[Click eStock] "KEPCO, Financial Burden Remains... Investment Opinion Neutral"

Hana Securities announced on the 27th that it maintains a 'Neutral' investment rating and a target price of 20,000 KRW for Korea Electric Power Corporation (KEPCO). It is expected that avoiding a deficit this year will be difficult unless electricity rates are increased.

KEPCO's sales in the fourth quarter of last year reached 19.5 trillion KRW, a 25.6% increase compared to the same period the previous year. Factors such as fuel cost adjustment rates, increases in standard fuel costs, tariff adjustments based on total cost, and increased sales volume contributed to the sales growth. However, operating losses amounted to 10.8 trillion KRW, with the deficit widening by about 70% compared to the same period last year.

Last year, unprecedented cost increases led to massive losses, but this year, a somewhat favorable trend in raw material prices is expected to reduce the deficit.

However, the operating environment remains dependent on borrowings, and if there is no increase in electricity rates in the future, financial burdens will inevitably continue to grow. Although funding issues are limited for the time being due to measures such as expanding the bond issuance limit, if significant losses are recorded this year, further expansion of the limit may be necessary. A continued weak trend in raw material prices would be helpful, but normalization of electricity rates is considered a more certain remedy.

Yoo Jae-sun, a researcher at Hana Securities, stated, "Although raw material prices are falling at a considerable pace, without additional rate increases, expectations for 2023 performance are limited. The first and third quarters, which are seasonal peak periods, may reach or exceed the break-even point (BEP) due to the impact of rate increases, but achieving normalized performance remains difficult."