Everything Has Risen... But KEPCO Stock Remains Flat

Despite the Plunge in International Oil Prices... Uncertainty Over Timing of Electricity Rate Hike

[Asia Economy Reporter Koh Hyung-kwang] Although the KOSPI index has rebounded more than 100 points over the past three days, Korea Electric Power Corporation (KEPCO) stock remains stagnant. Despite the major positive factor of a sharp drop in international oil prices, KEPCO's stock has struggled, largely due to the uncertainty surrounding the timing of electricity rate hikes caused by the impact of the novel coronavirus infection (COVID-19).

According to the Korea Exchange on the 7th, KEPCO closed at 19,150 won, up 0.7% from the previous trading day in the KOSPI market. While the KOSPI index surged 3.8% (66 points) that day and many large-cap stocks rose sharply, KEPCO's stock fluctuated within a narrow range throughout the day and ended with a slight increase near the close.

Over the past three trading days, while the KOSPI index surged 6.3% (106 points), KEPCO's stock rose only 0.7%, from 19,000 won to 19,150 won. On the previous trading day, the 3rd, it fell 0.5%, and on the 2nd, it rose 0.5%.

The recent sharp drop in international oil prices is a major positive factor for KEPCO's stock. Experts analyze that typically, a 10% drop in oil prices results in a cost reduction effect of over 1 trillion won for KEPCO. When the oil price decline that began in November 2014 led to a delayed drop in liquefied natural gas (LNG) prices, KEPCO recorded its highest operating profits of 11 to 12 trillion won in 2015-2016. Considering that international oil prices have fallen about 30% compared to last year, KEPCO is expected to see a cost reduction of over 3 trillion won.

Since the beginning of this year, when oil prices started to fall, individual investors have been buying KEPCO stock in large quantities. The net purchase of KEPCO stock by individuals this year up to the previous day amounts to 540 billion won. Among individual companies, KEPCO ranks fifth in net purchases following Samsung Electronics, SK Hynix, Hyundai Motor, and SK Innovation. Despite the large-scale buying, KEPCO's stock price has fallen more than 30% from 28,500 won at the beginning of the year to the recent 19,000 won range. This is the first time KEPCO's stock price has fallen below 20,000 won since August 2011.

The factor holding back KEPCO's stock price is the concern that the timing of electricity rate hikes may be delayed beyond initial expectations. KB Securities researcher Jung Hye-jung said, "Due to the sharp drop in international oil prices, KEPCO's operating profit this year is expected to improve significantly to 3.7 trillion won," but added, "Reflecting the possibility of a prolonged COVID-19 crisis, the timing of the electricity rate hike will be postponed to early next year, and the increase rate will be lowered by 0.8 percentage points to 2.5%." Hana Financial Investment researcher Yoo Jae-sun also said, "As concerns about an economic recession grow, it has become difficult to push for electricity rate hikes, and policies such as electricity bill reductions for small business owners in special disaster areas and payment deferrals for low-income households are expected to be implemented," diagnosing that "the recent strong expectations for electricity rate reform will weaken accordingly."

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