[Click eStock] "Korea Electric Power's 'Q1 Slump' and Rising Cost Burden... Target Price Down"

Shinhan Investment Corp. diagnosed on the 13th that Korea Electric Power Corporation (KEPCO) posted below-expectation results for the first quarter, making it inevitable to revise this year's earnings estimates due to increased nuclear fuel costs. The target stock price was lowered from 29,000 KRW to 26,000 KRW, while maintaining a 'Buy' investment rating.

Researcher Park Kwang-rae noted, "The operating profit for the first quarter was 1.3 trillion KRW, marking three consecutive quarters of operating profit, but it fell short of the market expectation of 2.6 trillion KRW."

Park explained, "The average electricity sales price in the first quarter increased by 10.6% to 156.4 KRW/kWh, while electricity sales volume decreased by 1.1% to 141,696 TWh. Fuel and power purchase costs decreased by 32.2% and 24.4%, respectively, with the System Marginal Price (SMP) dropping 45.4% and Newcastle coal prices falling 50.2%."

He also analyzed, "There was a smaller-than-expected reduction in costs. Differences in the proportion of short- and long-term contracts, lagging effects, and increased costs related to the Renewable Portfolio Standard (RPS) contributed to operating expenses exceeding expectations."

Furthermore, he added, "The nuclear fuel processing charge, which is adjusted every two years, increased by more than 100% compared to the previous year, resulting in approximately 300 billion KRW increase in nuclear fuel costs compared to the same period last year. Annually, over 1.2 trillion KRW in additional costs must be reflected in the 2024 earnings."

Sales and operating profit are expected to decline in the second quarter, which is the off-season for electricity sales. The operating profit for the second quarter is estimated to be around 642.4 billion KRW.

He stated, "On an annual basis, operating profit is expected to reach 8.5 trillion KRW, a 50.1% increase. This assumes an average electricity sales price increase of about 7 KRW/kWh compared to the previous year in 2024, and fee hikes are expected to be fully implemented in the second half as consumer price burdens ease."