iM Securities has projected that Korea Electric Power Corporation (KEPCO) will continue to face fuel cost burdens due to rising oil and liquefied natural gas (LNG) prices through the first half of next year. While maintaining a 'buy' rating, the firm has lowered its target price from 48,000 won to 40,000 won.
On November 13, analyst Jeon Yoo-jin stated, "The burden of fuel costs from rising oil and LNG prices is expected to persist until the first half of 2027, while the restructuring of industrial electricity rates is likely to lead to reduced electricity sales revenue." He added, "We have adjusted our performance expectations for 2027 downward to reflect these factors."
Concerns about the company's financial structure also contributed to the target price reduction. KEPCO's debt is estimated to reach approximately 130 trillion won this year. The likelihood of passing on fuel cost burdens through electricity rate increases is low, and the restructuring of wholesale rates to offset the impact of reduced industrial electricity rates is not expected to occur in the short term.
Jeon noted, "This could ultimately raise doubts about the company's ability to repay its debt," and described the situation as a factor that undermines confidence in both short-term and long-term profitability and financial structure improvements. Consequently, iM Securities calculated the target price with a 20% discount on the applicable multiple.
KEPCO's third-quarter results also fell significantly short of market expectations. The company's operating profit for the third quarter was 1.64 trillion won, a 71% decrease compared to the same period last year, and below the market consensus of 2.64 trillion won. Electricity sales volume, particularly in the industrial sector, decreased by 1.9% year-on-year, while the average selling price of electricity dropped by 1.2%.
Cost pressures have also increased. Fuel costs rose by 25% year-on-year due to higher prices for coal, LNG, and crude oil, while electricity purchase costs increased by 11.4% due to rising system marginal prices (SMP) linked to LNG price hikes. Additionally, provisions related to the decommissioning costs of the Wolsong Nuclear Power Plant and other operating costs, including excess greenhouse gas emissions, totaling about 900 billion won, also impacted the company's poor performance.
Jeon remarked, "While the current conditions are challenging in many ways, the worst seems to be behind us. The Democratic Party's decisive victory in the November U.S. midterm elections has increased the likelihood of a resolution, and this expectation has led to a rapid stabilization of oil prices, which is the most hopeful change."
* This article has been translated by AI.
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