[Click eStock] "Korea Electric Power Corporation to Continue Earnings Improvement in Q3"

Hana Financial Investment Report
"Performance Improvement Valid Due to Fuel Cost Unit Price Decline"

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 30,000 KRW for Korea Electric Power Corporation (KEPCO) on the 14th. This is based on the judgment that the improvement in earnings due to cost reduction from the decline in fuel unit costs could continue through the third quarter.

In the second quarter, KEPCO turned a profit with an operating income of 298.9 billion KRW. Sales recorded 13.1 trillion KRW, showing a level similar to the previous year. The decline in electricity sales due to reduced sales volume was offset by an increase in other sales.

The utilization rates of base-load power generation from nuclear (81.3%) and coal (55.7%) dropped by 1.5 percentage points and 2 percentage points respectively, but the second quarter system marginal price (SMP) fell by 15.7%, resulting in an 11% decrease in purchased power costs compared to the previous year. Fuel costs were also reduced by 12.8% due to the decline in unit prices of bituminous coal and LNG fuel. Researcher Yoo Jae-sun said, “The gradual decline in bituminous coal prices is being confirmed, and the low oil prices in the first half of the year will be reflected in cost savings by the end of the year with a time lag.”

The cost reduction momentum for the third quarter has already been sufficiently confirmed through the LNG fuel unit price and daily SMP in August. In September, an additional drop in LNG prices is expected to reverse the price relationship compared to bituminous coal. If SMP is determined by the bituminous coal unit price, KEPCO’s power generation subsidiaries, which have a high proportion of coal-fired power generation, will inevitably face deteriorating earnings. However, KEPCO’s standalone earnings are inversely related to this, so the proportion of consolidated operating income is expected to increase.

Researcher Yoo Jae-sun said, “Due to the characteristics of base-load power generation, it remains to be seen whether the price reversal will actually lead to a change in the generation mix,” and added, “The prospect that dividend capacity could increase in KEPCO’s internal profit distribution will be an important investment point.”

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