Market: KOSPI (015760)
Brokerage : Hana Securities
Analyst : Jae-seon Yoo (RA: Woo-kyu Sung)
Investment Rating : BUY (Maintained)
Target Price : KRW 55,000 (Downgraded)
Core Momentum : While 1Q earnings are projected to meet consensus, surging Asian LNG prices driving SMPs toward 180 KRW/kWh alongside falling industrial tariffs and cumulative policy costs necessitate downward earnings revisions entering 2H.
📊 1. [Valuation & Key Financial Metrics]
- Rating & Target Price: BUY (Maintained), 12-Month Target Price lowered by 24.7% to KRW 55,000 (applying a Target P/B of 0.7x to 2026E BPS).
- Valuation Multiples: 2026F P/E 10.60x (Consensus 10.6x), P/B 0.54x (Consensus 0.5x).
- Financial Estimates:
- 2025A: Revenue KRW 97.43 Trillion, Operating Profit KRW 13.49 Trillion, Pre-tax Profit KRW 11.59 Trillion, Net Profit KRW 8.54 Trillion, EPS KRW 13,311, ROE 19.40%, DPS KRW 1,542.
- 2026F: Revenue KRW 97.94 Trillion, Operating Profit KRW 6.20 Trillion (-54.0% YoY), Pre-tax Profit KRW 3.41 Trillion, Net Profit KRW 2.56 Trillion (-70.1% YoY), EPS KRW 3,983, ROE 5.22%, DPS KRW 70.
- 2027F: Revenue KRW 98.10 Trillion, Operating Profit KRW 5.85 Trillion (-5.7% YoY), Pre-tax Profit KRW 3.24 Trillion, Net Profit KRW 2.43 Trillion (-4.8% YoY), EPS KRW 3,790, ROE 4.78%, DPS KRW 0.
🚀 2. [Market Opportunities & Business Outlook]
- 1Q26 Earnings Preview:
- Revenue projected at KRW 24.7 Trillion (+1.8% YoY) and Operating Profit at KRW 4.2 Trillion (+11.4% YoY), meeting market consensus expectations.
- Residential and commercial power demand growth offset weaker industrial electricity volumes.
- Quarterly average SMP fell to 107 KRW/kWh (-7.1% YoY), reducing power purchase costs to KRW 7.9 Trillion (-9.7% YoY).
- Fuel costs estimated at KRW 5.6 Trillion (+12.3% YoY) driven by the expiration of coal consumption tax cuts and higher coal plant utilization (60.0%, +19.3%p YoY); nuclear utilization declined to 69.7% (-22.7%p YoY).
- Reduction in overseas nuclear subsidiary provisions (KRW 1.5 Trillion in 2025) requires continued monitoring throughout 2026.
- Cost Acceleration & Tariff Structure Headwinds:
- Monthly electricity statistics indicate that industrial tariffs entered a year-on-year decline in February for the first time in 53 months, putting downward pressure on total ASP.
- Non-fuel cost burdens are compounding, including the expiration of fuel tax cuts, seasonal time-of-use rate restructuring, and rising carbon emission allowance costs.
- Surging Asian LNG prices since March are expected to drive SMP upward, potentially touching 180 KRW/kWh during 3Q.
- Second-Half Outlook & Normalization Preconditions:
- The restart of Kori Unit 2 in 2Q and the new commercial grid connection of Saeul Unit 3 in 3Q will improve the generation mix, but are insufficient to offset variable cost spikes.
- Fundamental recovery remains contingent upon the resolution of Middle East geopolitical unrest, though physical supply chain bottlenecks suggest costs will not immediately normalize to pre-conflict levels.
📝 Editor’s Comment (Perspective)
The analyst views KEPCO as a regulated utility experiencing a temporary earnings reprieve in 1Q due to lower purchase prices and solid retail demand, but one facing an aggressive second-half margin squeeze driven by surging Asian LNG prices and the first industrial tariff drop in 53 months. The core perspective prioritizes upcoming cost-side headwinds—specifically the potential spike of SMP to 180 KRW/kWh and cumulative policy costs—over backward-looking first-quarter stability, justifying a preemptive downgrade in forward valuation targets.
To assess whether this investment thesis unfolds as anticipated, key monitoring milestones include the pace of SMP increases toward the 180 KRW/kWh mark in 3Q, the trajectory of industrial revenue declines following tariff adjustments, and the degree of generation mix relief provided by the restart of Kori Unit 2 and the grid connection of Saeul Unit 3. These developments can be tracked through KEPCO’s quarterly financial disclosures, KPX monthly SMP data, and official MOTIE monthly electricity market bulletins.
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