[Click eStock] "Korea Electric Power Corporation, Structural Earnings Slump Difficult to Resolve This Year"

Hana Securities Report

[Asia Economy Reporter Minji Lee] Hana Securities maintained a neutral investment rating and a target price of 25,000 KRW for Korea Electric Power Corporation (KEPCO) on the 12th.

Second-quarter sales are expected to reach 15.1 trillion KRW, a 12% increase compared to the previous year. This is due to increased sales volume driven by rising electricity demand, along with higher selling prices resulting from fuel cost adjustment rates and increased standard fuel costs.

Operating losses are projected to continue, amounting to 6.2 trillion KRW. Although the average electricity purchase cost (SMP) in the second quarter dropped significantly to 157.4 KRW/kWh compared to the previous quarter, it is still analyzed to be in a negative margin zone. The scale of the second-quarter deficit is expected to be the lowest of the year due to the reduced SMA impact. The utilization rate of nuclear power plants is anticipated to increase by 11 percentage points year-on-year to 80.3%, and coal utilization is also expected to improve slightly compared to the previous year.

Yoo Jae-sun, a researcher at Hana Securities, stated, “Even considering the increase in electricity rates based on the fuel cost linkage system, including the rise in standard fuel costs, it is difficult to offset the cost increases caused by rising raw material prices. LNG spot prices are exceeding winter levels despite being in the off-season due to worsening natural gas supply and demand, and the price of thermal coal remains high.”

Recently, Australian thermal coal for power generation has been trading at around 400 USD per ton (RRURDMS), and Asian LNG spot prices have shown limited fluctuations around 40 USD per mmbtu. Price volatility is likely to increase again during the winter peak season, raising uncertainty in cost conditions not only for the second half of this year but also through 2023.

Researcher Yoo said, “Gradual electricity rate increases are insufficient to resolve structural performance declines, and aside from the 4.9 KRW/kWh increase in the standard fuel cost in October, further hikes within this year are unlikely. Attention should now be focused on the extent of the standard fuel cost increase in 2023.”

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