Market: KOSPI (015760)
Brokerage : iM Securities
Analyst : Yujin Jeon (RA: Ho Jang)
Investment Rating : Buy (Maintained)
Target Price : KRW 53,000 (Downgraded)
Core Momentum : While full-year earnings estimates are revised down due to soaring oil prices and delayed tariff hikes, long-term focus centers on structural overseas nuclear pipeline expansion driven by global energy security needs.
📊 1. [Valuation & Key Financial Metrics]
- Rating & Target Price: Buy (Maintained), Target Price lowered to KRW 53,000 (applying a Target P/B of 0.63x to 2026E BPS of KRW 84,476 from KRW 64,000).
- Valuation Rationale: Reflects full-year operating profit revisions down from KRW 17 Trillion to KRW 10.7 Trillion due to rising fuel and purchase cost pressures post-Middle East conflict and limited second-half tariff hike feasibility.
- Financial Estimates:
- 2025A: Revenue KRW 97.43 Trillion, Operating Profit KRW 13.49 Trillion, Net Profit KRW 8.55 Trillion, EPS KRW 13,311, ROE 19.4%, P/E 3.5x, P/B 0.6x, Dividend Yield 3.3%.
- 2026E: Revenue KRW 100.22 Trillion, Operating Profit KRW 10.66 Trillion, Net Profit KRW 6.91 Trillion, EPS KRW 10,767, ROE 13.5%, P/E 3.8x, P/B 0.5x, Dividend Yield 3.9%.
- 2027E: Revenue KRW 105.53 Trillion, Operating Profit KRW 12.25 Trillion, Net Profit KRW 7.73 Trillion, EPS KRW 12,044, ROE 13.4%, P/E 3.4x, P/B 0.4x, Dividend Yield 4.9%.
- 2028E: Revenue KRW 110.61 Trillion, Operating Profit KRW 19.57 Trillion, Net Profit KRW 13.26 Trillion, EPS KRW 20,648, ROE 19.8%, P/E 2.0x, P/B 0.4x, Dividend Yield 6.1%.
🚀 2. [Market Opportunities & Business Outlook]
- 1Q26 Earnings Review:
- Operating Profit recorded KRW 3.78 Trillion (+0.8% YoY), missing the market consensus of KRW 4.23 Trillion by 10.6%.
- Electricity sales volume fell 0.9% YoY, while average selling price stood at 170 KRW/kWh (+0.5% YoY).
- Preventive maintenance at Shin-Wolseong Unit 1 and Hanul Unit 3 lowered nuclear availability, necessitating higher generation from coal and LNG; higher coal prices (+14% YoY) led to a 4.1% increase in fuel costs. Power purchase costs edged down 0.4% on lower SMPs.
- Cost Headwinds & Fundamental Delay:
- The impact of surging oil prices will be felt from late 2Q through 3Q, intensifying second-half cost burdens.
- Oil and SMP peaks are modeled for 2Q26 and 4Q26 respectively, though the trajectory depends on geopolitical ceasefire negotiations.
- High energy price environment is expected to linger due to energy infrastructure restoration delays (Aramco and IEA project stabilization to pre-conflict levels only by 2027).
- Government inflation stabilization policies limit near-term electricity tariff increases, with local marginal pricing (LPM) implementations offering insufficient offset.
- Overseas Nuclear Market Expansion:
- Heightened energy security concerns are accelerating new nuclear reactor adoption across the US, Southeast Asia, and Europe.
- Unification of nuclear export channels between KEPCO and KHNP is expected to be completed in May, which is anticipated to eliminate operational noise and strengthen bidding capabilities.
📝 Editor’s Comment (Perspective)
The analyst views KEPCO as a regulated utility facing an unavoidable delay in its 2026 fundamental earnings recovery due to geopolitical commodity cost surges and tariff freeze constraints, warranting near-term estimate downgrades. However, the overarching perspective emphasizes that the structural re-emergence of energy security as a global priority significantly expands the pipeline for overseas nuclear newbuilds, creating strong multi-year value accretion potential as domestic export channels unify.
To evaluate whether this investment thesis unfolds as anticipated, key tracking points include the magnitude of fuel and power purchase cost increases beginning late 2Q, whether the planned unification of nuclear export channels between KEPCO and KHNP is formally finalized, and tangible bidding milestones across key overseas markets including the US, Europe, and Southeast Asia. These developments can be monitored through KEPCO’s quarterly financial disclosures, KPX power market data, and official MOTIE announcements regarding global nuclear projects.
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