[Click eStock] "Korea Gas Corporation, Good Receivables Flow... Significant Increase in Operating Profit This Year"

Q4 2023, Minimal Increase in New Outstanding Receivables
Possible Reduction in Outstanding Receivables if Rates Rise After General Election
Operating Profit Expected to Increase by 55% in 2024

Ebest Investment & Securities analyzed on the 26th that the key points to watch for Korea Gas Corporation in 2024 are the trends in accounts receivable and the direction of sales prices after the general election. The investment opinion 'Buy' and the target price of 30,000 KRW were maintained. Korea Gas Corporation's closing price on the 25th was 23,550 KRW.

Seong Jonghwa, a researcher at Ebest Investment & Securities, stated, "For Korea Gas Corporation, accounts receivable are more important than operating profit in terms of business performance," adding, "The 4Q23 operating performance is also more important in that accounts receivable for power generation are steadily decreasing at a level similar to expectations, while the accounts receivable for city gas are expected to be much better than anticipated due to the narrowing price gap between residential and commercial use, especially the newly generated accounts receivable for residential use, which is the core."

Korea Gas Corporation's accounts receivable balance as of the fourth quarter of 2023 is expected to be 15.5562 trillion KRW, similar to the third quarter's 15.543 trillion KRW. Considering that the new accounts receivable were 3.8341 trillion KRW in the first quarter, 2.2712 trillion KRW in the second quarter, and 187 billion KRW in the third quarter, the increase has almost shrunk to zero. Researcher Seong said, "The new accounts receivable in the fourth quarter are expected to be much better than the previous forecast of 929.5 billion KRW," and added, "Considering the trend in accounts receivable and excluding variables such as exchange rates, oil prices, and LNG prices, the accounts receivable at the end of 2024 are expected to be minimal even assuming no price increase after the general election." If a meaningful price increase is implemented after the general election, the accounts receivable balance at the end of 2024 could be reduced compared to the end of last year.

Meanwhile, Korea Gas Corporation's 4Q23 performance is expected to show sales of 10.6247 trillion KRW and operating profit of 481.2 billion KRW. The operating profit is forecasted to fall short of the market consensus (average estimate) of 611 billion KRW. Researcher Seong explained, "This reflects the decrease in the price base due to working capital adjustments," and estimated, "The 2023 price base is adjusted downward by about 2 trillion KRW from the previously announced 26.7727 trillion KRW to 24.7672 trillion KRW." The annual operating profit for 2023, including the fourth quarter, is expected to be 1.505 trillion KRW, a 39% decrease compared to 2022, but it is projected to increase by 55% to 2.3284 trillion KRW in 2024.

Regarding the significant increase in operating profit forecast for 2024, Researcher Seong said, "Although the combined operating profit of major overseas business sites is expected to decrease in 2024, the increase in the price base and the rise in the post-tax investment return rate will lead to an increase in operating profit on a separate basis. Above all, the deduction of other operating profits, estimated to be as much as 765 billion KRW in 2023, is expected to be almost nonexistent in 2024."