Daishin Securities cuts Korea Electric Power target price to 40,000 won on fuel costs
In short
Daishin Securities (대신증권) lowered its target price for Korea Electric Power (한국전력) on 20 October from 54,000 won to 40,000 won and kept its 'buy' rating. It cited higher oil-driven fuel costs, industrial electricity rate cuts and a lower valuation of overseas nuclear projects. It forecasts third-quarter operating profit of 3.09 trillion won, down 45.3% from a year earlier.
Read the full story 2 min read
Daishin Securities said on 20 October that it was lowering its target price for Korea Electric Power from 54,000 won to 40,000 won while keeping its 'buy' investment rating. Seoul Economic Daily put the cut at 25.9%. Chosun Ilbo reported that the previous trading day's closing price was 29,100 won. The brokerage cited fuel cost pressure from higher international oil prices, industrial electricity rate cuts and a lower valuation of overseas nuclear construction projects. [ 1 , 2 , 4 ]
Daishin forecasts third-quarter revenue of 26.96 trillion won and operating profit of 3.09 trillion won, down 2.2% and 45.3% from a year earlier. Seoul Economic Daily gave the figures as 26.957 trillion won and 3.094 trillion won. Chosun Ilbo, Maeil Business and Seoul Economic Daily reported that the operating profit forecast is above the market consensus of 2.36 trillion won. Analyst Heo Min-ho (허민호) said in Korea Economic Daily that the poor results remain unchanged, so the beat over consensus is unlikely to mean much. [ 1 , 2 , 3 , 4 ]
Nuclear plant utilisation is expected to recover to 80.1%, which Chosun Ilbo, Maeil Business and Seoul Economic Daily said is 4.3 percentage points higher than a year earlier. Fuel costs are expected to rise 32.5% to 7.29 trillion won, and the electricity selling price is expected to fall 1.4%, according to the same three outlets. [ 2 , 3 , 4 ]
Chosun Ilbo, Maeil Business and Seoul Economic Daily reported that Daishin estimates the April seasonal and time-of-day industrial rate revision cut rates by 0.8 to 0.9%. They said it expects a regional industrial rate system to cut them a further 5.5 to 5.9%. Korea Economic Daily, Chosun Ilbo and Seoul Economic Daily said oil price increases feed into LNG import prices with a lag of four to five months, which could add to later fuel costs. Seoul Economic Daily also said international oil prices have stayed above 100 dollars a barrel. [ 1 , 2 , 3 , 4 ]
Heo said that a regional wholesale rate system next year would lower the purchase price on a standalone basis. Wholesale prices at the power-generation subsidiaries would fall as well, so the reduction in power purchase costs on a consolidated basis would not be large. Chosun Ilbo dated the system to 2027. [ 1 , 2 ]
The company will not take part in the US AP1000 nuclear construction project, which Daishin had expected, and the brokerage lowered its valuation of the overseas nuclear business accordingly. Daishin also said the share price already reflects most of the bad news, with the stock at 0.35 times 12-month forward price-to-book value. Heo said expectations for overseas projects such as US APR1400 construction and the Vietnam nuclear market remain valid. He named a downward stabilisation of oil prices, and the expected improvement in earnings that would follow, as the precondition for a share price rise. [ 1 , 2 , 3 , 4 ]
Why it matters
The note, carried by four business outlets, links the utility's earnings to oil prices and electricity rate policy. Daishin says the share price already reflects most of the bad news but that a rebound depends on oil prices stabilising lower and on progress in overseas nuclear projects.
Key facts
- Daishin Securities cut its target price for Korea Electric Power from 54,000 won to 40,000 won and kept its 'buy' rating. [ 1 , 2 , 3 , 4 ]
- It forecasts third-quarter revenue of 26.96 trillion won (down 2.2% year on year) and operating profit of 3.09 trillion won (down 45.3%). [ 1 , 2 , 3 ]
- Daishin expects the operating profit to exceed the market consensus of 2.36 trillion won. [ 2 , 3 , 4 ]
- Nuclear plant utilisation is expected to recover to 80.1%, but fuel costs of 7.29 trillion won and a lower electricity selling price are expected to weigh on earnings. [ 1 , 2 , 3 , 4 ]
- Daishin estimates the April seasonal and time-of-day industrial rate revision cut rates by 0.8 to 0.9%, and a regional industrial rate system is expected to cut them a further 5.5 to 5.9%. [ 2 , 3 , 4 ]
- The company will not take part in the US AP1000 nuclear construction project, which lowered Daishin's valuation of its overseas nuclear business. [ 1 , 2 , 3 , 4 ]
- Analyst Heo Min-ho (허민호) said the share price, at 0.35 times 12-month forward price-to-book value, already reflects most of the bad news. [ 1 , 3 , 4 ]
Confirmed by several sources
- Daishin Securities cut its target price for Korea Electric Power from 54,000 won to 40,000 won and kept its 'buy' rating. [ 1 , 2 , 3 , 4 ]
- Daishin forecasts a 2.2% fall in third-quarter revenue and a 45.3% fall in operating profit, with the operating profit forecast above the market consensus. [ 1 , 2 , 3 , 4 ]
- Daishin expects fuel costs of 7.29 trillion won and a lower electricity selling price to offset the recovery in nuclear utilisation to 80.1%. [ 1 , 2 , 3 , 4 ]
- Oil price increases feed into LNG import prices with a lag of four to five months, according to Daishin. [ 1 , 2 , 4 ]
- The company's non-participation in the US AP1000 nuclear construction project led Daishin to lower the value of its overseas nuclear business. [ 1 , 2 , 3 , 4 ]
- Daishin says expectations for overseas nuclear projects such as US APR1400 construction and the Vietnam market remain valid. [ 1 , 2 , 3 , 4 ]
Still unclear
- Whether oil prices fall and overseas nuclear projects progress enough to lift the share price. Daishin names stabilising oil prices and visible results in overseas nuclear projects as conditions for a rise; no document says they will happen.
- The exact third-quarter revenue and operating profit forecasts. Three outlets give 26.96 trillion won and 3.09 trillion won, while one gives 26.957 trillion won and 3.094 trillion won.
- Oil price level. Only one outlet says international oil prices have stayed above 100 dollars a barrel.