[Click eStock] "KEPCO's Stock Will Be Revalued When Fuel Cost Linkage System Is Implemented"

Now Is the Right Time to Introduce the Fuel Cost Linkage System Amid Strong Performance
Enables Stable Investment and Secures Dividend Resources

[Asia Economy Reporter Minwoo Lee] It is expected that Korea Electric Power Corporation's (KEPCO) stock price will rise if the fuel cost linkage system, which reflects fuel prices in electricity rates, is implemented.

On the 10th, Eugene Investment & Securities made this prediction, maintaining a 'Buy' rating on KEPCO and raising the target price by 14.3% to 32,000 KRW. The closing price the previous day was 22,400 KRW.

Researcher Seonghyun Hwang of Eugene Investment & Securities said, "Applying the valuation of Korea Gas Corporation, which maintains an appropriate return on equity (ROE) with a price-to-book ratio of 0.3, there is a 42.9% upside potential from the current stock price due to the implementation of the fuel cost linkage system." He added, "Introducing the fuel cost linkage system will enable stable investment and dividend resources, similar to overseas companies where power production costs are linked to sales costs, and will also resolve valuation undervaluation." Furthermore, if future increased environmental costs are additionally included in the rate restructuring, the appropriate stock price is expected to rise further to 43,000 KRW, expanding the upside potential.

According to industry sources, the possibility of implementing the fuel cost linkage system, part of KEPCO's proposed electricity rate restructuring plan, has increased. The rate restructuring plan is expected to be approved at an extraordinary board meeting and included in next year's economic policy direction to be announced on the 17th. This institutional reform is inevitable to secure renewable energy facilities for the government's 2050 carbon neutrality goal, as well as for KEPCO's entry into renewable energy power generation business and securing funding.

Since it is a period of low oil prices, introducing the fuel cost linkage system can reduce the burden on consumers. KEPCO has also saved on fuel purchase costs due to low oil prices, achieving an operating profit of about 3.2 trillion KRW through the third quarter this year, marking the best performance in the past three years, making this an appropriate time to absorb rate reductions.

KEPCO's Renewable Portfolio Standard (RPS) and plans to impose environmental costs such as emission permit purchase costs are also expected to be reviewed. Researcher Hwang analyzed, "Considering that social cost increases and public rate restructuring are inevitable to achieve national emission targets, and that coal power plants with stranded asset concerns account for only about 10% of total assets, there is sufficient upside potential at the current stock price."

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