Target Price Lowered by 27% from 30,000 Won to 22,000 Won
Price Increase Difficult Except at End of June and September
The expected electricity rate hike failed to materialize, and the stock price of Korea Electric Power Corporation (KEPCO) is expected to remain weak for the time being. Concerns over KEPCO's financial burden have resurfaced. According to the Korea Exchange on the 3rd, KEPCO's stock price fell 0.69% from 19,350 won (January 2) to 18,010 won (March 31) this year.
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 4th quarter. Photo by Jinhyung Kang aymsdream@
Recently, KEPCO's stock price has repeatedly risen ahead of decisions on electricity rate hikes and then plunged after announcements. Although electricity rates were raised, they fell short of market expectations or remained frozen. Due to concerns that deficits will continue, the stock price has also struggled.
KEPCO's operating loss last year was 32.6034 trillion won. This is an increase of 26.7569 trillion won compared to the 5.8465 trillion won operating loss in 2021. As the situation worsened, KEPCO reported to the National Assembly at the end of last year that electricity rates need to be raised by 51.6 won this year to offset the accumulated deficit.
KEPCO's stock price rose to 22,450 won at the end of last year before the announcement of the 2023 first-quarter rate hike (December 28). Two days later, when KEPCO announced an electricity rate increase of 13.1 won per kilowatt-hour (kWh), the stock price plummeted. Although this was the largest increase in about 40 years since the 1979?1980 oil shock, it was far below the market expectation of a 50-won level rate hike.
Ahead of the second-quarter electricity rate hike this year, KEPCO's stock price rose from 17,300 won (March 16) to 19,010 won (March 31). However, it closed down sharply by 4.66% on news of a rate freeze. This was due to KEPCO's financial burden. According to the KEPCO earnings consensus compiled by FnGuide, deficits are expected to continue in the first half of this year. The operating profit/loss forecast trend shows -5.3333 trillion won in Q1, -2.908 trillion won in Q2, and 332.8 billion won in Q3.
The problem is that electricity rate hikes within the year are unlikely. KEPCO has opportunities to discuss electricity rate hikes at the end of June and the end of September this year. Since summer and winter see a sharp increase in cooling and heating costs respectively, the burden of electricity bills is high and resistance to rate hikes is strong, making it difficult to decide on increases.
Lee Min-jae, a researcher at NH Investment & Securities, stated, "KEPCO's operating deficit this year is expected to increase from the existing 8.6 trillion won to 12.6 trillion won, and the expected BPS (book value per share) is lowered by 12% from 48,956 won to 43,270 won." Accordingly, KEPCO's target stock price was lowered by 27% from 30,000 won to 22,000 won. A business insider said, "The fundamental solution to KEPCO's funding problem is the electricity rate hike alone," and added, "If an electricity rate increase of around 10 won per kWh is decided within April, the mood could turn around."
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