[Edaily Reporter kyoungeun kim ] EUGENE INVESTMENT & SECURITIES announced on the 16th that it is significantly lowering its earnings estimates for KoreaElectricPower(015760)for this year and next year, and is lowering its target price from 64,000 won to 40,000 won. The firm noted that third-quarter earnings fell short of market expectations due to rising fuel costs and increased one-time expenses, and predicted that the company would slip into the red in the fourth quarter. However, the firm maintained its “Buy (BUY)” investment rating, noting that the company’s deteriorated financial structure and expanded investment in AI infrastructure will serve as justification for electricity rate hikes and the liberalization of the power market.
Hwang Seong-hyun, an analyst at EUGENE INVESTMENT & SECURITIES, stated in a report on the 16th, “Third-quarter earnings fell short of expectations due to rising fuel costs, provisions for nuclear power plant restoration, and increased greenhouse gas costs,” adding, “Discussions are likely to emerge regarding the introduction of policies—such as electricity rate hikes and expanded private investment in the power grid—driven by KEPCO’s deteriorating financial structure and increased investment in AI infrastructure.”
The target price was calculated by applying 0.5 times the estimated book value per share (BPS) for 2027. The closing price on the 13th was 27,650 won.
KoreaElectricPower’s third-quarter revenue was 26.852 trillion won, up 23% from the previous quarter but down 3% year-over-year. Operating profit was 1.644 trillion won, up 46% from the previous quarter but down 71% year-over-year. Analyst Hwang explained, “Fuel costs rose 25% year-over-year due to the expansion of alternative power generation resulting from a decline in nuclear power plant utilization rates, and the burden of purchased electricity costs persisted.” He added, “As the Renewable Energy Supply Obligation (RPS) ratio increased from 14% to 15%, cumulative RPS costs reached 3.7 trillion won.” Other expenses also rose by 1.1 trillion won, reflecting the provision for nuclear power plant restoration (544.7 billion won) resulting from the recalculation of decommissioning costs for Wolseong Unit 1, as well as the cost of greenhouse gas emissions (545.6 billion won).
In the fourth quarter, the company is expected to post an operating loss of 1.325 trillion won as fuel cost pressures persist, causing it to slip into the red. Reflecting this, operating profit estimates for this year were significantly lowered from 8.535 trillion won to 5.232 trillion won, and for next year from 15.337 trillion won to 2.943 trillion won.
The firm noted that there are factors that could improve performance next year. Analyst Hwang stated, “As the proportion of liquefied natural gas (LNG) power generation in price determination decreases due to an increase in mandatory operation of power plants and an expansion of solar power generation, the System Marginal Price (SMP) will decline, and we will also see a recovery in nuclear power plant utilization rates and stabilization of LNG unit prices,” adding, “Performance will gradually improve, with the fourth quarter marking the low point.”
In the medium to long term, he anticipated that discussions on normalizing electricity rates would begin. Analyst Hwang stated, “The need to expand power infrastructure to support AI data centers and foster high-tech industries will serve as the primary justification for rate hikes,” adding, “Starting with the introduction of a regional wholesale price system (LMP), a full-scale restructuring of the power market will begin, and the expansion of private-sector participation in regulated businesses will also be considered.” KoreaElectricPower (KEPCO) announced at an earnings briefing that it aims to introduce the LMP within this year.
He predicted, “The introduction of a free-market competition system in the electricity market will lead to the determination of appropriate electricity rates, thereby resolving the valuation discount faced by domestic utility companies, which is currently more than 50% compared to their overseas peers.”
