[Click eStock] "Korea Electric Power, Q1 Operating Loss Widens... Electricity Rate Hike Urgently Needed"

by Hwang Yoonju

Published 12 Apr.2022 07:11(KST)

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] Hana Financial Investment maintained its 'Buy' rating and target price of 25,000 KRW for Korea Electric Power Corporation (KEPCO) on the 12th, stating that the company's first-quarter earnings this year are expected to fall short of consensus.

Yoo Jae-sun, a researcher at Hana Financial Investment, said, "We forecast KEPCO's operating loss for the first quarter to be 8.4 trillion KRW. This is due to the burden of purchased power costs expanding as the SMP (System Marginal Price, electricity wholesale price) reached an all-time high on a quarterly average basis."

Researcher Yoo explained, "Although sales will recover as the fuel cost adjustment unit price, which had fallen after the implementation of the fuel cost linkage system, normalizes, the rise in raw material prices is expected to widen the operating loss margin."

He pointed out, "Despite the increase in the standard fuel cost and climate environment charges as of April, the profit resilience is still far from normal. Asian LNG prices remain high, and recently, the price of thermal coal is also on an upward trend. For KEPCO, there is no means to improve earnings other than raising electricity rates."

Researcher Yoo emphasized that whether the current raw material market can be considered a normal market is the most important factor in forecasting future earnings.

He analyzed, "In the context of strengthening ESG trends, the supply elasticity of raw materials has weakened, and the geopolitical risks in Eastern Europe have intensified supply-demand imbalances. Even if major raw material prices stabilize, if there is no decline to at least the 2020 level, it will be difficult for KEPCO to increase capital on its own."

He added, "If the standard fuel cost can be raised enough to offset the annual deficit since the total cost calculation in 2022, there would be no problem. However, considering the policy sensitivity toward public utility rates observed from the past to the present, expectations are limited."