As Korea's memorandum of understanding (MOU) for a U.S. investment package is expected to be signed as early as on the 18th, interest in domestic nuclear power stocks is growing as the United States has proposed the construction of eight large nuclear power plants as a follow-up project.
Although the specific project size and reactor design have not yet been finalized, the securities industry expects that the benefits for domestic nuclear power corporations will diverge significantly depending on whether the United States selects Westinghouse's preferred AP1000 or the Korean APR1400.
According to domestic and overseas securities circles on the 10th, the Ministry of Trade, Industry and Energy effectively finalized the first U.S. investment project—reported at a closed ruling-party consultative meeting in the National Assembly—as the construction of the Encinal combined-cycle gas turbine power plant in Texas, worth about $22.3 billion.
The United States then additionally proposed follow-up projects such as the construction of eight large nuclear power plants and Alaska LNG development, and reviews are reportedly underway. While the United States requested new builds of Westinghouse's own AP1000 design and Korean investment, the Korean government presented the position that construction of at least two units of the Korean APR1400 design must be included, and talks are continuing over finalizing the reactor design.
◇ If AP1000, "Doosan Enerbility most preferred"
JP Morgan said in a report on the 7th (local time) that if the initiative proceeds centered on AP1000, Hyundai Engineering & Construction(000720) and Doosan Enerbility(034020) would emerge as major beneficiary corporations.
JP Morgan maintained a positive view on the Korean nuclear power sector and named Doosan Enerbility as its top pick, citing its balanced portfolio across large nuclear, small modular reactors, and gas turbines. It kept overweight ratings on Doosan Enerbility, Hyundai Engineering & Construction, and KEPCO Engineering & Construction Company (KEPCO E&C), while maintaining underweight on Korea Electric Power Corporation(015760).
Hyundai Engineering & Construction is analyzed to have the potential to secure construction volume worth about $4 billion per unit as a key construction partner in a U.S.-led consortium, based on its basic design experience from Fermi America's Matador project. Doosan Enerbility is also expected to benefit further, given its track record of supplying key equipment to the U.S. Vogtle Units 3 and 4 project.
◇ If centered on APR1400, KEPCO Engineering & Construction benefits
If the initiative proceeds centered on APR1400, KEPCO Engineering & Construction Company (KEPCO E&C) is expected to emerge as the largest potential beneficiary corporation.
Sonny Lee, a JP Morgan analyst, said, "In a KEPCO-led consortium, there is a possibility of securing design volume worth about $500 million per unit," adding, "Doosan Enerbility is also estimated to be able to win orders worth about $2 billion per unit through broad equipment supply." The analyst went on to say, "Hyundai Engineering & Construction(000720) will have its constructor decided through competitive bidding among domestic companies, so the order size will be smaller than in the AP1000 scenario."
If the combined-cycle gas turbine power plant project is included, the range of beneficiaries among domestic construction and power equipment companies could expand further.
Jung Hye-jeong, a KB Securities analyst, said, "For the first U.S. investment project, the combined-cycle gas turbine power plant construction, Samsung C&T(028260) and Hyundai Engineering & Construction are highly likely to participate in construction, and Doosan Enerbility is likely to participate by supplying gas turbines and steam turbines," adding, "If follow-up nuclear projects centered on either AP1000 or APR1400 are included in the second project, Doosan Enerbility, which can win equipment orders for both U.S. and Korean-type nuclear plants, and KEPCO Engineering & Construction Company (KEPCO E&C), which has strengths in the nuclear design institutional sector, will be the beneficiary corporations."
The securities industry projected that structural demand for large nuclear power plants will continue, given rising retail electricity prices in the United States, expanding power demand from data centers, and a growing share of aging reactors that have been in operation for more than 40 years.
Analyst Sonny Lee noted, "In April this year, the U.S. retail electricity price was about 19 cents per kilowatt-hour (kWh), up 7% from a year earlier and 37% from five years ago, and more than 50% of large U.S. nuclear power plants have been in operation for over 40 years," adding, "Small Modular Reactor (SMR) will play a complementary role rather than replacing large nuclear power plants."