[Click eStock] "KEPCO to Achieve 3 Trillion Won Profit in Second Half... Target Price Raised to 22,000 Won"

[Image source=Yonhap News]

Shinhan Investment Corp. on the 16th forecasted that Korea Electric Power Corporation's (KEPCO) second-quarter deficit will remain lower than market expectations. Accordingly, it raised its investment opinion to 'Buy' and its target price to 22,000 KRW.

Researcher Park Kwang-rae of Shinhan Investment Corp. stated, "The operating loss in the second quarter is expected to be 1.1 trillion KRW, exceeding market expectations," adding, "The downward stabilization of energy prices contributed to a 3.9% and 17.9% decrease in fuel costs and purchased power costs respectively compared to the same period last year, helping to reduce the deficit."

The electricity sales price in the second quarter is expected to rise by 26.8% compared to the same period last year. The System Marginal Price (SMP), a key variable affecting KEPCO's cost fluctuations, generally tends to lag international oil prices by 6 to 7 months. Considering the continued weakness in international oil prices since the beginning of the year, the SMP in the second half of the year is expected to potentially decline further from the second-quarter average of 151.2 KRW/kWh (-36.1%).

Researcher Park analyzed, "With electricity rates gradually rising until the second quarter and maintained until the end of the year, combined with cost reduction effects, KEPCO is expected to successfully turn operating profit positive in the second half of the year," adding, "Operating profits of about 1.8 trillion KRW in the third quarter and 1.5 trillion KRW in the fourth quarter are achievable."

Shinhan Investment Corp. projected the average international oil price (WTI basis) for 2024 to be 70.5 USD per barrel, down 4.3% from 2023. If the downward stabilization of energy prices continues through next year, additional cost reduction effects will be reflected, making it possible to turn annual operating profit positive without any special electricity rate hikes.

Researcher Park said, "Considering the significant gap between the current stock price and the fair value, we raised our investment opinion and target price," and warned, "If the third-quarter electricity rate hike, to be announced around late June, fails, short-term stock price volatility may increase."

He further diagnosed, "Recent energy price trends have fallen to a level where operating profit turnaround can be expected even assuming no electricity rate hikes," and recommended, "In the event of a stock price decline due to failure of the third-quarter rate hike, a strategy to increase holdings is effective."

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