KEPCO Gains Momentum for Electricity Rate Reform Proposal

Reflecting Changes in Production Costs... Attention as an Opportunity for Stock Price Revaluation, Strong Performance for Two Consecutive Days

[Asia Economy Reporter Park Ji-hwan] As Korea Electric Power Corporation (KEPCO) succeeds in reforming the long-awaited electricity tariff system, attention is focused on whether its stock price will be re-evaluated. The market is betting on a rise in the stock price as the tariff system, which had been pointed out as the biggest obstacle to stock price increases due to its failure to reflect fluctuations in power production costs, has been revised.

On the 18th, KEPCO's stock price recorded 27,950 won at 9:28 a.m., up 1,950 won (7.50%) from the previous trading day. KEPCO has continued a strong trend for two consecutive days, rising 10.17% (2,400 won) the day before.

The background to KEPCO's stock price rise is that the government's announced electricity tariff reform plan includes a separate reflection of fuel cost adjustment charges (fuel cost linkage) and climate environment charges. The fuel cost linkage system reflects the fluctuations in international oil prices in electricity tariffs to reduce earnings volatility. Until now, KEPCO's earnings have fluctuated significantly depending on external environmental changes, incurring losses when power production costs such as crude oil rose, and profits when they fell.

In the securities industry, there is an evaluation that the volatility caused by earnings fluctuating greatly according to power production costs has been eliminated. It is expected that passing on fuel costs, which account for 30-50% of operating expenses, to electricity tariffs will significantly reduce the volatility of operating profit. Like overseas companies whose power production costs are linked to sales costs, stable investment and securing dividend resources will become possible.

Lee Min-jae, a researcher at NH Investment & Securities, said, "The electricity tariff reform plan, which was awaited for three years, has been finalized, securing earnings stability," and added, "If the reform plan, including the fuel cost linkage system and separation of environmental costs, operates normally, continuous valuation increases for KEPCO are expected." He also analyzed that it will be used as an institutional device to secure investment resources for new industries such as offshore wind power through raising awareness of sharing environmental costs, similar to the waste volume-based fee system introduced in 1995.

The relay of target price upgrades by securities firms is also continuing. Eugene Investment & Securities raised KEPCO's target price by 34% from the previous 32,000 won to 43,000 won, stating that the application of the tariff reform plan is expected to sustain stock price increases through resolving valuation discounts. NH Investment & Securities and Hana Financial Investment also raised their target prices by 26% and 30%, respectively, compared to previous levels.

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