"KEPCO Needs Both Rate Hikes and Nuclear Power for Upward Trend" [Click e-Stock]

Record-High Profits in Q3: Cost Stabilization and Peak Season Effects
"Optimism for Nuclear Power, But Rate Hikes Also Needed"

There is an outlook that Korea Electric Power Corporation's (KEPCO) stock price may find it difficult to maintain a long-term upward trend based solely on nuclear power generation materials. Analysts suggest that a sustained mid- to long-term rally can only be achieved if the company’s core business is strengthened and electricity rates are also raised.

On October 1, Shinhan Investment Corp. maintained its target price for KEPCO at 40,000 won and its short-term 'Buy' rating, citing these reasons. The previous day's closing price was 36,050 won.

For the third quarter of this year, KEPCO's consolidated earnings are estimated at 26.5973 trillion won in revenue and 5.0016 trillion won in operating profit. These figures represent year-on-year increases of 1.9% and 47.3%, respectively. The company is expected to post its highest-ever quarterly profit, driven by a continued decrease in fuel and power purchase costs, seasonal peak effects, and the impact of electricity rate hikes. In particular, the stabilization and decline in energy prices are believed to be continuously contributing to lower fuel costs.

Although it is typical for the system marginal price (SMP) to remain high in the third quarter due to increased electricity demand, this time it stands at 117 won per kWh, which is even lower than the previous quarter's 122.7 won per kWh. This is the basis for the estimate that power purchase costs will decrease significantly despite an increase in external purchases. This outcome is interpreted as a complex result of increased renewable energy peak contributions, stabilized and lower energy prices, and a rise in coal-fired power generation.

From a mid- to long-term perspective, the need for electricity rate hikes remains valid. Although the fuel cost adjustment rate for the fourth quarter was frozen, analysts suggest that the possibility of a rate increase during the off-peak fourth quarter should remain open. By the end of this month, concrete results regarding KEPCO's entry into the U.S. nuclear power market are expected to be announced at the Asia-Pacific Economic Cooperation (APEC) summit.

Choi Kyuhun, Senior Researcher at Shinhan Investment Corp., stated, "By the end of this month, expectations regarding KEPCO’s nuclear power business may once again be strongly reflected in its stock price," adding, "While nuclear power is promising, a solid core is essential for true value, so an electricity rate hike is necessary to confirm a sustained mid- to long-term upward trend."