

[Operator Instructions] So while we wait, why don't I take the first question received through the text. The first question is about how K Car this quarter has delivered very solid results from its used car business. But when we look at other indicators related with the used car industry, it doesn't appear that the used car industry is fully recovered. There are some volatility still remaining and some areas of softness according to industry indicators. And so the question is, can you give us a bit more detailed insight into what you think are the main factors that enabled you to deliver growth that is above market average?

This is CEO, In-Guk Jung. I agree, as you mentioned, the Korean used car market in Q3 is not fully recovered. As you know, still interest rates remain at a relatively high level. And consumer sentiment, though improving, is improving at a very gradual pace. So overall, used car market growth is still limited. That said, K Car was able to deliver above-market average growth, thanks to our accurate demand forecasting ability, efficient inventory management and also optimize sales channel mix. If I had to name two key factors behind our improved performance, it would be the increase in the share of sourcing more marketable inventory and also the successful operation of our OMO strategy that combines our online and off-line sales channels. Also, with stronger brand we trust and data based price competitiveness, we're also seeing steady inflow -- increasing inflow of new customers on to K Car. These are all signs that indicate that the actual engine behind our growth is the structural improvement in our competitiveness rather than market recovery. Going forward, K Car will continue to pursue a balance between stable growth and profitability not exposed to demand volatility of the market and continue to deliver sustainable growth.

Second question is about how, during the presentation, you mentioned that the ASP increase you're seeing at K Car level is explained by the so-called bifurcation of demand. Can you give us a bit more detail and color as to what kind of structural change you're seeing in your demand base versus the past? Also, can you share with us your outlook on how used car prices will move in the future?

This is Head of Planning, Jin-Moon Jung. To answer your question, first of all, about this bifurcation of demand, this is clearly noticeable if you look at the change of vehicle age in our sales mix. For example, back in 2023, first half, near new vehicles, which are defined as those that are 2 years old or less accounted for 8.4% of our total sales. But in first half of 2025 this year, these new -- near new vehicles have increased to about 9.0% of our total sales. During the same period, the value vehicles, which are vehicles that are between 8 to 10 years old have increased from 19.2% to 21.3% of our total sales. So this means that the mid-age vehicles that are between 3 to 7 years old, its share in our total sales have been decreasing, where the share of near new and also at the other end, the value, older vehicles are both increasing. This trend, we believe, is not a short-term market phenomenon, but a structural change that's being driven by higher new car prices, and also consumers making more rational purchasing decisions. You've also asked about our outlook on used car prices. We think that the link between used car prices and new car price is getting stronger and stronger. Also, when we compare the Korean market to other overseas markets, such as the U.S., one characteristic of the Korean market is that the price gap the used car and the new car is larger than in other markets. This indicates that there is a higher likelihood in Korea of used car prices in the future, going up gradually. Given this market structure, K Car has the advantage because we already have the operational system to manage a wide range product portfolio and inventory that can satisfy both the demand seeking near new used cars, as well as value cars. And we will use this capability to drive stable ASP and profitability improvement trends going forward.

The next question we received is about our OP margin. OP margin this quarter is 3.6%, which appears to be the highest since your IPO. Do you think this level is sustainable?

This is Moo-Geun Bae, the CFO. To answer your question, our 3.6% OP margin in Q3 is a result of the structural improvements that we have been implementing inside the company with revenue growth happening together with more efficient expenses. This is explained by the structural changes rather than any short-term factor. Particularly noticeable is the fact that this quarter, our SG&A to revenue has come down to 6% range. And this is the result of our continuous efforts to improve our structure, including, increasing the sales leverage effect from increased revenue, increasing the share of noncontact transactions, and strengthening B2B cooperation. Also noticeable is the fact that we have been working hard to improve our unit economics by improving our inventory turnover and also expanding the sales of services. With both working hand-in-hand, our overall company level profitability has become even more stable than before. Thanks to these structural changes, we think that at least the bottom end, the lower end of our margin is expected to maintain -- expected to be maintained firmly even if there is any short-term market environment changes going forward. Of course, there could be some quarter-to-quarter changes depending on seasonality or consumer sentiment changes or economic environment changes. But I think as an overall trend, K Car structurally will be able to maintain stable profitability. And of course, we will continue to balance profitability on one hand and growth on the other based on efficiency and our execution ability.

Why don't I pick up a question that we had received before in advance? And this question regards competition. We noticed that there are new entrants trying to enter the certified used car market. How -- what is the implications of these changes on K Car in terms of, for example, your market share or profitability? And how do you plan to respond to this increasing competition?

This is CEO, In-Guk Jung. Let me take that question. As you mentioned, since the auto OEM and rental car companies have entered the certified used car market, we're seeing more diverse companies trying to enter or already entering the used car market. Actually, our take on this is that this is a good change that would improve the overall transparency and reliability of the used car market as a whole. The reason why we look at this as a good change, is because as the used car industry itself becomes structurally more mature, the players that have the economies of scale, operational efficiency, and data competitiveness would actually enjoy a larger competitive edge. K Car, as you know, already has 50 branches nationwide. We have or more actual inventory on hand. We also have the transactional and price data that we have accumulated over a long period of time, and we are able to operate a very sophisticated operation system and efficient management capability. Also, we have already established a very effectively well-designed integrated OMO model, which enables customers to continue their purchases either online or offline, depending on their individual preferences. This is a customer experience-centric execution, competitiveness that no new entrant will be able to emulate in the near term. Also, still, 80% or more of the Korean used car market is transacted through these traditional retail players. And so there's still quite a large room left for digital transformation. Given the structural characteristics of the Korean used car market, K Car will continue to expand its market share and profitability firmly by leveraging its brand trustworthiness, data capability and execution ability. So to summarize, we believe that the current change that's happening in the used car market environment is actually for in the favor of K Car rather than restrict K Car's cost growth potential because as the market continues to build trust and goes through the standardization process cars competitiveness will be able to further excel.

That completes our 2025 third quarter earnings call. If you have any further questions, please reach out to our IR team. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]