[Click eStock] "Korea Electric Power Corporation, Profit Improvement Possible Without Electricity Rate Increase... Target Price Up"

Target Price Raised by 15% Compared to Previous Estimate

NH Investment & Securities raised the target price for Korea Electric Power Corporation (KEPCO) from 26,000 KRW to 30,000 KRW on the 9th, anticipating profit improvement without an increase in electricity rates. The investment rating was maintained as 'Buy.'

Minjae Lee, a researcher at NH Investment & Securities, explained, "The reason for raising the target price is that we reflected the system marginal price (SMP), which dropped by more than 14 KRW per kilowatt-hour (kWh) starting in October, and consequently increased the 12-month moving average book value per share (BPS) by 12%."

Although an additional electricity rate hike expected in March to April next year is likely to be difficult due to political variables, it is analyzed that performance improvement is possible without an electricity rate increase if the current level of SMP is maintained. The researcher said, "The reasons for the decline in SMP include natural gas prices reflecting the current oil price level, highly efficient new liquefied natural gas (LNG) power plants, higher-than-expected temperatures, and weak demand due to sluggish economic conditions."

NH Investment & Securities estimated KEPCO's consolidated operating profit for next year at 14.3 trillion KRW. The researcher stated, "This is an upward revision of 5 trillion KRW compared to the previous report, reflecting the reduction effect in power purchase costs (-10.3 trillion KRW) despite increases in expenses such as fuel costs, labor costs, and depreciation (3.8 trillion KRW), as well as a decrease in other sales (-2.7 trillion KRW)." He added, "For reference, power purchase costs were calculated by reflecting the decline in power purchase unit prices and the decrease in power purchase volume."

However, the opinion is that it is still difficult to expect dividends. The researcher said, "Despite profit expansion, dividends in 2024 and 2025 will be difficult," adding, "Although KEPCO's financial structure is improving, extending the bond issuance limit is inevitable, making additional electricity rate hikes difficult when dividends are paid, and there may be attempts to reduce electricity rates."