Daishin Securities has raised its target price for Korea Gas Corporation from 42,000 won to 45,000 won, reflecting improved overseas business performance and expectations for increased dividends due to higher international oil price forecasts. The firm believes that the benefits from improved overseas business profits due to rising oil prices will outweigh the burden of increased receivables.
Heo Min-ho, a researcher at Daishin Securities, stated, "We have adjusted our performance forecasts upward to reflect higher oil prices than previously expected and the anticipated increase in dividends."
However, Heo noted that the burden of increased receivables due to rising oil prices remains a variable. He explained, "Despite the decline in the won-dollar exchange rate, the rise in liquefied natural gas (LNG) import prices and the freeze on residential city gas rates will inevitably lead to an increase in receivables. Therefore, it will be challenging to significantly raise expectations for dividend increases despite substantial performance improvements."
He added, "While the improvement in overseas business performance due to rising LNG prices and increased sales volumes from Canada’s BC LNG project is positive, the negative factor of increasing receivables also exists. Considering the level of gas rates and exploration and production (E&P) output, we estimate that the improvement in overseas business profits due to rising oil prices will be greater than the increase in receivables, with an annual net cash flow improvement of 3 billion to 5 billion won for every $1 increase in oil prices per barrel."
For the third quarter, Daishin Securities expects results to meet market expectations. Heo projected that third-quarter revenue will reach 7.62 trillion won, a 19.6% increase from the same period last year, while operating profit is expected to rise by 10.8% to 431.2 billion won, aligning with the market consensus of 419 billion won in operating profit.
By business segment, the operating profit from the gas wholesale business is expected to decrease by 20.2% to 223 billion won, while overseas business operating profit is projected to increase by 94.7% to 205.2 billion won. He noted, "The increase in sales volume from the Canada BC LNG project and rising LNG sales prices will continue to improve overseas business performance."
He identified the direction of oil prices as a key factor influencing Korea Gas Corporation's stock price. Heo remarked, "Currently, the 12-month forward price-to-book ratio (PBR) stands at 0.3, indicating that the stock is undervalued. To address this, a reduction in receivables through gas rate increases is necessary. Until the government's commitment to reducing receivables is confirmed, trading strategies based on oil price direction will remain effective."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.