[Click eStock] "Korea Gas Corporation, 1Q Below Expectations but Performance Improvement Certain"

[Asia Economy Reporter Lee Jung-yoon] Hana Financial Investment maintained a buy rating and a target price of 62,000 KRW for Korea Gas Corporation on the 13th, stating that although the company's first-quarter earnings this year are expected to fall short of market expectations, the strong prices of crude oil and Asian liquefied natural gas (LNG) are likely to have a positive effect.

Korea Gas Corporation's sales for the first quarter of this year are expected to reach 16.4 trillion KRW, a 113% increase compared to the previous year. Gas sales volume is also expected to increase slightly, but this is mainly attributed to the rise in procurement costs due to the overall strength in natural gas prices. Operating profit for the first quarter is forecasted to be 766.2 billion KRW, a 0.2% increase year-on-year. However, overseas operations are expected to decline compared to the previous year due to the suspension of operations at the Prelude project site in Australia during the first quarter. Recently, Shell resumed operations at Prelude, and the high Asian LNG prices reflected in selling prices could potentially lead to significant earnings.

However, accounts receivable and exchange rates may pose risks to Korea Gas Corporation. Nevertheless, the analysis suggests that operating performance improvement is certain. Yoo Jae-sun, a researcher at Hana Financial Investment, explained, "The city gas residential rates were raised in April, and the settlement prices for accounts receivable collection will be reflected in May, July, and October," adding, "Concerns about accounts receivable can be partially alleviated as the accumulation speed slows down, but the overall accumulation trend is unlikely to change."

He continued, "Considering that accounts receivable lead to increased liabilities and consequently higher financial costs, the improvement in separate operating results due to strong interest rates is expected to largely offset the increase in financial costs," and added, "Although a weaker exchange rate could lead to deterioration in non-operating income and expenses, taking into account the possibility of reversal due to the normalization of the book value of the Australian Prelude project, this concern may not be significant."

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