[Click eStock] "KEPCO, Changing Sentiment Eases Discount" Target Price Raised

On May 27, LS Securities maintained its "Buy" investment rating on Korea Electric Power Corporation (KEPCO), stating that "signals are emerging indicating changes in public opinion and investor sentiment." The firm also raised its target price by 27%, from 30,000 won to 38,000 won.

Sung Jonghwa, a researcher at LS Securities, commented, "Since the turnaround in 2023, the fair value based on basic valuation from the perspective of current and future earnings flows has been undervalued." He added, "From an investment perspective, the 'target price' has not reflected this for a long time, and both investor sentiment and public opinion have rarely acknowledged the basic valuation based on current earnings flows until a recovery in dividend payouts to typical levels was achieved."

KEPCO posted nine consecutive quarters of losses from the second quarter of 2021 to the second quarter of 2023 due to a sharp rise in raw material prices, but turned a profit in the third quarter of 2023 and has since continued to see its operating profit increase. In the first, second, and fourth quarters of last year, operating profit was in the range of 2 to 4 trillion won, and in the peak third quarter, it increased to 4 to 5 trillion won.

Sung noted, "However, now there are signals indicating that the direction of KEPCO, as well as the overall public opinion and investor sentiment regarding national policy direction on electricity and power grid operations after the presidential election, are changing." He continued, "Even though there are no new changes in performance outlook or fundamentals, the stock price is showing a strong and steady upward trend, gradually resolving the multiple discount factors on the target price side."

He added, "While KEPCO's value as a defensive stock was highlighted during periods of market adjustment due to uncertainty and noise surrounding the Trump administration's tariff policies, the continued strong upward trend even after the tariff noise subsided is attributable to changes in public opinion and investor sentiment."

The importance of policy direction over the timing of electricity rate hikes was also mentioned. Sung emphasized, "Even if the rate hike occurs in the fourth quarter after the peak third quarter, there is no need to view the time lag until then as a period lacking momentum."