KEPCO KPS Resumes Construction of Shin Hanul Units 3 and 4... Maintenance Sales Expected to Soar

With the election of Yoon Seok-yeol, the People Power Party candidate, as the 20th president, significant changes are expected in nuclear power policies. President-elect Yoon has pledged to abandon the previous government's nuclear phase-out policy and to build new nuclear power plants, marking a 180-degree shift from prior policies. The core plan is to rebuild halted nuclear plants and maintain the share of nuclear power generation at around 30%. After taking office, President-elect Yoon is expected to focus on restarting construction of Shin Hanul Units 3 and 4, reviewing the reactivation of Wolseong Unit 1, and extending the lifespan of existing nuclear plants. Expansion of overseas nuclear power exports and development of small modular reactors are also expected to be concretized. The market is already seeing fluctuations in the stock prices of nuclear-related companies. It is anticipated that the expansion of nuclear-related business orders will significantly impact corporate earnings. Asia Economy analyzed Korea Plant Service & Engineering (KPS) and Orbitech among the companies benefiting from nuclear power.

[Asia Economy Reporter Jang Hyowon] Korea Plant Service & Engineering (KPS), specializing in power plant maintenance, is gaining attention following President-elect Yoon Seok-yeol's pro-nuclear power pledges. If new nuclear plants are constructed and the lifespan of existing plants extended, resulting in increased operation of nuclear power plants, KPS's maintenance revenue is expected to rise accordingly.

Operating Profit Decline Due to Overseas Costs

KPS was established in 1984 as a power plant equipment maintenance specialist company fully funded by Korea Electric Power Corporation (KEPCO). KEPCO remains the largest shareholder with a 51% stake. The core business includes maintenance of thermal and nuclear power plants as well as transmission and substation facilities. Power plant maintenance is divided into routine maintenance, which involves daily inspection of operating equipment for abnormalities; planned preventive maintenance, which involves periodic shutdown and disassembly inspection of power equipment; commissioning maintenance, which manages efficient operation from the final construction phase to commercial operation; and overhaul maintenance, which focuses on performance improvement and lifespan extension of equipment.

As of the end of the third quarter last year, KPS operated 60 domestic and 14 overseas business sites. Domestic sites include 23 thermal, 13 nuclear, 7 pumped-storage, 6 power branch offices, and 11 special sites. Revenue composition is 36.1% from thermal, 35.3% from nuclear and pumped-storage, and 14.8% from overseas operations.

Last year's performance was somewhat sluggish based on preliminary figures. KPS announced on the 14th of last month that its operating profit for last year was 124 billion KRW, down 8.4% compared to the same period the previous year. Particularly, the operating profit in the fourth quarter was 900 million KRW, a 96.6% decrease, which significantly impacted the annual operating profit decline. This figure was far below the market consensus of 37.4 billion KRW. Unexpected cost increases led to reduced profitability. In the fourth quarter of last year, KPS's expenses were 180.9 billion KRW, an increase of 16.5 billion KRW compared to the fourth quarter of 2020. It is estimated that costs increased more than expected due to the upfront recognition of expenses related to new overseas projects such as in Talwandi, India.

Moon Kyung-won, a researcher at Meritz Securities, stated, "The issue of upfront expenses related to overseas projects will disappear this year, contributing to profitability improvement," adding, "With cost improvements alone, operating profit of around 150 to 160 billion KRW can be expected this year."

Researcher Moon also noted, "KPS's operating profit decreased by 30.2% and 8.4% in 2020 and last year respectively, largely due to increased labor costs from provisions for performance bonuses following upgrades in management evaluation grades," adding, "The management evaluation grade for last year is scheduled to be announced in June, and if it records a B grade as in 2019 and 2020, additional provisions will be limited."

‘Three-Pronged’ Boost: Nuclear Construction, Lifespan Extension, and Exports

KPS is expected to benefit from President-elect Yoon's pledge to abandon the nuclear phase-out policy. Yoon has proposed achieving the national greenhouse gas reduction target (NDC) by harmonizing renewable energy and nuclear power. Currently, Korea's NDC aims for a 37% reduction compared to projected emissions by 2030. Although greenhouse gas emissions are expected to rise to 851 million tons by 2030, the plan is to reduce this by 37% to approximately 536 million tons.

To this end, Yoon has pledged to immediately resume construction of Shin Hanul Units 3 and 4. These are 1,400 MW-class new nuclear plants under construction in Uljin County, Gyeongbuk Province, whose construction was halted following President Moon Jae-in's announcement in June 2017 to completely cancel new nuclear plant construction. Early completion of Shin Hanul Units 3 and 4 could increase KPS's revenues from commissioning maintenance and routine/planned preventive maintenance.

Additionally, Yoon plans to pursue continued operation of nuclear plants whose operating licenses expire before 2030 based on safety evaluations. Currently, 10 out of 24 domestic nuclear plants will reach the end of their design life before 2030. KPS also operates overhaul maintenance businesses that replace and improve aging power equipment to extend lifespan, so revenue growth in this sector is also anticipated.

Furthermore, expectations for nuclear power exports, which have been stagnant since the 2009 contract for four Barakah nuclear reactors in the United Arab Emirates (UAE), are rising. Yoon has stated that a 'Government-wide Nuclear Export Support Group' will be operated to unify the export system, which is currently divided between KEPCO and Korea Hydro & Nuclear Power (KHNP), and to support overseas orders.

Researcher Kwon Deok-min of Shin Young Securities explained, "Considering the resumption of Shin Hanul Units 3 and 4 construction and the possibility of new nuclear plant construction, KPS's revenue is expected to grow steadily," adding, "Moreover, with the global nuclear market gaining attention for achieving carbon neutrality, there is also potential for overseas nuclear market orders similar to the UAE case."

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