Market: KOSPI (015760)
Brokerage : Eugene Investment & Securities
Analyst : Seong-hyun Hwang, Ph.D.
Investment Rating : BUY (Downgraded)
Target Price : KRW 64,000 (Downgraded)
Core Momentum : Despite short-term earnings pressure caused by extended nuclear maintenance schedules, the mid-to-long term structural recovery thesis remains valid on the back of lower fuel costs from normalized nuclear operations and power tariff restructuring.
📊 1. [Valuation & Key Financial Metrics]
- Rating & Target Price: BUY (Downgraded from Strong Buy), Target Price lowered by 30% to KRW 64,000 (based on 0.7x 2027F BPS).
- Financial Forecasts:
- 2025A: Revenue KRW 97.43 Trillion, Operating Profit KRW 13.49 Trillion, Net Profit KRW 8.67 Trillion, ROE 19.4%, P/E 3.5x, P/B 0.6x.
- 2026E: Revenue KRW 96.88 Trillion, Operating Profit KRW 8.54 Trillion (Revised down from KRW 14.7 Trillion to KRW 9 Trillion level), Net Profit KRW 4.18 Trillion, ROE 8.4%, P/E 5.5x, P/B 0.5x, Dividend Yield 2.0%.
- 2027E: Revenue KRW 96.82 Trillion, Operating Profit KRW 15.34 Trillion (Revised down from KRW 20.6 Trillion), Net Profit KRW 9.25 Trillion, ROE 16.7%, P/E 2.5x, P/B 0.4x.
🚀 2. [Market Opportunities & Business Outlook]
- 2Q26 Earnings Review:
- Revenue reached KRW 21.9 Trillion (-10% QoQ, 0% YoY) and Operating Profit was KRW 1.1 Trillion (-70% QoQ, -47% YoY).
- The power generation mix deteriorated as nuclear share dropped -3%p YoY due to prolonged preventive maintenance, which was substituted by higher-cost coal (+6%p YoY) and LNG (+1%p YoY) generation.
- Fuel costs rose to KRW 4.9 Trillion (+14% YoY) alongside KRW 171.6 Billion in additional one-off expenses including maintenance and coal disposal costs.
- Earnings Outlook & Variables:
- Annual nuclear utilization rate assumption revised conservatively from 82% to 71%.
- Fuel cost reduction is expected to materialize in 2H as new nuclear reactors come online and existing units return from scheduled maintenance.
- Although elevated System Marginal Prices (SMP above 150 KRW/kWh in August) impose near-term margin pressure, full-year 2027 operating profit is projected to rebound to KRW 15 Trillion supported by lower oil prices, favorable FX, and full nuclear commercial operations.
- Policy & Tariff Catalysts:
- Ongoing discussions regarding power tariff adjustments to resolve accumulated losses and stabilize corporate bond issuance limits.
- Target implementation of regionally differentiated electricity pricing within the year to address mid-to-long term CAPEX requirements for grid expansion and AI data center integration.
📝 Editor’s Comment (Perspective)
The analyst views KEPCO as a regulated utility navigating temporary margin compression from extended nuclear maintenance cycles and elevated purchase prices, but one that is positioned for fundamental earnings normalization driven by structural power mix adjustments and power market regulatory reforms. The core perspective emphasizes the qualitative transformation in generation mix and long-term tariff structure over quarterly cost volatilities.
To verify whether this investment thesis unfolds as anticipated, key monitoring points include the actual recovery trajectory of nuclear utilization rates in 2H, the extent of fuel cost savings from low-cost generation expansion, and the official regulatory adoption of regionally differentiated tariff schemes and baseline electricity rate adjustments. These metrics can be tracked through upcoming quarterly earnings releases, official corporate IR disclosures, and government policy announcements via DART and MOTIE.
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