Analysts cut target prices for KEPCO amid bleak Q4 outlook

[Courtesy of KEPCO]

South Korean brokerages on Tuesday lowered the target price for state utility Korea Electric Power Corp. (KEPCO) on concerns that the company’s fourth-quarter earnings will deteriorate due to higher energy prices.

“KEPCO posted 2 trillion won ($1.5 billion) in third-quarter operating profit, turning around for the first time in 10 quarters and surpassing the market consensus of 1.6 trillion won,” said Lee Jong-hyung, an analyst at Kiwoom Securities Co. “The profit was led by the additional hikes in electricity rates amid the decline in coal input costs and systemic marginal price (SMP), the price at which KEPCO buys power from generators.”

Lee added that liquefied natural gas (LNG) prices and SMP are expected to rise again in the fourth quarter as international oil prices rebounded until the end of September after reaching their lowest in June.

Lee projected that KEPCO will log an operating loss of 792 billion won in the fourth quarter. The analyst cut the target price to 22,500 won from 24,000 won.

Lee, however, still maintained the buy recommendation for KEPCO, as the company will likely be in the black in 2024 when energy prices go back to normal levels.

Kang Dong-jin, an analyst at Hyundai Motor Securities Co. said that KEPCO’s third-quarter operating profit surpassed market expectations on the back of reduced energy prices and cumulative increases in electricity rates.

“Considering the recent decline in energy costs, including LNG, we are adjusting our operating profit projection for the upcoming year to 5.3 trillion won, an upward revision from our earlier estimate of 2.2 trillion won,” according to Kang.

Kang, however, pointed out that import prices of LNG began rising, which could pose a risk to KEPCO’s cash flows.

The analyst revised down the target price by 1,000 won to 20,000 won.

Kang also projected that KEPCO’s fourth-quarter operating profit will plunge 55 percent on quarter to 890 billion won.

SK Securities Co. also lowered its target price on KEPCO to 21,000 won from 25,000 won.

Shinhan Securities Co., in the meantime, raised its target to 22,000 won from 21,000 won, citing an anticipated trend of a turnaround in operating profit in the fourth quarter led by higher industrial power rates.

Shares of KEPCO were trading 2.63 percent lower at 17,400 won on Tuesday morning.