[Click eStock] "KEPCO, Possibility of Faster-than-Expected Electricity Rate Increase"

Possibility of Immediate Price Increase from Q2 Due to Rising LNG Prices
Indicates Normal Implementation of Fuel Cost Linkage System... Opportunity to Restore Investor Sentiment

[Asia Economy Reporter Minwoo Lee] As expectations rise for the fuel cost linkage system, which reflects fuel prices in electricity rates, investor sentiment is focusing on Korea Electric Power Corporation (KEPCO). This is based on the judgment that KEPCO can achieve earnings growth by raising electricity rates faster than expected.

On the 17th, Korea Investment & Securities maintained a 'Buy' rating and a target price of 38,000 KRW for KEPCO, citing this background. The closing price on the previous day was 24,750 KRW.

Under the fuel cost linkage system implemented from this year, electricity rates are adjusted every three months. KEPCO submits adjustment unit price calculation data to the government by the 16th of the month prior to the quarter, and the rates are finalized and announced by the 20th. This month, the announcement is expected on the 22nd instead of the 20th due to a holiday.

Ko Woo Choi, a researcher at Korea Investment & Securities, explained, "The Ministry of Trade, Industry and Energy initially announced an electricity rate reform plan in December last year, expecting that the introduction of the fuel cost linkage system would reduce rates by about 1 trillion KRW by the first half of the year. In fact, the first quarter rates were lowered by 3 KRW per kilowatt-hour (kWh) reflecting last year's decline in raw material prices. However, due to the larger-than-expected rise in liquefied natural gas (LNG) prices, it is known that electricity rate increases will be pursued starting from the second quarter."

Notably, this increase could bring forward the point at which it can be determined whether the linkage system is properly applied, attracting attention. Researcher Choi said, "If the rate increase is realized, it will be the first time since November 2013," adding, "Above all, it will be a turning point proving that the fuel cost linkage system actually works."

So far, KEPCO's stock price surged sharply in the short term after the announcement of the electricity rate reform plan at the end of last year, which included the introduction of a cost-linked rate system and normalization of special discounts, but has given up most of the gains this year. Although the fuel cost linkage system is a factor that resolves the stock price discount by reducing KEPCO's profit volatility and rationalizing the rate system, distrust about its proper application remains high. Researcher Choi explained, "Although the government’s reservation clauses remain, the stock price has already fallen to valuations from periods when the company recorded losses due to past oil price increases, so it is considered a risk-free opportunity."

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