[Click eStock] "SGC Energy, a Hidden Beneficiary of Rising Oil Prices"

[Asia Economy Reporter Jihwan Park] Meritz Securities stated on the 17th that SGC Energy is evaluated as a hidden beneficiary of rising oil prices.

SGC Energy is a district energy operator that produces and sells electricity and steam through combined heat and power generation (bituminous coal + wood pellets). More than half of the energy division's sales come from electricity sales. The SMP (System Marginal Price), which corresponds to the electricity sales price, has a characteristic of lagging oil prices by 5 to 6 months.

If the SMP, which was at the level of 70~80 KRW/kWh in the first half of the year, rises to 90~100 KRW/kWh in the second half, an increase in sales can be expected. On the other hand, the rising trend of raw material prices such as bituminous coal and wood pellets is relatively moderate, and it is analyzed that the spread is expected to widen from the third quarter.

In particular, the effect of expansion is becoming visible from the fourth quarter. SGC Green Power (95% equity stake), scheduled for completion in October, is a 100MW scale wood pellet combustion power plant. It is expected to increase electricity sales by 20% and REC sales by more than 60%. Also, permits have been obtained for a fuel cell power plant of about 20MW scale.

Researcher Mungyungwon of Meritz Securities explained, "Risk factors are being resolved due to profitability improvement in the construction (formerly E-Tech Construction) and solutions (formerly Samkwang Glass) divisions," adding, "The recent decline in spot Renewable Energy Certificate (REC) prices has a limited impact as most of the company's REC sales are contract-based and settled according to government standard prices."

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