Shinhan Investment Securities said on the 10th that for Korea Gas Corporation (KOGAS)(036460), rising energy prices will begin in earnest while overseas business profit growth supports the stock's downside. The brokerage raised its investment opinion to "Buy" from "Trading BUY," and lifted its target price by 5% to 42,000 won from 40,000 won. The previous session's closing price was 35,750 won.
Han Seung-hun at Shinhan Investment Securities said, "The impact of rising energy prices due to the U.S.-Iran war is expected to begin in earnest in the second half after a time lag," adding, "Profit growth from overseas businesses will support the stock's downside, but rising accounts receivable will limit valuation expansion, capping near-term upside."
Han said Korea Gas Corporation (KOGAS)'s second-quarter operating profit on a consolidation basis rose 66.9% on-year to 675.3 billion won, beating the market consensus of 430.5 billion won. Revenue fell 1.6% on-year to 7.508 trillion won.
Han said, "City gas and power generation gas sales volumes each increased 3.6% and 2.5% from a year earlier, but revenue declined due to lower LNG import costs," adding, "Standalone operating profit was 501.4 billion won, which is estimated to reflect non-recurring factors such as settlements."
In particular, Han analyzed that operating profit from key overseas businesses surged 157.8% on-year to 200.6 billion won, leading the earnings improvement.
The Canada LNG project, which has sustained operating profit in the 70 billion won range since the first quarter, supported the profit increase. Australia GLNG also saw profit rise as the proportion of third-party gas purchases decreased. For Australia Prelude, Han said there was a 13.8 billion won loss due to major maintenance, but it is expected to recover in the second half.
Shinhan Investment Securities raised its forecast for Korea Gas Corporation (KOGAS)'s operating profit on a consolidation basis this year by 3.6% from its previous estimate to 2.5044 trillion won.
Han projected, "Starting in the third quarter, the impact of higher energy prices will be reflected with a lag, expanding the increase in overseas business profits."