[Click eStock] "KEPCO Faces Earnings Risks from Energy Price Fluctuations... Target Price Lowered"

On July 28, Hanwha Investment & Securities reported that Korea Electric Power Corporation (KEPCO) faces performance risks due to energy price fluctuations, and therefore lowered its target price from KRW 64,000 to KRW 47,000. The investment opinion remains 'Buy'.

Yurim Song, a researcher at Hanwha Investment & Securities, explained, "Although the current share price reflects relatively low levels at a 12-month forward price-to-earnings ratio (PER) of 3.2 times and a price-to-book ratio (PBR) of 0.4 times based on the consensus (the securities firms' average outlook), it is necessary to stabilize earnings expectations before bargain buying, given that earnings risks tied to energy price volatility remain an open issue."

KEPCO's earnings for the second quarter of this year are expected to meet market expectations. Song estimated, "Second quarter sales are estimated at KRW 21.8 trillion and operating profit at KRW 2 trillion, representing a decrease of 0.7% and 6.1% year-on-year, respectively. This is 2.3% higher than the market consensus for operating profit of KRW 1.96 trillion." She added, "With a lack of growth in total sales and only limited decreases in fuel and purchased electricity costs, operating profit is expected to have declined slightly year-on-year."

The decline in operating profit is expected to be more pronounced in the second half of the year. Song stated, "With energy price fluctuations from the Middle East situation continuing, we have lowered our annual operating profit estimate for this year from the KRW 12 trillion range to the KRW 9 trillion range. As a result, the year-on-year decline in operating profit is expected to be more significant in the second half."

Although energy prices began to stabilize downward after peaking in mid-March, renewed tensions in the Middle East have increased volatility once again. Song analyzed, "Entering a period of full-scale profit decline in the second half, there remains a likelihood of further downward revisions to earnings estimates, which erodes the valuation appeal of KEPCO." She continued, "Nevertheless, given currently low absolute valuations, developments related to nuclear power in the second half could become triggers for a rebound in share price. Nuclear power momentum in the second half includes announcements of investment in the United States, the visualization of nuclear projects in Vietnam, and the finalization of the 12th Basic Plan for Long-term Electricity Supply and Demand."

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