[Click eStock] "SGC Energy, Solid Performance... Ample Upside Potential in Second Half"

[Asia Economy Reporter Lee Jung-yoon] Hana Financial Investment maintained a buy rating and a target price of 68,000 KRW for SGC Energy on the 27th, stating that despite the weak price of greenhouse gas emission permits resulting in no additional cost savings from permit sales, the company posted solid first-quarter results this year.

SGC Energy's sales in the first quarter of this year increased by 49.2% year-on-year to 620.5 billion KRW. The system marginal price (SMP) remained high, leading to an increase in electricity sales prices, and the inclusion of results from the 100% biomass power plant SGC Green Power, which began commercial operations in the fourth quarter of last year, contributed to the growth in scale.

Operating profit recorded 74 billion KRW, up 139.2% year-on-year, meeting consensus estimates. Yoo Jae-sun, a researcher at Hana Financial Investment, explained, "It is estimated that power generation and energy achieved margins in the high teens percentage due to improved sales volume of Renewable Energy Certificates (REC) and cost competitiveness." He added, "Among major raw material prices, wood pellets are showing a gradual upward trend, which could positively affect the cost mix." He continued, "Although the strength of thermal coal may pose some burden starting from the third quarter, cost burden transfer through steam prices is possible, so concerns about performance are minimal. The SMP in the second quarter is expected to be higher than in the first quarter, which is favorable."

Furthermore, although the construction and real estate sectors were expected to show a low-high seasonal pattern, the increase in sales prices in the glass business is expected to sustain the performance improvement trend in the second quarter of this year.

Additionally, it was assessed that there is sufficient potential for upward revision of operating performance in the second half of the year depending on SGC Energy's surplus greenhouse gas emission permit sales. Researcher Yoo stated, "KAU21 (2021 vintage carbon emission permits) are still being traded, and from the second half of the year when the 2021 vintage permits expire, a gradual recovery in permit prices is expected." He added, "The margin pressure caused by the recent rise in thermal coal prices is expected to be overcome through active sales of greenhouse gas emission permits."