[Click eStock] "Jiyok Nanbang Gongsa, Deficits Continue but Performance Expected to Improve"

Despite Continued Deficits, Situation Expected to Improve in Q4
'Daewanggorae' Not Directly Related to Immediate Earnings

Shinyoung Securities analyzed on the 31st that the impact of the 'Great Whale' project on Korea District Heating Corporation is minimal, but performance is expected to improve from the fourth quarter. The investment opinion 'Buy' and the target price of 54,000 KRW were maintained.

Researcher Kwon Deok-min of Shinyoung Securities stated, "Although stock price volatility has increased due to the Donghae oil field, it is currently not directly related to performance, so it is necessary to observe the drilling results." He added, "The possibility of a rate increase through the fuel cost adjustment system is valid, so the performance improvement trend is expected to continue." The target price was set by applying a price-to-book ratio (P/B) of 0.3 times, considering the annual average oil price level in 2021, to the estimated book value per share (BPS) of 205,030 KRW for 2024?2025.

Korea District Heating Corporation's second-quarter sales are expected to decrease by 25.1% year-on-year to 485.4 billion KRW. The decline in sales is due to heat sales volume and electricity sales volume decreasing by 3.4% and 19.5%, respectively, recording 180,000 Gcal and 1,916 GWh. The second and third quarters are off-season, showing seasonality in heat sales volume, but the significant drop in electricity sales volume in the second quarter this year is due to a decrease in operating rate caused by planned preventive maintenance of the power plant and a drop in average outdoor temperature.

Operating loss is expected due to negative sales growth and the system marginal price (SMP) falling by 17.1% year-on-year to 126 KRW. Accordingly, the average electricity sales price is assumed to be 139 KRW, which is 23.7% lower than the same period last year.

Researcher Kwon said, "In the third quarter, sales decline and continued losses are expected due to power plant maintenance, SMP price decline, and lower outdoor temperatures." He added, "However, through the fuel cost adjustment system in July, residential heat rates rose by 9.5% month-on-month to 112.32 KRW, which will act as a positive factor reducing the deficit in the third quarter." Since the fourth quarter is the peak season, it is highly likely to offset most of the operating losses from the second and third quarters.

Although a large-scale profit and loss occurred due to accounting changes in the fourth quarter of 2023, no dividends were paid. Therefore, the possibility of dividends in 2024 is high. While most listed public enterprises recommend a dividend payout ratio of 40%, it is difficult to meet 40% due to heat rate increases and rising receivables. Thus, dividends are expected to be at the 10?15% level. The annual net profit for 2024 is forecasted to decrease by 29.6% year-on-year to 140.3 billion KRW.