Oil price surge weighs on earnings; KEPCO target price cut from KRW 53,000 to KRW 43,000

[Financial News] Hyundai Motor Securities lowered its target price for KEPCO from KRW 53,000 to KRW 43,000, an 18.9% cut, reflecting increased fuel-cost pressure from rising international oil prices and a delayed recovery in the share of nuclear power generation. However, it maintained its "Buy" rating, citing expectations for a recovery in nuclear utilization in the second half of the year and increased medium- to long-term investment in the power grid.
Shin Dong-hyun, a researcher at Hyundai Motor Securities, explained on the 18th, "The decline in nuclear power's share of the power-generation mix and persistently low nuclear utilization have increased fuel-cost pressure," adding, "As rising oil and liquefied natural gas (LNG) prices are expected to put further pressure on fuel costs in the second half, a rapid recovery in nuclear utilization is necessary."
Hyundai Motor Securities lowered its operating profit forecast for KEPCO this year from KRW 7.622 trillion to KRW 7.006 trillion, an 8.1% reduction. It also cut its net income forecast from KRW 4.785 trillion to KRW 4.064 trillion, a 15.1% decrease. This year's projected operating profit is expected to be 48.1% lower than the previous year.
The brokerage expects the impact of rising oil prices to be reflected more fully in earnings beginning in the third quarter. Operating profit in the third quarter is projected at KRW 1.622 trillion, down 71.3% from the same period a year earlier, while fourth-quarter operating profit is forecast at KRW 472 billion, a 75.8% decline.
However, the share of nuclear power generation is expected to rise again in the second half, easing some of the cost burden. The analysis suggests that nuclear utilization could rebound as the new reactor, Saeul Unit 3, begins operations and long-running preventive maintenance at existing reactors comes to an end. Higher nuclear utilization would reduce the share of relatively expensive LNG and other forms of generation, thereby lowering power-generation costs.
The U.S. nuclear power business was also identified as a medium- to long-term variable. Shin said, "The prospects for cooperation on the construction of eight nuclear reactors in the United States using investment funds earmarked for the U.S. appear favorable," but added, "The two countries seem to have differences over specific matters, such as the extent to which Korea's domestic value chain will be utilized, so it is necessary to monitor further developments."
Shin also viewed increased power-grid investment driven by the expansion of artificial intelligence (AI) data centers positively. He said, "Power-grid investment is expected to increase substantially as domestic AI data centers expand," adding, "We believe the groundwork has been laid for future electricity-rate increases." He continued, "Although the short-term earnings outlook is somewhat disappointing, several key issues that could serve as upward catalysts for the stock price are waiting in the wings." 

[email protected] Bae Han-geul Reporter