“Fuel-Cost and Tariff-Reform Burden” KEPCO Seen Posting a Q4 Loss... “Naver to Face Investment-Cost Burden Next Year, Too” [Stocktopia]

[Financial News] On the morning of November 13, we’re bringing you a roundup of reports from major securities firms.
Analysts say higher fuel costs and changes to industrial electricity tariffs have made improvements in KEPCO’s profitability and financial structure uncertain.
Naver is expected to find it difficult to recover profitability next year as investment in existing businesses, including payment terminals and logistics, increases. Although LG’s stake value has fallen amid declines in the share prices of major listed subsidiaries, analysts say its valuation discount to net asset value makes the stock attractive.
◆ KEPCO (015760)― iM Securities / analyst Jeon Yu-jin
- Target price: KRW 40,000 (cut 16.7%, from KRW 48,000) | Previous closing price: KRW 30,650
- Rating: Buy (maintained)
iM Securities lowered its target price for KEPCO to KRW 40,000, citing the burden of fuel costs and the possibility that changes to industrial electricity tariffs could reduce sales revenue. It maintained its Buy rating.
Analyst Jeon Yu-jin said, “The burden of fuel costs, driven by rising oil and liquefied natural gas (LNG) prices, will continue through the first half of next year,” and analyzed that “there is also a strong possibility that electricity sales revenue will decline if changes to industrial electricity tariffs are implemented first.”
KEPCO is forecast to post an operating loss of KRW 1.19 trillion in the fourth quarter, swinging into the red. The report said rising LNG prices would push up the system marginal price (SMP), keeping power purchase costs high, while the shutdown of Saeul Unit 3 would also make it difficult to expect improvements in the generation mix.
Analyst Jeon nevertheless assessed that “the conditions are difficult in many ways right now, but the worst is passing.” The report said that if recent oil-price trends continue, the burden of fuel costs and power purchases could ease as early as the second or third quarter of next year.
The analyst also raised concerns about KEPCO’s financial structure. Jeon said, “Debt stands at about KRW 130 trillion this year, but the likelihood of electricity rate increases that would pass on the fuel-cost burden is low.” Jeon added, “Reforming wholesale-sector tariffs to offset the burden of cuts to industrial rates would also be difficult in the short term, which could lead to doubts about the company’s ability to repay its debt.”※ System marginal price (SMP)The wholesale price KEPCO pays when purchasing electricity from power generators. It is set based on the variable cost of the generator with the highest generation cost among those operating during each time period.
◆ Naver (035420)― Meritz Securities / analyst Lee Hyo-jin
- Target price: KRW 270,000 (cut 18.2%, from KRW 330,000) | Previous closing price: KRW 181,800
- Rating: Buy (maintained)
Meritz Securities lowered its target price for Naver to KRW 270,000, saying that higher investment in existing businesses would make it difficult for the company to recover profitability next year as well. It maintained its Buy rating.
Analyst Lee Hyo-jin said, “This is a period when profit erosion in existing businesses due to increased investment is more clearly foreseeable than the results of new businesses.” Lee added that “costs will also be difficult to manage in 2027,” and estimated that the operating margin of Naver’s standalone business, after falling from 28% last year to 19% this year, would not rebound next year either.
The report said it had revised its outlook, as investment spending once expected to peak this year and then decline is now forecast to continue into next year. NAVER Financial Corporation plans to expand the rollout of its offline payment terminal, Npay Connect, through the first half of next year, while Naver plans to establish a logistics subsidiary to strengthen its delivery infrastructure.
The analyst acknowledged the growth potential of Neocloud, a new AI cloud business, but said the company should provide investors with a concrete business outlook. The reason, the analyst said, is that global operators and well-funded domestic companies continue to enter a market where financial resources and infrastructure are key.※ NeocloudThe term broadly refers to cloud providers that offer GPU as a Service (GPUaaS). These companies acquire large quantities of graphics processing units (GPUs), install them in data centers, then rent them remotely to AI companies in the amounts they need and charge usage fees. U.S.-based CoreWeave is a leading example.
◆ LG (003550)― SK Securities Co., Ltd. / analyst Choi Gwan-sun
- Target price: KRW 110,000 (cut 21.4%, from KRW 140,000) | Previous closing price: KRW 88,900
- Rating: Buy (maintained)
SK Securities Co., Ltd. lowered its target price for LG to KRW 110,000 to reflect the decline in the value of its stakes following falls in the share prices of major listed subsidiaries, while maintaining its Buy rating.
Analyst Choi Gwan-sun said, “Since 90% of the value of LG’s stakes comes from listed subsidiaries, its share price is more likely to track the value of those stakes than changes in the holding-company discount rate.”
LG’s consolidated operating profit in the third quarter was KRW 327.7 billion, down 21.8% from a year earlier and below market expectations. In particular, equity-method earnings fell 51.8% as LG Chem swung to a net loss. Analyst Choi nevertheless forecast that equity-method earnings would improve in the fourth quarter.
The analyst cited the stock’s valuation appeal and shareholder returns as positive factors. Choi said, “LG’s discount to net asset value (NAV) is 51.2%, a high level even compared with other holding companies,” and forecast that “shareholder returns will gradually increase under the policy of paying out at least 60% of separate adjusted net income in dividends.”

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