KEPCO E&C, Enduring Capabilities and Track Record [Click e-Stock]

Strong earnings outlook for this year... operating leverage effect expected

There is an outlook that Korea Electric Power Corporation Engineering & Construction Company (KEPCO E&C) will be able to achieve mid- to long-term top-line growth and a strong operating leverage effect based on its solid capabilities and track record.

On the 25th, Daishin Securities raised its target price for KEPCO E&C by 7.5% to 215,000 won on this basis, while maintaining its "Buy" investment rating. The previous day's closing price was 161,600 won.

Daishin Securities highlighted that KEPCO E&C is the only domestic design company that has participated in 33 nuclear power plant construction projects over the past 50 years. KEPCO E&C is expected to win contracts for overall design when Korea Electric Power Corporation (KEPCO) and Korea Hydro & Nuclear Power (KHNP) carry out EPC (engineering, procurement, and construction) for the U.S. AP1000 and SMR (small modular reactor) projects.

If KEPCO and KHNP are in charge of (i) construction of the reactor and turbine buildings and (ii) EPC for auxiliary equipment for the AP1000 nuclear power plants, KEPCO E&C's overall design order value is estimated at 280 billion won for every two nuclear units. It projected that, depending on the design scope, the order value could increase to as much as 700 billion won. The total order value for overall design and reactor design of Korean-type nuclear power plants is expected to reach 1.62 trillion won.

Accordingly, this year's results are forecast at 591.7 billion won in revenue and 75.6 billion won in operating profit. These figures represent increases of 14% and 139%, respectively, compared with a year earlier. Although revenue related to the completion of Saeul Units 3 and 4 (280 billion won last year) is expected to decline, the company is projected to achieve top-line growth as additional revenue of 90 billion to 100 billion won from Shin Hanul Units 3 and 4 and about 100 billion won related to the Dukovany Units 5 and 6 project in the Czech Republic are added.

Heo Minho, a research analyst at Daishin Securities, said, "Exports of Korean-type nuclear power plants are also expected to expand, and KEPCO E&C itself is anticipated to achieve top-line growth and a strong operating leverage effect through strategic alliances with leading overseas SMR companies," adding, "Despite the recent share price rise, its growth potential and competitiveness are not yet fully reflected in the stock price."