As shares of Korea Electric Power Corporation have shown a notable rally this year, foreigners were found to have made large net purchases of the stock. For years, Korea Electric Power Corporation's share price was weighed down by chronic losses and massive liability, but with recent earnings improvement and expectations for expansion into overseas nuclear power projects, the stock has risen while foreign capital has also flowed in.
According to the Korea Exchange on the 16th, Korea Electric Power Corporation ranked No. 3 in net foreign buying this year (Jan. 2–Oct. 15). The total was 1.2079 trillion won. No. 1 and No. 2 were Samsung Electronics (6.452 trillion won) and SK hynix (2.605 trillion won).
Korea Electric Power Corporation's market capitalization is 4%–8% of Samsung Electronics or SK hynix, and only about half of No. 4 Hanwha Aerospace's 1.0182 trillion won market cap. Nevertheless, a substantial scale of net buying has flowed in.
Korea Electric Power Corporation is considered a "perennial loss-maker." Even when the power purchase price from generation companies rises, as a monopolistic state-run power company it sells electricity cheaply to consumers. Raising electricity rates is not easy. Korea Electric Power Corporation posted operating losses for three consecutive years from 2021 to 2023. In particular, during the period when energy prices surged due to the Russia-Ukraine war in 2022, Korea Electric Power Corporation's electricity rate total cost recovery ratio (total revenue/total cost) was only 64.2%.
However, after turning to an operating profit last year (8.3647 trillion won), it is expected to post 14 trillion won in operating profit this year based on the securities industry consensus (average forecast). EUGENE INVESTMENT & SECURITIES estimated that Korea Electric Power Corporation's cost recovery ratio this year will hit a historical peak of 115%.
In addition, with President Lee Jae-myung noting the need to bring electricity rates in line with reality, there is a high possibility that rates will rise next year. Although the "fuel cost adjustment unit price" reflected in fourth-quarter electricity rates this year was frozen at 5 won per kWh (kilowatt-hour), other elements could increase.
International crude oil, natural gas, and other commodity prices are stable, and the resumption of dividends early this year after four years is also positive. The push to enter the U.S. nuclear power market is cited as a potential growth driver. Even in this situation, Korea Electric Power Corporation's price-to-book ratio (PBR) remains undervalued at around 0.51, which appears to have drawn in foreign investor inflows.
The securities industry analyzes that this year's foreign buying could drive future share gains. The foreign equity stake in Korea Electric Power Corporation expanded from 16% at the start of the year to 22% as of the 15th. During this period, Korea Electric Power Corporation's share price rose 96%. According to Meritz Securities, over the past 10 years the correlation between Korea Electric Power Corporation's share price and foreign ownership ratio has reached 0.83.
Moon Kyung-won, an analyst at Meritz Securities, said, "Compared with the 30%–35% range before 2018, the foreign share is still low, leaving room for gains," and added, "The more quarterly earnings improvement is confirmed going forward, the more the equity ratio will expand." The average target price for Korea Electric Power Corporation estimated by domestic securities firms is 45,583 won.
However, short interest in Korea Electric Power Corporation (an investment technique in which investors borrow and sell shares they do not own, then buy them back cheaply if the price falls to pocket the difference) has also risen sharply recently. Short interest refers to the remaining quantity after selling borrowed shares, and an increase in this balance is generally interpreted as many investors expecting a share price decline. As of the 1st of this month, Korea Electric Power Corporation's short interest stood at 2.9 billion won, which surged to 6.4 billion won on the 10th, more than doubling.
Some also point out that securing financial soundness is more important, as accumulated losses since 2021 amount to 30 trillion won. Choi Kyu-heon, an analyst at Shinhan Investment & Securities, said, "Korea Electric Power must first clear the task of securing financial soundness," adding, "Only when an electricity rate hike is realized and the nuclear power business is combined can a clear medium- to long-term uptrend be expected, so for now it is necessary to choke up on the bat."