[Click eStock] "Korea Electric Power, Key Issue Is Whether Fuel Cost Increase Is Reflected"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 35,000 KRW for Korea Electric Power Corporation (KEPCO) on the 13th. While the stock price increase effect based on earnings is expected to be limited, stock price fluctuations are anticipated depending on whether the fuel cost increase for the third quarter, scheduled for June, will be reflected.

First-quarter sales are projected to increase by 1.1% year-on-year to 15.3 trillion KRW. Despite the impact of the fuel cost adjustment price reduction, sales performance is estimated to have improved due to the cold wave during the winter season. Operating profit is estimated to have increased by 64.2% during the same period to 702.3 billion KRW. Utilization rates for nuclear power and coal are expected to improve with a mix of 77.8% and 56.6%, respectively. Yuje-seon, a researcher at Hana Financial Investment, explained, “Coal utilization recovery is difficult to guarantee due to the voluntary cap system implementation, and nuclear power is also expected to decline on an annual basis due to delays in maintenance of some units.” The purchased power cost is expected to increase due to strong electricity demand, although the system marginal price (SMP) for the first quarter is projected to decrease by 7.8% year-on-year to 76.8 KRW per kWh.

Second-quarter earnings are expected to show weakness due to the impact of the surge in raw material prices at the end of last year and the effectively reduced electricity rates following the implementation of the fuel cost linkage system. Policy costs such as RPS and ETS and increased cost burdens are also expected to appear.

Accordingly, the stock price is expected to determine its direction depending on whether the fuel cost increase will be reflected in June. Although there were factors for an increase in the second-quarter fuel cost adjustment price calculation, a freeze was implemented. This was in consideration of the sharp rise in LNG prices and the impact of COVID-19. In the third quarter, only COVID-19 is expected to act as the basis for price determination rather than LNG prices. Researcher Yuje-seon said, “In an inflationary phase, raising public utility rates is a difficult task,” adding, “We need to observe the results of the third-quarter fuel cost adjustment price calculation from the perspective of restoring trust in the system, which is based on a formula rather than arbitrary increases.”

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