Due to the failure of electricity rate reform... KEPCO stock price drops to March levels

15% Decline Compared to Early Month... Similar Level to March
2Q Expected to Return to Profit but No Fundamental Improvement... Temporary Cost Reduction Due to Oil Price Drop
"Stable Performance Structure Must Be Secured Through Electricity Rate Reform"

[Asia Economy Reporter Minwoo Lee] Korea Electric Power Corporation (KEPCO) is expected to post better-than-expected earnings in the second quarter, but its stock price continues to decline. This improvement in performance is attributed to cost reductions following a drop in international oil prices, while the stock price appears to be affected by the postponement of the electricity tariff system reform, originally scheduled for the first half of the year, to the second half.

According to the Korea Exchange as of 10:10 a.m. on the 30th, KEPCO's stock price stood at 19,350 won. It rebounded about 1.5% from the previous session's close, which had fallen more than 2%. Nevertheless, compared to the 22,900 won recorded on the 4th, it is down by 15.9%.

This level is similar to the stock price in mid-to-late March, when the domestic stock market was hit hard by the economic slowdown caused by the novel coronavirus disease (COVID-19). This contrasts with the expectation of better-than-anticipated earnings in the second quarter of this year.

KB Securities forecast that KEPCO will achieve sales of 1.2947 trillion won and an operating profit of 64.9 billion won in the second quarter of this year. This marks a significant improvement compared to the operating loss of 299 billion won in the second quarter of last year. It also surpasses the market consensus, which anticipated an operating loss of 83 billion won. The decline in international oil prices led to a reduction of about 288.9 billion won in fuel costs for power generation.

Since this was a 'surprise' profit rather than a fundamental improvement in the revenue structure, concerns remain that earnings could deteriorate at any time. The crucial electricity tariff system reform has also been delayed to the second half of the year. KEPCO held a board meeting on the 26th and decided to postpone the electricity tariff reform, initially planned for the first half of this year, to the second half. KEPCO stated, "Reflecting the changed circumstances such as the spread of COVID-19 and increased volatility in oil prices, we have prepared a tariff reform plan and decided to obtain government approval in the second half of this year."

Experts point out that fundamental reforms, such as the fuel cost linkage system, must be implemented to achieve stable long-term earnings. The fuel cost linkage system directly reflects fluctuations in the prices of fuels like oil used for electricity generation in the tariffs. This system would reduce uncertainty by moving away from the current structure where electricity tariffs are virtually fixed, causing large profits during low oil price periods and losses when oil prices rise.

Jung Hye-jung, a researcher at KB Securities, said, "Considering the lowered energy prices and improved nuclear power utilization rates, KEPCO's annual operating profit is expected to improve significantly this year, but concerns about long-term profitability are exerting downward pressure on the stock price. With the electricity tariff reform postponed to the second half of this year, related uncertainties are likely to persist for the time being."

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