Hanwha Investment & Securities said on the 13th that Korea Gas Corporation (KOGAS) is paying dividends based on solid results, but the likelihood of a larger payout this year is not high. It maintained a target price of 57,000 won and a "buy" rating.
In the third quarter this year, Korea Gas Corporation (KOGAS) posted revenue and operating profit of 6.4 trillion won and 389 billion won. This marked decreases of 21.4% and 11.5% from a year earlier, respectively. However, it beat the market consensus (operating profit of 324.8 billion won) by 19.8%.
Song Yu-rim, an analyst at Hanwha Investment & Securities, said, "A decline in liquefied natural gas (LNG) sales volume accompanied by lower unit prices led to a double-digit drop," adding, "However, operating profit exceeded market expectations as overseas subsidiaries' results were stronger than expected despite weak energy prices." Outside of operations, a fall in interest rates and a reduction in borrowing fund cut net interest expense by 61.4 billion won in the third quarter alone and 198.2 billion won on a cumulative basis.
Hanwha Investment & Securities noted it is difficult to have high expectations for Korea Gas Corporation (KOGAS)'s payout ratio at present. Song said, "Given the potential for foreign exchange valuation losses due to a higher exchange rate in the fourth quarter and the absence of a decline in civilian receivables, it is hard to expect a large dividend per share (DPS) and payout ratio."
Last year, Korea Gas Corporation (KOGAS) paid dividends of 1,455 won per share (16% payout ratio) based on a separate net profit of 793.4 billion won. Assuming the fourth-quarter separate net profit is the same as last year and the payout ratio remains 16%, the DPS would be 1,480 won and the dividend yield 3.5%, similar to last year. Song said, "The payout ratio is a matter of decision, but we estimate a 20% payout ratio and a DPS of 1,850 won."
He added, "To achieve a meaningful reduction in civilian receivables, a gas rate hike is necessary," and "After the winter season, it will be worth waiting for the timing of a rate increase sometime next year."