[Click eStock] "KEPCO KPS, Labor Cost Burden Expected to Ease This Year"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating on KEPCO KPS on the 19th and kept the target price at 52,000 KRW. This is based on the expectation of improved performance this year due to eased labor cost burdens.

Fourth-quarter sales are expected to decline by 4.9% year-on-year to 380.4 billion KRW. The base effect of increased external sales in Q4 last year is the main reason for the weak top line. Thermal power is expected to remain unchanged compared to the previous year, while nuclear power is anticipated to see slight growth due to an increase in preventive maintenance volume. The overseas segment is expected to continue its growth trend compared to the previous year as new orders convert into sales.

Operating profit is forecasted to decrease by 9.3% to 23.8 billion KRW. Margin decline is expected due to reduced sales and increased labor costs. Jaeseon Yoo, a researcher at Hana Financial Investment, said, “Despite the recent shutdown of the Honam thermal power plant, new orders in the external segment in the second half of last year and upward revisions of overseas O&M contract amounts suggest continued top-line growth and profit improvement this year.”

This year’s performance is expected to see eased labor cost burdens compared to last year. The payment rate is determined based on the three-year average management evaluation grade, with recent trends being D, B, and B. If this year’s management evaluation grade is decided within the expected range, additional burdens such as reserve fund accumulation are likely to be limited.

Due to delays in the passage of the Electricity Business Act amendment, direct renewable energy power generation projects by Korea Electric Power Corporation (KEPCO) are currently legally impossible. However, entry through SPCs is being considered, and there is a high possibility that O&M and EPC order opportunities will be granted to engineering subsidiaries. As seen in the recent signing of an MOU for offshore wind O&M in Sinan, benefits are expected even in the expanded investment phase of KEPCO facilities. Researcher Jaeseon Yoo analyzed, “Achieving EPC orders through equity investments and other forms could serve as an opportunity to diversify the existing base power-centered business portfolio.”