"Korea Electric Power as an Inflation Shock Absorber"…KOSPI Operating Profit Up 15%

On the 23rd, amid the ongoing sweltering heat, a monitor displaying the current power supply status is installed in the lobby of the annex building of the Korea Electric Power Corporation Seoul Headquarters in Jung-gu, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Junho Hwang] Despite rising energy prices, Korea Electric Power Corporation (KEPCO) has been unable to raise electricity rates, leading to an analysis that the profit levels of companies listed on the KOSPI have increased. It is interpreted that amid KEPCO's massive deficits, each company has benefited from an 'inflation hedge' effect. On the other hand, since inflation can increase corporate sales, this trend of earnings growth is expected to continue into the second half of this year.

Researcher Suyeon Kim of Hanwha Investment & Securities stated in the report "Demand Active Tactics" that "the operating profit forecast for KOSPI (non-financial) companies excluding KEPCO is 226 trillion KRW this year, representing a 15% increase compared to last year."

As the earnings announcement season for the first quarter of this year concludes, the consensus on profits for KOSPI companies has risen. The expected operating profit for KOSPI companies including KEPCO is projected at 208 trillion KRW, which is a 3% upward revision from the end of March consensus. This figure is also 9.6% higher than last year's performance.

Researcher Kim viewed that the cost burden for each company has decreased. Hyundai Motor Company's gross profit margin for the first quarter of this year was 19.1%, higher than 18.4% in the first quarter of last year. Kia also rose by 2.1 percentage points to 19.6% compared to the same period last year. POSCO Holdings' gross profit margin was 13.7%, lower than 14.7% in the fourth quarter but improved compared to 13.3% in the first quarter of last year.

He cited KEPCO's electricity rate freeze as the biggest reason for this reduction in cost burden. Despite increased energy prices due to the Russia-Ukraine war and other factors, KEPCO's inability to raise electricity rates has reduced the cost burden for each company.

On the other hand, KEPCO's deficit has expanded due to its inability to raise electricity rates. While the deficit was initially expected to be around 6.2 trillion KRW at the beginning of the year, it is now projected to reach approximately 17.5 trillion KRW.

Researcher Kim explained, "The costs of domestic companies can be seen as hedged against raw material inflation based on KEPCO's deficit. On the other hand, the increased inflation is driving up corporate sales, so we can look forward to corporate profits in the second half of this year."

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