[Click eStock] "Korea Electric Power, 2Q Operating Loss of 1.1 Trillion Won"... Investment Rating Downgraded to 'Neutral'

[Asia Economy Reporter Ji Yeon-jin] KB Securities downgraded its investment opinion on Korea Electric Power Corporation (KEPCO) to Neutral (Hold) on the 1st and also lowered the target price by 18.2% to 27,000 KRW.

Jung Hye-jung, a researcher at KB Securities, explained, "The fuel cost linkage system for electricity rates was not implemented in the third quarter, and reflecting the increased LNG and coal power generation fuel costs, the after-tax operating profit for 2021-2023 is estimated to decrease to an average of 1.9 trillion KRW," adding, "the upside potential compared to the closing price of the target price is 8.7%."

KEPCO's sales in the second quarter of this year are estimated to have decreased by 14.4% year-on-year to 12.9 trillion KRW, with an operating loss of 1.1 trillion KRW. The operating profit and loss is about 119.6 billion KRW below market consensus. In the second quarter, due to the non-reflection of the fuel cost linkage system, electricity rates fell by 2.5% compared to the same period last year, nuclear power utilization rates dropped, weakening the power mix, and partially reflecting the increased oil prices, the fuel cost of LNG power generation rose, causing the power procurement cost to increase by 16.7% year-on-year.

The government postponed the fuel cost linkage system for electricity rates in the third quarter as well, following the second quarter, citing high inflation rates. As a result, KEPCO's 2021 earnings outlook has been significantly lowered, and market expectations that electricity rates would adequately reflect KEPCO's power procurement costs have diminished, increasing KEPCO's valuation burden. Researcher Jung stated, "In the future, electricity rates should pass on the fuel cost increases and rising environmental-related costs (such as REC and carbon emission permit purchase costs) that were not reflected this year, but considering recent electricity rate adjustments, it is expected that these related costs will be difficult to fully reflect."

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