[Click eStock] "Korea Electric Power, Expecting Rate Increase... Stock Purchase Recommended"

SK Securities Report

An electricity meter is installed in a residential area in Dobong-gu, Seoul, on the 30th, ahead of Korea Electric Power Corporation's announcement of the fuel cost adjustment unit price for electricity rates in the fourth quarter. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Minji Lee] On the 20th, SK Securities analyzed that it is effective to adopt a strategy of buying stocks of Korea Electric Power Corporation (KEPCO) in anticipation of an electricity rate hike by the end of the year.

Currently, KEPCO's stock price rose by 8.5% after the KEPCO Act amendment bill was rejected on the 8th. At that time, the Democratic Party, which voted against the bill, demanded an increase of 60 KRW per kWh in electricity rates to resolve KEPCO's deficit, and the Ministry of Trade, Industry and Energy requested the establishment of a roadmap for electricity rate normalization by March next year. SK Securities researcher Namin Sik said, “The recent stock price increase is interpreted as being driven by expectations of electricity rate hikes,” adding, “Ahead of the year-end standard fuel cost calculation, it is necessary to verify how much the market's expectations and the actual electricity rates will rise.”

The market's expectations for electricity rates can be inferred through consensus sales figures. Next year's KEPCO consensus sales are formed at 84.6 trillion KRW. Dividing this by the expected electricity sales volume of 560 TWh next year yields an electricity sales unit price of 151 KRW per kWh. Compared to next year's electricity sales unit price of 121 KRW, a 29 KRW increase is needed to meet market expectations.

Considering the actual electricity rate hike, it is at the level of 30 to 40 KRW per kWh. The 60 KRW per kWh increase mentioned by Assemblyman Yang Iwon-young during the KEPCO Act amendment was the maximum possible increase. Considering the decline in approval ratings, it is difficult to fully accept the increase demanded by the opposition party.

Researcher Namin Sik analyzed, “The calculated standard fuel cost is 43 KRW per kWh, and the actual standard fuel cost is expected to increase by 30 to 40 KRW,” concluding, “The idea of buying KEPCO stocks in anticipation of an electricity rate hike at the end of the year is valid.”

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