Home Business Electricity rate hike, why KEPCO shareholders can’t smile

Electricity rate hike, why KEPCO shareholders can’t smile

by news dir

KEPCO raised electricity rates for the first time in eight years since 2013.

The stock price, which rebounded before the announcement of the increase on the expectation that the price increase would directly lead to earnings improvement, turned to a downward trend after the announcement, making KEPCO shareholders puzzled.

Securities analysts are of the view that the increase in electricity rates is far short of the increase in power generation costs and that additional increases are necessary for the share price to rise.

Operating profit is declining due to rising coal prices

According to the Korea Exchange on the 25th, on the 24th, KEPCO closed at 23,800 won, down 1.65% from the previous day. This is the second straight day of decline following the 1.22% drop on the 23rd when the electricity rate hike was announced.

The share price of KEPCO has been on an upward trend recently as the possibility of an electricity rate hike was highlighted, but it returned the rise after the rate hike was announced. Institutional investors were the driving force behind the stock price decline. In the two days following the announcement of the rate hike plan, institutions net sold 384,737 shares of KEPCO.

Experts are looking for the cause of the slump in KEPCO’s stock price because the increase in electricity rates fell far short of the increase in power generation costs.

Meritz Securities predicted that KEPCO’s operating profit in the fourth quarter would increase by 360 billion won due to the increase in electricity rates. This is only half of the operating loss of more than 700 billion won recorded in the second quarter.

Fuel prices, which have been steadily rising recently, are raising concerns about KEPCO’s profitability. Coal prices have doubled in the past three months due to supply disruptions in Australia, a major producer, and increased demand in China. The cost of power generation at KEPCO, which accounts for 41% of coal power generation, is bound to rise significantly.

Kyung-won Moon, a researcher at Meritz Securities, predicted, “Considering the rise in coal prices despite the electricity rate hike, KEPCO’s 12-month forward earnings forecast is highly likely to decline.”

Mirae Asset Securities said, “The after-tax fuel cost rose 19% QoQ to 355.42 won per kilogram due to the price increase of bituminous coal and liquefied natural gas (LNG). It should have been raised,” he pointed out.

KEPCO’s current electricity rate hike is 3 won per kWh, which is far lower than the 13.8 won suggested by Mirae Asset Securities. In addition, as oil and coal prices rise, fuel costs are highly likely to rise further, so it is not easy to keep up with the cost increase even if electricity rates are further increased.

Still a long way to normalize prices

Stock market experts explain that the key to a share price rise is an additional price increase to improve profitability.

Lee Min-jae, a researcher at NH Investment & Securities, said, “It is estimated that KEPCO needs an additional increase of 7.37 won per kWh despite this rate increase. An additional impression is needed.”

Meritz Securities analyzed, “It is difficult to see the significance of one rate increase as the reliability of the fuel price index has been broken due to the last two hike reservations.” “Additional hikes are needed in the first and second quarters of next year to restore market confidence,” he added.

In addition to additional rate hikes, environmental cost increases are also pointed out as factors affecting earnings and share price.

Ryu Je-hyeon, a researcher at Mirae Asset Securities, said, “It seems that it is important whether or not to continue raising electricity rates during the presidential election phase.” “In addition to fuel cost fluctuations, environmental costs such as RPS and Greenhouse Gas Emissions Trading (ETS) should also be considered.” said


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