[Click eStock] "KEPCO Expected to Post Weak Q2 Results Due to Middle East War... Target Price Lowered"

On June 24, KB Securities stated that Korea Electric Power Corporation (KEPCO) is expected to report second-quarter results below market expectations due to the aftermath of the Middle East war, and accordingly, the target price has been revised downward from 63,000 won to 54,000 won. The investment rating remains 'Buy'.

Hyejeong Jung, a research analyst at KB Securities, said, "We are lowering the target price by 14.3% compared to the previous level, reflecting factors such as higher-than-expected LNG and electricity purchase costs, as well as the exchange rate." She added, "However, as international oil price forecasts have stabilized downward after the end of the war and considering the possibility of entering the US nuclear power market, we believe there is still upside potential, so we are maintaining our investment rating."

KEPCO's second-quarter results are expected to fall short of the consensus (the average of securities firms' forecasts). Jung forecasted, "KEPCO's second-quarter revenue is projected to rise 3.4% year-on-year to 22.7 trillion won, operating profit is expected to decrease by 15.3% to 1.8 trillion won, and net profit attributable to controlling shareholders is expected to increase by 12.6% to 1.3 trillion won. The projected operating profit is 8.8% below consensus." She explained, "Due to the delayed reflection of international energy price increases, LNG and coal-fired power fuel costs rose by 9.3% and 7.4% quarter-on-quarter, respectively, while the system marginal price (SMP) for electricity also increased by 12.0% in the same period. As a result, electricity procurement costs increased by 700 billion won, but electricity rates have been frozen, making a decline in profit inevitable."

It is anticipated that if international oil prices stabilize after the end of the war, KEPCO's valuation may recover. Jung commented, "At the beginning of this year, KEPCO was able to receive its highest-ever price-to-book ratio (PBR) of 1.0 times, thanks to a combination of sustained high electricity rates, low international energy prices, and expectations for entry into the US nuclear power market." She continued, "However, with international energy prices soaring due to the war, the second condition has been undermined, causing the valuation to quickly fall to 0.5 times. If the remaining drivers remain valid and international oil prices (WTI) start to stabilize at around 60 dollars per barrel, the level seen just before the war, it will be possible for KEPCO's valuation, which had previously declined, to recover."

This content was produced with the assistance of AI translation services.