[Click eStock] "Korea Electric Power, Burdensome Raw Material Price Increase"

Operating Loss Turned in Q3 This Year
Shinyoung Securities "Korea Electric Power Target Price Lowered from 32,000 Won to 29,000 Won"

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Korea Electric Power Corporation (KEPCO) recently posted a deficit in the third quarter of this year due to the sharp rise in raw material prices. Additional costs such as climate environment fees are also expected, so poor performance is projected to continue.

According to Shin Young Securities on the 15th, KEPCO's sales in the third quarter of this year increased by 4.8% year-on-year to 16.4 trillion won, while operating loss turned to a deficit of 936.6 billion won during the same period. Although sales exceeded market consensus by 2.01%, operating losses occurred, indicating poor performance.

The increase in sales was due to abnormal weather this summer. Electricity sales this summer recorded 139,721 gigawatt-hours (GWh), a 6% increase compared to the same period last year. However, operating losses were unavoidable due to rising international raw material prices. Fuel costs increased by 40.7% year-on-year to 5.6 trillion won due to raw material prices. Additionally, as electricity demand increased, the cost of purchased power, including liquefied natural gas (LNG) and renewable energy certificate (REC) purchases, rose by 46.8% year-on-year to 5.7 trillion won.

KEPCO's poor performance is expected to continue going forward. This is because it is time to raise climate environment costs and continuously increase fuel cost adjustment rates. Regarding climate environment fees, discussions are ongoing with the government, and the fuel cost adjustment rate for next year must also reflect the recently increased raw material prices, but this also requires consultation with the government.

Accordingly, Shin Young Securities maintained its investment opinion of "Buy" on KEPCO but lowered the target stock price from 32,000 won to 29,000 won. The closing price on the 12th was 23,150 won.

However, Shin Young Securities researcher Kwon Deok-min said, "It is noteworthy that the fuel cost adjustment rate was raised by 3 won in the fourth quarter ahead of the presidential election in March next year," and explained, "The operation of Shin Hanul Units 1 and 2 is scheduled for March next year and March 2023, respectively, so nuclear power generation, which is base load power, will slightly expand."

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