[Click eStock] "KEPCO KPS, 4Q Operating Profit 51.4 Billion KRW... 24% Decrease YoY"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating and a target price of 40,000 KRW for KEPCO KPS on the 22nd.

According to Hana Financial Investment, KEPCO KPS's Q4 performance last year is expected to record sales of 390.6 billion KRW, a 3.3% increase compared to the same period last year. The nuclear power sector is expected to see some decline in scale due to a high base in Q4 2019, but the thermal power sector is estimated to have grown due to an increase in the number of preventive maintenance units performed. The overseas sector is expected to have grown due to changes in the UAE nuclear power plant commissioning contract.

Operating profit is estimated to record 51.4 billion KRW, down 24% compared to the same period last year. Researcher Jaeseon Yoo said, "This is due to external-centered growth with relatively low profit margins, an increase in the number of employees, and a rise in labor costs due to increased performance bonuses," adding, "Profit margin weakening due to external-centered growth is expected, and the increase in labor costs was concentrated in Q4."

Hana Financial Investment explained that focus should be placed on easing the burden of increased labor costs this year, external and overseas-centered sales growth, and dividend attractiveness due to the base effect of donations to the Nuclear Power Decommissioning Research Institute.

Since the performance bonus payment rate is calculated based on the three-year average management evaluation grade, additional labor cost increases are expected depending on last year's results, but the increase is expected to be moderated compared to the previous year. External and overseas scale growth is expected to continue this year due to maintenance reorders from Dongducheon Dream Power and commercial operation of the UAE nuclear power plant.

Researcher Jaeseon Yoo said, "This year, while the growth trend continues, EPC orders related to renewable energy through equity participation and other means will materialize," and added, "Due to the base effect of one-time costs, dividends based on this year's performance will recover to a meaningful level."