Higher Rates Buoy Korea Electric - Analyst Blog

State-run utility behemoth Korea Electric Power Corporation (KEP) in the fourth quarter of 2010 recorded net operating profit of KRW98 billion (USD$87.4 million), compared to net operating loss of KRW649 billion (USD$578.6 million) in the fourth quarter of 2009.

This was primarily due to an increase in power sales volume impacted by a surge in electricity consumption, tariff hike in August 2010, along with cost-control efforts and stabilized cost of power purchase in November 2010. Average tariff rates for electricity sales rose 3.5% in August 2010.

Operating revenues went up by 19.4% year over year to KRW10.3 trillion (USD$9.2 billion). The sale of electricity, the principal component of operating revenues, increased 13% to KRW9.5 trillion (USD$8.5 billion).

The increase was primarily due to higher tariff rates, as well as a 7.7% growth in power sales volume. Power sales volume rose mainly due to a substantial demand growth for heating and an increased demand from the industrial sector as a result of economic recovery.

Fiscal 2010 operating revenue was KRW39.2 trillion (USD$35 billion), versus the Zacks Consensus Estimate of $33.5 billion. Full year revenue also outdid the $28.9 billion generated a year ago.

Operating expenses grew 10.1% to KRW10.2 trillion (USD$9.1 billion), of which power purchase costs increased 11.3% to KRW8.5 trillion (USD$7.6 billion). The increase was primarily due to an 8.1% increase in the volume of power purchased and a 3% increase in unit cost of power purchased.

Overall, the company reported net loss of KRW18.2 billion (USD$9.1 billion) in the fourth quarter of 2010, versus net loss of KRW366 billion (USD$326.3 million) in the same period of 2009.

Fiscal 2010 net loss was KRW69.3 billion (USD$61.7 million), lower than the fiscal 2009 net loss of KRW77.7 billion (USD$69.3 million).

Korea Electric Power is an integrated electric utility engaged in the generation, transmission and distribution of electricity in South Korea. The company along with its generation subsidiaries owns approximately 87% of the total electricity generating capacity in Korea.

We maintain our Neutral recommendation on Korea Electric Power with a quantitative Zacks #3 Rank (Hold), indicating no clear directional pressure on the shares over the near term. In the near term, we would advise investors to focus on the company's Zacks #1 Rank peers who have a Strong Buy recommendation such as Enersis S.A. (ENI) and BP Plc (BP).

 
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