[Click eStock] "Korea Gas Corporation, Target Price Down 35% Due to No Dividend and Receivables Risk"

Hana Securities Report

Hana Securities maintained a buy rating on Korea Gas Corporation on the 27th but lowered the target price by more than 35% to 40,000 won. Although the fourth-quarter earnings exceeded market expectations, the lack of dividends was cited as a factor hindering investment.

The company's fourth-quarter revenue was 18.2 trillion won, an 89.2% increase compared to the same period last year. The rise in natural gas import prices, the increase in the KRW-USD exchange rate, higher sales volume, and tariff hikes drove the earnings growth. Operating profit grew 170% during the same period to 1.1 trillion won.

Yoo Jae-sun, a researcher at Hana Securities, explained, "The regulated business performance reflects a large one-time gain due to an increase in appropriate investment reserves, working capital settlements, and compensation for financial costs related to receivables."

Overseas business performance showed some weakness compared to the previous quarter despite an increase in Australian CLNG cargo volume and rising applied oil prices, due to deficits in Australia's Prelude and Iraq's Jubail. Pre-tax profit decreased year-on-year due to increased interest expenses, impairment of some overseas resource development assets, and the base effect of Australian CLNG reversals, despite improvements in equity-method earnings. Net profit improved year-on-year as some reversals were reflected following tax law revisions related to dividends from overseas subsidiaries.

The accumulation of receivables is a burden because city gas residential tariffs have been frozen. Researcher Yoo Jae-sun said, "Some tariff increases are necessary to improve the financial structure, but considering inflationary pressures, it is difficult to have high expectations. While overseas business profits are declining due to weak energy prices, standalone profits are expected to remain stable."

Another reason is the high uncertainty regarding dividends, which delays the improvement of investment attractiveness. Researcher Yoo Jae-sun stated, "If tariff adjustments to reduce receivables are implemented and dividend uncertainties are resolved simultaneously, stock price revaluation will become possible."