[Click e-Stock] Earnings Rise with Energy Prices, But the Stock Can't Smile

Shinhan Investment & Securities has raised its target price for Korea Gas Corporation from 40,000 won to 42,000 won. The investment rating has been upgraded from short-term buy to buy.

On August 11, Shinhan Investment & Securities researcher Han Seunghoon stated, "We have raised our earnings estimates to reflect increased profits from overseas operations due to rising energy prices," adding, "While the upside for the stock is not large in the short term, as the company is entering a phase of increased accounts receivable."

Han explained, "The impact of higher energy prices caused by the ongoing war between the US and Iran is expected to become more pronounced in the second half of this year, with some time lag. While increased overseas profits will support the stock's downside, higher accounts receivable will hold back valuation expansion, so the short-term upside potential for the stock will likely be limited."

For the second quarter of this year, on a consolidated basis, operating profit rose 66.9% year-on-year to 675.3 billion won, exceeding the market consensus of 430.5 billion won. Han noted, "Operating profit from overseas businesses surged 157.8% to 200.6 billion won. Since the first quarter of this year, Canada LNG has been posting over 70 billion won in operating profit each quarter, serving as the main driver of profit growth." He also commented, "Australia GLNG saw higher operating profit as the proportion of third-party gas purchases decreased. Starting from the third quarter, the effects of higher energy prices are expected to kick in with a time lag, further driving overseas profit growth."

Despite such profit growth, the massive accounts receivable, which exceed 14 trillion won, continue to weigh on Korea Gas Corporation. This is because the household city gas rates have been fixed below cost to stabilize inflation, entrenching a structure where gas is imported at a high price but sold cheaply. As of the end of June, the scale of accounts receivable had ballooned to 14.1782 trillion won.

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