[Click e-Stock] "Korea Gas Corp. Earnings Outlook Raised on Higher Oil Prices... Target Price Up"

Daishin Securities Raises Korea Gas Corporation's Target Price to KRW 45,000

Daishin Securities said on Wednesday that it was raising its earnings estimates for Korea Gas Corporation, citing “higher oil prices and other factors than previously expected.” It raised its target price from KRW 42,000 to KRW 45,000 and maintained its “Buy” rating.

Daishin Securities forecast third-quarter revenue of KRW 7.62 trillion, up 19.6% year over year, and operating profit of KRW 431.2 billion, up 10.8%, for Korea Gas Corporation. Operating profit is expected to meet market expectations of KRW 419 billion. Operating profit from the gas wholesale business is forecast at KRW 223 billion, down 20.2%, while overseas business is expected to post KRW 205.2 billion, up 94.7%.

Overseas business is expected to improve. This is because rising oil prices are pushing up liquefied natural gas (LNG) prices, while increased LNG sales in British Columbia, Canada, are also expected to have a positive impact.

However, rising oil prices also have the downside of increasing unbilled receivables. Overseas business profits are expected to offset this effect. “Unbilled receivables are expected to increase due to higher LNG import prices and a freeze on city gas rates for residential and commercial customers, despite the fall in the won-dollar exchange rate,” said Heo Min-ho, an analyst at Daishin Securities. “However, considering the level of gas rates and E&P (exploration and development) production, we estimate that improved overseas business profits resulting from higher oil prices will outweigh the increase in unbilled receivables, generating an annual net cash flow improvement of KRW 2 billion to KRW 3 billion for every US$1-per-barrel increase in oil prices.”

Korea Gas Corporation is undervalued, with a 12-month forward price-to-book ratio (PBR) of 0.3 times. “To address the undervaluation, unbilled receivables need to be reduced by raising gas rates,” Heo said. “Until the government’s commitment to reducing unbilled receivables becomes clear, a trading strategy based on the direction of oil prices remains effective.”

Regarding the proposed merger with Korea National Oil Corporation, Heo said, “The value of Korea National Oil Corporation’s domestic and overseas E&P intangible assets, its petroleum stockpiling business, and its oil distribution structure improvement business, as well as shareholders’ views, all need to be reviewed to transparently assess the company’s value.” He added, “It is still difficult to reach a conclusion due to a lack of information and other factors.”

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