[Click eStock] "Korea Electric Power, Earnings Expectations to Decline Further"

Hana Financial Investment Report

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a neutral investment opinion and a target price of 25,000 KRW for Korea Electric Power Corporation (KEPCO) on the 15th. This is because the annual earnings estimates are expected to decline further if the cost indicators, which surged sharply since the end of last year while the fuel cost adjustment unit price remained frozen, are fully reflected in the performance.

Second-quarter earnings are expected to fall short of market expectations. Sales are projected to increase by 1.7% year-on-year to 13.3 trillion KRW. This is due to an early onset of hot weather and a base effect from COVID-19, which are expected to boost strategic sales volume. Operating loss is expected to turn to a deficit of 1.2 trillion KRW.

Researcher Jaeseon Yoo of Hana Financial Investment explained, “The utilization rate of coal power plants is expected to show little change compared to the previous year despite the voluntary cap system, but nuclear power is expected to decline by 9% year-on-year to 72.3% due to an increase in planned preventive maintenance,” adding, “Although fuel costs will slightly decrease due to reduced coal power generation, purchased power costs will rise significantly as SMP (System Marginal Price) increases by 9.8% and purchased strategic volume also increases.”

Multiple increases in the fuel cost adjustment unit price are necessary for earnings to normalize. The utilization rate of base power plants has not recovered as expected due to incidents such as the fire at Shin-Kori Unit 4. Policy costs such as the Renewable Portfolio Standard (RPS) continue to rise, and this year, costs related to nuclear power plant post-processing are also expected to be reflected in the fourth quarter. Although the price of thermal coal exceeds the 2019 peak, sales are declining as the fuel cost adjustment unit price increase has not been reflected.

Overall, unfavorable business conditions are expected to continue, with third-quarter earnings, the peak season, projected to be the lowest since 2008. Researcher Yoo said, “The likelihood of an increase in the fuel cost adjustment unit price in the fourth quarter has grown, but it is uncertain whether the increase will be reflected in the December adjustment,” adding, “If multiple consecutive increases in the adjustment unit price do not occur and raw material prices do not stabilize, poor performance will inevitably continue.”

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