[Weekly HOT Stocks] Korea Electric Power Corporation, Surprise Q2 Earnings... Institutional Investors Focused

Stock Price Rises 12% Over 5 Trading Days

[Asia Economy Reporter Kum Boryeong] Korea Electric Power Corporation (KEPCO), which recorded an earnings surprise in the second quarter, is analyzed to be able to escape from extreme undervaluation, attracting the attention of institutional investors for a week.

According to the Korea Exchange on the 17th, KEPCO ranked second among the top net purchase stocks by institutional investors in the KOSPI market from the 10th to the 14th, following Samsung C&T Corporation. During this period, institutional investors net purchased KEPCO shares worth 80.2 billion KRW.

The stock price also rose over five trading days. The price, which was 19,600 KRW on the 7th, rose to 21,950 KRW on the 14th, an increase of 11.99%.

KEPCO recorded an earnings surprise in the second quarter. Operating profit turned positive to 389.8 billion KRW, and sales increased by 0.0% year-on-year to 13.1 trillion KRW. Although general and industrial electricity sales decreased due to the COVID-19 pandemic, residential electricity sales increased significantly, resulting in total electricity sales being similar to the same period last year. Additionally, fuel and purchased power costs decreased due to the decline in coal and liquefied natural gas (LNG) fuel unit prices caused by falling coal and international oil prices.

According to Hana Financial Investment, the utilization rates of base-load power plants were 81.3% for nuclear and 55.7% for coal, down 1.5 and 2 percentage points respectively from the previous year, but purchased power costs decreased by 11.7%. Fuel costs were also reduced by 12.8% due to the decline in unit prices of thermal coal and LNG. Yuje-seon, a researcher at Hana Financial Investment, analyzed, "The gradual decline in thermal coal unit prices is being confirmed, and the low oil prices in the first half of the year are expected to be reflected in cost reductions by the end of the year with a time lag."

The effect of the decline in coal and LNG fuel unit prices is expected to continue into the third quarter. KEPCO’s coal and LNG fuel unit prices are reflected with a 4 to 5-month lag based on international oil and coal prices. The sharp drop in international coal prices in March and April is expected to be reflected as a factor lowering coal fuel unit prices in the third quarter. Similarly, the sharp decline in international oil prices will be reflected in LNG fuel unit prices.

Won Min-seok, a researcher at Hi Investment & Securities, said, "The third quarter is KEPCO’s peak electricity sales season, and with the reflection of the decline in fuel unit prices, significant performance growth compared to the same period last year is expected." He added, "From a dividend perspective, KEPCO has stated that it follows the government’s dividend payout guideline of 40%. If solid performance continues in the third quarter following the second quarter earnings surprise, it is highly likely that dividends will resume based on the annual turnaround to profitability."