[Click eStock] "Korea Gas Corporation, Dividend Resumption Is Key"

Hana Securities analyzed on the 4th that Korea Gas Corporation's fourth-quarter earnings are expected to meet market expectations, while the resumption of dividends will be an important investment point.

Yoo Jae-sun, a researcher at Hana Securities, stated in a report on the same day, "Although the appropriate investment return rate this year is likely to be favorable due to the weak government bond yields but high beta, it seems difficult for the appropriate investment return to improve significantly due to the reduction in the rate base caused by the decline in raw material prices and sluggish sales volume."

Separate net income is expected to incur a considerable amount of foreign exchange translation losses due to the year-end exchange rate increase, but it is forecasted to achieve a surplus on an annual basis. In particular, it is expected to serve as an opportunity to confirm the government's stance on dividends amid the strengthening of financial stability of energy public enterprises and the government's efforts to resolve tax revenue shortages. The price-to-book ratio (PBR) as of this year is around 0.29 times.

Fourth-quarter sales are expected to decrease by 5.3% year-on-year to 10 trillion won. This reflects the impact of falling gas prices and decreased sales volume. Based on monthly disclosures, fourth-quarter gas sales volume is estimated to have decreased by 6.7% for city gas and 7.7% for power generation, respectively. On the other hand, operating profit is expected to increase by 19.6% year-on-year to 633.6 billion won. Separate profit is expected to increase reflecting the appropriate investment return and increased interest expenses on accounts receivable.

He analyzed, "Although the expected sales volume reflected in the 2024 rate base increased compared to the previous year, actual sales performance decreased, which may result in a negative effect due to working capital settlement. However, since a similar phenomenon occurred in the fourth quarter of 2023, the base effect is expected to be limited."

In the overseas sector, amid the stabilization trend of raw material prices, the rise in exchange rates is expected to play a certain role in profit protection. Additionally, the reversal of rate discounts, which were not reflected in past budgets and acted as cost factors, may act as a variable affecting operating performance.

Recently, crude oil prices have shown a downward stabilization trend, but the continued weakness of the KRW/USD exchange rate is putting pressure on the collection of accounts receivable. As domestic natural gas prices show a stabilization trend entering 2025, a sharp increase in accounts receivable is expected to be limited in the short term. However, considering the time lag in reflecting the exchange rate increase, a slight increase in burden after the peak season cannot be ruled out.

He said, "If city gas rates are not raised, it will not be easy to generate additional cash flow to overcome interest expense burdens," and added, "The high year-end exchange rate in 2024 can be a positive starting point from the perspective of separate net income and dividends, but considering that the cause of past dividend suspensions was the increase in accounts receivable, the implementation of dividends will gain significance only after being decided by the government dividend consultative body in February."

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