Shinhan Investment & Securities said that while expectations are rising for improved results at the overseas division of Korea Gas Corporation (KOGAS), concerns about unpaid receivables from residential city gas are limiting gains in the share price. It kept its investment opinion at "Trading Buy" and maintained a target price of 40,000 won. The previous session's closing price was 36,900 won.
Han Seung-hun, an analyst at Shinhan Investment & Securities, said, "With global energy prices rising, expectations for the overseas division's results are also being revised up," but noted, "Concerns over unpaid receivables are overwhelming that and putting significant downward pressure on the share price." Han added, "Even after a cease-fire, it will be necessary to monitor the pace of energy price stabilization when taking positions."
According to Shinhan Investment & Securities, Korea Gas Corporation (KOGAS)'s consolidation operating profit for the first quarter of this year was 910 billion won, up 9.1% from a year earlier. It also beat the market consensus of 796.3 billion won. Operating profit from the domestic gas import and sales business was 783.4 billion won, up 8.2% over the same period.
Han explained, "While the appropriate return on invested capital is estimated to have decreased by 11% year over year due to lower interest rates and beta, earnings increased from a year earlier thanks to the effect of a higher allocation ratio in total cost distribution."
Operating profit at the overseas division rose 17.5% to 130.3 billion won. The Canada LNG project led the improvement. However, Australia GLNG swung to a loss of 12 billion won, and Australia Prelude came in at 5.4 billion won, down 79.7% from a year earlier. Mozambique Coral FLNG and Iraq Zubair also saw earnings decline.
Han said, "The Canada LNG project, which began full-scale production in the first quarter, delivered 70 billion won in operating profit, offsetting weakness in other overseas businesses."
Shinhan Investment & Securities projected that Korea Gas Corporation (KOGAS)'s consolidation operating profit this year will rise 15% year over year to 2.4171 trillion won. Strong results at the overseas business due to higher energy prices and the full-quarter contribution from the Canada LNG project are the main drivers.
However, the burden of unpaid receivables was still cited as a key risk. Han analyzed, "With residential city gas rates frozen in May, the impact of rising LNG prices is likely to kick in in the off-season starting in the third quarter, potentially reversing the trend and increasing unpaid residential receivables."
Han continued, "We raised our earnings estimates on the outlook for strong performance at the overseas division amid rising energy prices, but slightly lowered the target multiple (PBR) to reflect concerns over unpaid receivables," adding, "Dividend attractiveness will recover only after it is confirmed that the company has entered a phase of accelerated collection of unpaid receivables."