[Edaily Reporter KIM YOON-JEONG ] iM Securities projected that Korea District Heating(071320), having posted a second-quarter profit that significantly exceeded market expectations, will see its operating profit for this year substantially surpass both the market consensus and the company’s guidance as the positive impact of rising System Marginal Price (SMP) in the second half of the year takes full effect. The firm maintained its “Buy” rating and target price of 135,000 won.

On the 11th, Jeon Yu-jin, an analyst at iM Securities, stated, “Oil prices, which had surged since March, are now being fully reflected in the SMP for July and August.” She added, “Although power generation tariffs are also rising in tandem, considering that oil prices and Henry Hub prices have recently been relatively stable compared to JKM, we estimate that under the company’s individual pricing system, the increase in SMP will outweigh the rise in costs.”
Accordingly, analysts expect profits in the power sector to expand in the third and fourth quarters due to the rise in the SMP. They also forecast further improvements in profitability over the medium to long term as the individual pricing system is extended to the Hwaseong and Suwon power plants starting in the second half of 2027 and at the end of 2028, respectively.
Second-quarter earnings also significantly exceeded market expectations. Korea District Heating Corporation’s second-quarter operating profit was 33.1 billion won, marking a return to profitability compared to the same period last year. Given that the market consensus had projected an operating loss of 24.6 billion won, this represents an unexpected profit.
Operating profit in the power sector reached 37.8 billion won, a 41% increase year-over-year. Although the System Marginal Price (SMP) fell by 3.7% compared to the same period last year, electricity sales volume rose by 13% as the positive impact from maintenance work conducted at the Daegu, Yangsan, and Hwaseong power plants during the second quarter of last year wore off.
The thermal power segment also contributed to the positive earnings surprise. While the second quarter is typically an off-season resulting in large losses, the deficit was limited to 1.7 billion won due to adjustments to fixed costs (excluding fuel expenses). This represents a significant reduction in the loss compared to the 32.8 billion won deficit recorded during the same period last year.
Researcher Jeon stated, “We expect operating profit for 2026 to reach 520 billion won, driven by a rise in the System Marginal Price (SMP) in the second half, higher power plant utilization rates, and the effect of fixed-cost adjustments in the thermal division,” adding, “This figure significantly exceeds not only the current consensus estimate of 400 billion won but also the guidance of 271.1 billion won the company provided at the beginning of the year.”
Having already achieved an operating profit of 353.3 billion won in the first half, the company is projected to generate over 150 billion won in profit in the second half as well. Typically, the Korea District Heating Corporation’s performance follows a pattern of higher results in the first quarter (peak season), lower results in the second and third quarters (off-peak season), and moderate results in the fourth quarter (semi-peak season).
Researcher Jeon assessed, “Since the company has already achieved 353.3 billion won in the first half, and considering the rise in SMP, the widening of the spread due to the introduction of individual rate plans, and the additional impact of settling fixed heating costs, it is possible to generate over 150 billion won in the second half as well.”
However, the possibility of reintroducing the SMP cap was cited as a variable. The government mentioned considering the reintroduction of the cap last May when the SMP was around 120 won, and with the SMP exceeding 150 won in August, analysts say it is difficult to rule out the possibility of implementation in the second half of the year.
iM Securities estimated that if the existing calculation method—1.5 times the 10-year weighted average—is applied, the SMP cap would be approximately 165–170 won. Accordingly, the earnings forecast assumes an SMP of 150 won for the third quarter and 168 won for the fourth quarter, based on the assumption that the cap will be implemented. However, the firm noted that profits could fall short of current estimates if the cap turns out to be lower than expected or if the system is implemented in a way that guarantees only a small margin over cost.
Nevertheless, the firm projected that the Korea District Heating Corporation’s relative profitability advantage over competing power generators would continue. Research Analyst Jeon emphasized, “What is clear is that the SMP has risen compared to the first half of the year, and within that context, the company holds a relative advantage over power generators operating under an average-rate system—both in terms of dispatch priority and electricity sales margins—by utilizing a customized rate plan.”
The report also projected that dividend appeal would increase. Applying the average dividend payout ratio of 21% over the past two years, the 2026 dividend per share (DPS) is estimated at 6,000 won, with a dividend yield of 8.4%. If the Ministry of Economy and Finance’s target dividend payout ratio of 40% is applied, the DPS would reach 11,000 won, with a dividend yield of 15%. However, the report noted that the likelihood of applying a 40% dividend payout ratio is very slim.
Researcher Jeon commented, “Although this is a time when the company’s annual earnings capacity and the corresponding dividend expectations could be raised further, the stock is currently trading at a PBR of just 0.3 times.”