[Click eStock] "Korea Gas Corporation Dividend and Rate Increase in Focus... Target Price Up"

Investment Rating Upgraded from Hold to Buy

On the 13th, LS Securities upgraded its investment opinion on Korea Gas Corporation from Hold to Buy, and raised the target price from 45,000 KRW to 51,000 KRW, stating that "attention should be paid to the possibility of dividend resumption and the direction of additional rate hikes." The closing price on the previous day was 40,050 KRW, indicating an upside potential of 27.3%.

On the same day, Seong Jonghwa, a researcher at LS Securities, stated, "Now, rather than the Donghae gas field, we should focus on the possibility of dividend resumption and the direction of additional rate hikes. It is understood that there is a possibility of dividend resumption this year."

So far, the stock price of Korea Gas Corporation has shown typical thematic stock characteristics based on news about the Donghae gas field, but recently the volatility seems to have settled. Researcher Seong said, "Initially, the market had already reflected expectations related to rate hikes before the announcement of the residential gas rate increase, but just before the announcement, the 'Donghae gas field issue' suddenly emerged, causing the stock price to surge excessively and then experience severe volatility. However, the current stock price, which has fallen to 40,000 KRW, reflects the market's average target price level that had been formed by incorporating the momentum for rate hikes before the announcement."

Korea Gas Corporation's consolidated operating results for the third quarter of this year showed sales of 8.1093 trillion KRW and operating profit of 439.7 billion KRW, up 3% and 91% respectively compared to the same period last year. In particular, the operating profit significantly exceeded the market consensus forecast, mainly due to a reduction in raw material cost losses by usage category.

Researcher Seong emphasized, "Accounts receivable are more important than operating profit. The total accounts receivable in the third quarter decreased by only 316.3 billion KRW, falling short of expectations for the second consecutive quarter of decline (collection). To enter a full-scale collection phase for residential accounts receivable in city gas usage, additional rate hikes are necessary."

He added, "The dividend payout ratio is determined through consultation with the government after the annual performance is finalized. If the dividend payout ratio follows the 2021 level, the dividend yield based on the current stock price would reach 6%. The optimal timing for the earliest additional rate hikes is estimated to be the second quarter of next year for electricity and the third quarter for gas, respectively."