[Click eStock] "Korea Electric Power Corporation, Earnings Improvement Expected After Q4 This Year"

Daishin Securities announced on the 23rd that it has revised upward the earnings forecasts for Korea Electric Power Corporation (KEPCO) from the fourth quarter of this year onward, reflecting recent declines in oil prices and exchange rates, as well as expectations of interest rate cuts. Accordingly, it maintained its investment opinion of 'Buy' and a target stock price of 30,000 KRW.

Heo Min-ho, a researcher at Daishin Securities, stated in the report, "Favorable macroeconomic conditions such as the easing of concerns over the Middle East war, worries about economic slowdown, expectations of interest rate cuts leading to declines in oil prices and the KRW-USD exchange rate have created upward revision factors for earnings forecasts for Q4 this year and 2025." He added, "If interest rates fall by 0.5 percentage points in the future, there could be an interest expense reduction effect of 660 billion KRW."

Researcher Heo explained that the earnings estimates for KEPCO on both consolidated and separate bases were revised downward due to the increase in the settlement adjustment factor for nuclear and coal power plants in April, which led to a rise in the settlement price (power purchase price). He said, "Due to the hot summer, constraints on coal power plants on the East Coast, and increased LNG power plant operation rates, the August System Marginal Price (SMP) was higher than previously expected." He added, "Reflecting this, the operating profit for Q3 this year was revised downward to 3.06 trillion KRW, but the operating profit for Q4 was revised upward to 2.02 trillion KRW."

Operating profit for next year was revised upward to 10.96 trillion KRW, considering oil prices and exchange rates. Researcher Heo said, "The recovery of 2 trillion KRW in unpaid amounts for power generation from Korea Gas Corporation by the end of 2023, the expected decrease in power generation gas prices in 2025 (unrelated to LNG import price fluctuations), and the additional operation of one nuclear power plant in Q4 next year are expected to reduce costs." He added, "Despite improvements in consolidated earnings, separate basis earnings remain very poor, and electricity rates are determined considering KEPCO's separate basis earnings and financial structure."

He pointed out the need for electricity rate increases to secure capital expenditures for large-scale transmission network investments and to improve the financial structure. Researcher Heo said, "An increase in electricity rates in Q4 is an additional factor for upward revision of earnings forecasts," and judged that "with a price-to-book ratio (PBR) of 0.3 times and a price-to-earnings ratio (PER) of 1.9 times in 2025, the stock is in an absolutely undervalued range."