[Click e Stocks] "Korea Electric Power, Deficit Continues Until First Half... Target Price Down"

[Asia Economy Reporter Song Hwajeong] Meritz Securities on the 19th downgraded the target price of Korea Electric Power Corporation (KEPCO) from 23,000 KRW to 26,000 KRW, anticipating that the deficit situation will continue until the first half of this year. The investment rating was maintained at 'Hold.'

Researcher Moon Kyungwon of Meritz Securities explained, "Due to the expected decrease in book value per share (BPS) caused by a large-scale deficit this year, the target price was lowered by 11.5% compared to the previous level," adding, "From the third quarter of this year, when the deficit is expected to shrink due to the stabilization of raw material prices and tariff increases, multiple normalization can be anticipated."

KEPCO is expected to record an operating loss of 5.54 trillion KRW on a consolidated basis in the fourth quarter of last year, turning to a deficit compared to the same period last year. This figure falls short of the market consensus of -3.65 trillion KRW. Researcher Moon analyzed, "Costs have risen significantly while tariffs remained frozen compared to the previous year," noting, "In dollar terms, the coal import price in the fourth quarter rose 26.9% quarter-on-quarter, LNG import price increased by 47.7%, and the system marginal price (SMP), the wholesale price for electricity, also rose 34.7% to 125.9 KRW per kWh (kilowatt-hour)."

Until the tariff increase takes effect, a large-scale deficit is expected to be unavoidable. This year is expected to see the largest tariff hike in history. Increases in electricity consumption charges (4.9 KRW in the 2nd and 4th quarters) and climate environment charges (2 KRW in the 2nd quarter) have been decided, and if quarterly fuel cost adjustment rates are also raised, a tariff increase of up to 16.8 KRW/kWh could be possible by the end of the year. Researcher Moon said, "The fact that the largest tariff increase in history is being implemented is positive," but added, "The problem is that until the tariff increase begins in the second quarter, a large-scale deficit is inevitable, and cost increases exceed tariff hikes." He continued, "To reach the break-even point (BEP), tariffs need to be raised by more than 26 KRW/kWh. If there is no change in the current tariff increase scenario and crude oil prices remain around 80 dollars, an operating loss exceeding 10 trillion KRW is expected this year," adding, "The year-end BPS is expected to decrease by 9.1% and 14.1% compared to the previous year in 2021 and 2022, respectively."