[Click eStock] "Samchully, Cold Weather Boosts City Gas Demand... Q1 Earnings Expected"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 100,000 KRW for Samchully on the 19th. This outlook is based on the expectation that sales performance in the first quarter, the peak season, will be positive due to low winter temperatures.

Yoo Jae-sun, a researcher at Hana Financial Investment, explained, “Although increases in labor-related costs such as commission fees will continue this year, the growth rate is lower than before, so the burden is limited. In the power generation sector, the System Marginal Price (SMP) has rebounded after hitting a low in the fourth quarter of last year, and with the implementation of seasonal management, the proportion of thermal power generation is decreasing, so we can expect a recovery in utilization rates.”

Sales in the fourth quarter of last year were 85.8 billion KRW, down 14% year-on-year. On a separate basis, the scale shrank due to the wholesale price reduction in July last year, and S-Power’s sales were sluggish due to decreased sales volume and weak SMP in the fourth quarter.

Operating profit increased by 317% year-on-year to 30.1 billion KRW. Separately, it showed improvement due to normalization of retail margins and increased sales volume since August last year. City gas sales volume increased year-on-year, driven by growth in household and other sectors despite weakness in general use. Household sales volume growth was supported by an increase in the number of households and lower temperatures, while the other sector saw increased volume due to the normalization of operations at Gyeonggi Green Energy. Although S-Power’s utilization rate and SMP fell significantly, it improved substantially year-on-year due to capacity fee increases and cost reduction issues.

Researcher Yoo said, “Although there was a non-operating loss impairment of 21.4 billion KRW related to the long-term service agreement (LTSA) for fuel cells, pre-tax profit turned positive due to improvements in city gas and power generation performance. Considering the base effect of one-time costs incurred last year and reduced financial expenses from refinancing, a clear increase in net profit is expected this year.”

He added, “With the normalization of operations at Gyeonggi Green Energy, improvements in Huesys’ performance and equity-method gains are also possible, and based on cash flow generation capability, the company will seek to enter new businesses.”