NH Investment & Securities said the direction for raising electricity rates is clear for Korea Electric Power Corporation, and that results are likely to improve on the back of third-quarter peak-season effects. It maintained a target price of 50,000 won and a "buy" rating. The previous trading day's closing price of Korea Electric Power Corporation was 35,900 won.
NH Investment & Securities projected that in the third quarter this year, Korea Electric Power Corporation's revenue and operating profit will come in at 27.9 trillion won and 5.4 trillion won. That represents increases of 7% and 60%, respectively, from a year earlier.
The third-quarter average retail electricity sales price rose 4% from a year earlier to 174 won per kWh (kilowatt per hour), and the progressive tariff for dwellings also had a positive impact on earnings growth. The third-quarter system marginal price (SMP) for wholesale electricity sales is 118 won per kWh, similar to the first half's 117 won.
Lee Min-jae, an analyst at NH Investment & Securities, said, "President Lee Jae-myung has personally noted that a medium- to long-term electricity rate adjustment is unavoidable, so this is a situation where we can expect the possibility of an increase," adding, "It is also positive that electricity rate hikes are not acting as a factor of political conflict."
Electricity rates are expected to rise by at least 5 won per kWh in the first half of next year. Book value per share could improve from 81,000 won next year to 108,000 won in 2028. The medium- to long-term price-to-book ratio (PBR, market capitalization ÷ net worth) could fall from 0.5 times to 0.35 times, increasing valuation appeal.
The analyst explained, "It will be difficult to reduce the existing cap to two times or less by the extended sunset deadline of the KEPCO Act amendment, but the issue will be addressed through an extension of the deadline in the National Assembly," adding, "This can also be supplemented by establishing a medium- to long-term plan to improve the financial structure." NH Investment & Securities named Korea Electric Power Corporation its top pick within the utilities sector.