[Click eStock] "KEPCO E&C, Czech Order Amount in Focus... Target Price Raised"

On January 19, Kiwoom Securities maintained its "Buy" investment rating on KEPCO Engineering & Construction Company, raising its target price from 1.4 million won to 1.6 million won, stating that "the company has entered a phase where expectations for both earnings growth and new orders are rising."

On this day, Jo Jaewon, a researcher at Kiwoom Securities, said, "We have raised our earnings estimates to reflect the larger-than-expected order amount for the Czech large-scale nuclear power plant," explaining the reason for the adjustment.

Regarding KEPCO E&C's fourth-quarter results last year, he projected that revenue would reach 208 billion won, up 8% year-on-year, and operating profit would increase by 46% to 39.2 billion won. In particular, he expected operating profit to significantly exceed the market consensus of 25.6 billion won. Starting this quarter, changes in the accounting recognition method for revenue and expenses related to the innovative small modular reactor (SMR) R&D project are expected to add approximately 15 billion won each to fourth-quarter revenue and operating profit.

Jo noted, "Even excluding this effect, fourth-quarter results should meet market expectations," adding, "We anticipate solid earnings growth centered on large-scale nuclear power plants such as Shin Hanul Units 3 and 4 and the Czech Dukovany project." Fourth-quarter revenue from the Czech Dukovany project is estimated to exceed 20 billion won.

He forecast this year's revenue at 639.7 billion won and operating profit at 81.2 billion won, representing year-on-year increases of 23% and 68%, respectively. Jo analyzed, "As the progress rate of Shin Hanul Units 3 and 4 rises and revenue from the Czech large-scale nuclear power plant is fully recognized, the company’s overall results are expected to rebound," adding, "With fixed labor costs accounting for 40-50%, if two or more large-scale nuclear power plant projects are carried out simultaneously, a strong operating leverage effect can be expected."

In particular, it is positive that the order amount for the Czech Dukovany Units 5 and 6 project, awarded in December last year, was 1.25 trillion won for basic design and 370 billion won for system design, significantly exceeding the previous estimate of 1 trillion won. Jo stated, "With the increase in order volume, not only is the revenue outlook improving, but the medium- to long-term operating margin estimates are also expected to rise."

The possibility of Team Korea winning additional large-scale nuclear power plant orders is also a point of anticipation. Jo remarked, "From this year, expectations for follow-up orders in countries such as T?rkiye, the Czech Republic, and Vietnam may gradually materialize. Nuclear cooperation with the United States may also become visible at an unexpected point within the year." He added, "It is worth recalling that from April to November 2021, when expectations for Team Korea's Czech nuclear power plant order were rising, KEPCO E&C's share price increased by about fivefold in just seven months."

However, he added, "Recently, as expectations for new large-scale nuclear power plant construction in Korea have increased, share prices across the domestic nuclear power sector have been rising," and cautioned, "These plans are expected to be finalized in the 12th Basic Plan for Long-term Electricity Supply and Demand, and once actual construction is decided, there could be short-term profit-taking immediately afterward."