KEPCO Returns to Profit After 3 Years... Will Its Stock Gain Momentum?

[Asia Economy Reporter Koh Hyung-kwang] The stock price of Korea Electric Power Corporation (KEPCO), which had been stagnant, has recently been on the rise. This was underpinned by a turnaround to profitability for the first time in three years in the first half of the year, thanks to record low oil prices. However, it is pointed out that a revision of the electricity tariff system that can reflect realistic electricity rates must accompany this for the stock price to settle on an upward trajectory.

According to the Korea Exchange on the 14th, KEPCO closed at 21,550 won, up 4.1% from the previous day. It has risen by 12.8% this month alone, including nearly 8% on the 11th. As of 10:50 a.m. on the same day, it continued its upward trend, rising 3.7% compared to the previous trading day. The stock price, which had stayed in the 10,000 won range for nearly two months since mid-June, has recovered to the 20,000 won range. Compared to the low point recorded on March 19th amid the COVID-19 pandemic (15,550 won), it has rebounded by more than 30%, but it is still 26.9% lower than the early December level last year (29,500 won).

The recent upward trend in the stock price was underpinned by strong performance. KEPCO announced yesterday that it recorded consolidated sales of 13.0725 trillion won and operating profit of 389.8 billion won in the second quarter of this year. It achieved operating profits of 820.4 billion won in the first half of the year, marking two consecutive quarters of profitability following the first quarter. This is the first turnaround to profit in three years since 2017 on a first-half basis. This was thanks to a reduction of about 2.6 trillion won in fuel and power purchase costs due to the decline in international oil prices.

However, the ongoing monthly selling pressure from foreign investors remains a hurdle for the stock price. Foreign investors have sold KEPCO shares worth 968.5 billion won so far this year until the previous day. Institutions also net sold 311.2 billion won during the same period, while individual investors bought 1.2342 trillion won worth of shares.

It is pointed out that a revision of the electricity tariff system is urgent to attract foreign buying and put the stock price on an upward trajectory. KEPCO sees the current period of low oil prices as an opportune time and aims to prepare a plan to revise the electricity tariff system linked to fuel costs within the year. However, it is uncertain whether the government, which is trying to suppress electricity rate hikes amid intensified anti-nuclear power debates, will accept KEPCO's tariff revision as is. Shin Ji-yoon, a researcher at KTB Securities, said, "A revision of the electricity tariff system, centered on a fuel cost linkage system, is essential to secure KEPCO's financial stability," adding, "How environmental costs will be reflected in the electricity tariff structure revision in the second half of the year is a key point to watch."

The earnings outlook for the second half is relatively bright. Yoo Jae-sun, a researcher at Hana Financial Investment, said, "The gradual decline in the price of thermal coal is being confirmed, and the low oil prices in the first half will be reflected in cost reductions by the end of the year with a time lag," adding, "KEPCO's earnings improvement trend could continue through the third quarter due to cost reductions from the decline in fuel prices."