Despite Turning a Profit, Stock Price Plummets... Major Investors Leaving KEPCO

10% Drop This Month... Foreigners and Institutions Sold 121.1 Billion KRW, 5th Largest Scale
Benefits of Low Oil Prices Reflected from Q3, Negative Impact from Government Environmental Regulations

[Asia Economy Reporter Minji Lee] Despite Korea Electric Power Corporation (KEPCO) successfully returning to profitability after two quarters, its stock price remains weak. Although earnings are expected to rise significantly due to a sharp drop in oil prices in the second half of the year leading to a decrease in purchased power costs, analysts say additional positive factors are needed to reverse market sentiment.

According to the Korea Exchange on the 19th, as of 10 a.m., KEPCO was trading at 21,800 won, up 1.1% from the previous day’s close. Despite releasing improved first-quarter earnings compared to last year on the 15th, the stock price fell about 2%. The stock price, which had recovered 45% from this year’s low of 16,250 won, dropped about 10% again this month. The stock price collapsed as foreign and institutional investors accelerated their sell-off. Foreigners and institutions sold KEPCO shares worth 123.128 billion won this month, making it the fifth most sold domestic stock. Foreign investors sold 93.1 billion won worth, and institutions sold 30 billion won worth during this period.

The reason major market players sold KEPCO shares was due to a mix of environmental regulations and concerns over earnings. There is a lag of about two quarters before the low oil price situation is fully reflected in earnings, and the negative impact of environmental regulations was already reflected in the first-quarter results.

In the first quarter, KEPCO recorded an operating profit of 430.6 billion won, turning profitable compared to the same period last year. Overall, profitability improved as international energy prices declined, but the coal power plant utilization rate was 58.6%, down 13.7 percentage points from the same period last year, showing worse-than-expected performance. Hyejung Jung, a researcher at KB Securities, diagnosed, "The coal fuel unit price was higher than expected because the increase in high-concentration fine dust occurrence days in the first quarter and restrictions on operating aging coal power plants slowed the inventory depletion rate, so the price decline was not fully reflected."

The nuclear power plant utilization rate was maintained at 70% in the first quarter, but considering the government’s policy stance, it is judged that it will be difficult to exceed this utilization rate. Yonghee Park, a researcher at IBK Investment & Securities, said, "Base load power generation (coal, nuclear) is expected to show slower profit improvement than anticipated due to poor utilization rates despite falling fuel costs and continued declines in purchase prices," adding, "Unless the government’s eco-friendly policy changes, profit improvements from falling fuel costs will not be fully reflected in earnings." Additionally, the rapid economic downturn has made it difficult to quickly discuss electricity rate restructuring, which also acted as a burden.

However, KEPCO is expected to maintain its profitability trend this year. If the sharp drop in oil prices since March is reflected in reduced purchased power costs from August, the effect of improved third-quarter earnings, the peak season, is expected to be maximized. Jonghyung Lee, a researcher at Kiwoom Securities, explained, "KEPCO’s oil price sensitivity is estimated to improve annual operating profit by 110 billion won for every 1 dollar drop," adding, "We have raised this year’s operating profit forecast to 3.1 trillion won and next year’s forecast to 3.9 trillion won, up about 70% and 10%, respectively."

This content was produced with the assistance of AI translation services.