[Click eStock] "Korea Electric Power, Second Half Deficit Expected to Exceed Estimates"

An electricity meter is installed in a residential area in Dobong-gu, Seoul, on the 30th, ahead of Korea Electric Power Corporation's announcement of the fuel cost adjustment unit price for electricity rates in the fourth quarter. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Hwang Yoon-joo] Shinhan Financial Investment forecasted on the 4th that Korea Electric Power Corporation's (KEPCO) operating loss in the second half of the year will be larger than market expectations. Accordingly, the investment opinion was maintained as 'Neutral' and the target price was kept at 20,100 KRW.

Park Kwang-rae, a researcher at Shinhan Financial Investment, stated, "Not only in the fourth quarter but also in the third quarter, an operating loss of 10 trillion KRW is expected, which falls short of the market expectation (-6.8 trillion KRW)."

Earlier, KEPCO raised electricity rates through the revision of the basic supply contract based on the total cost system. In addition to a 2.5 KRW increase per kWh, electricity rates for large-volume industrial and general customers were additionally raised by 7.0~11.7% on top of the basic 2.5 KRW increase. As a result, the electricity rate in the fourth quarter will increase by 7.4~16.6 KRW/kWh compared to the third quarter, including the previously announced +4.9 KRW/kWh increase and the effect of this recent hike.

However, Researcher Park pointed out, "Achieving a meaningful reduction in operating losses within this year will be difficult," and added, "Despite the electricity rate increase, a downward revision of the fourth quarter operating profit estimate is inevitable."

He analyzed, "This is because assumptions for SMP and coal prices have been raised (SMP +13.6%, coal +3.8%)," and "The cost increase effect due to the rise in the KRW-USD exchange rate has also been reflected."

Researcher Park estimated the fourth quarter operating loss at 7.9 trillion KRW (previous estimate was 7.2 trillion KRW), which is below the market expectation (-6 trillion KRW). However, he emphasized the need to pay attention to the government's stance change in deciding to raise electricity rates despite inflationary pressures.

Park explained, "If the government announces additional policies for KEPCO's normalization and energy prices stabilize downward, the reduction in the deficit size is expected to proceed rapidly," and added, "In the short term, a gap between fundamentals and stock prices may occur."