Korea Electric Power Corporation Performance, Q4 Also Not Easy

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Junho] Daishin Securities maintained its target price for Korea Electric Power Corporation (KEPCO) at 25,000 KRW and kept its investment rating at neutral on the 14th. This decision is based on the expectation that the third-quarter earnings, which fell short of expectations due to decreased sales from the decline in fuel cost adjustment rates and increased expenses from rising raw material prices, will continue this trend into the fourth quarter.

KEPCO's third-quarter sales reached 16.5 trillion KRW, marking a 4.8% increase compared to the previous year. This was driven by a 6% increase in electricity sales volume due to the summer heatwave and the COVID-19 base effect. Operating profit recorded a loss of approximately 936.6 billion KRW, with the deficit widening compared to the previous year.

This is the first third-quarter loss since 2008, and this trend is expected to continue into the fourth quarter. Fuel costs increased by 40.7% year-on-year due to increased coal power generation and rising prices. Purchased power costs rose by 46.8% year-on-year due to increases in the System Marginal Price (SMP), purchased power volume, and Renewable Energy Certificate (REC) related expenses. Although Chinese thermal coal prices have recently stabilized downward, it is expected to be difficult to reverse the existing cost increase trend. Nuclear utilization rate rose by 3.3 percentage points year-on-year to 69.7%, while coal utilization rate decreased by 0.3 percentage points to 70.2%.

If the fuel cost adjustment rate is raised next month, it could signal that regulations are functioning normally. Yoo Jaeseon, a researcher at Hana Financial Investment, stated, "To achieve a return to profitability in 2023, it is judged that quarterly increases in the fuel cost adjustment rate are necessary. Measures such as finalizing total costs, recalculating standard fuel costs, and raising climate and environmental charges must also be supported." He added, "Although the fuel cost linkage system minimizes the impact of raw material price fluctuations, if cost increases are properly passed on to prices, performance can return to normal."

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