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KEPCO Posts Remarkable Turnaround with Second Consecutive Quarterly Profit

South Korea's KEPCO exceeds market expectations, signaling a potential financial recovery amid adjusted electric rates and falling global energy costs
South Korea
k 015760.KO Mid and Small Cap 2000
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Korea Electric Power Corp. (KEPCO), South Korea’s state-run power utility, continued its significant financial turnaround in the fourth quarter by posting a second straight quarterly profit that far surpassed market forecasts. The increase was driven primarily by adjustments of its electric bill rates and a greater-than-expected fall in global energy prices. In its regulatory filing Friday, KEPCO reported a fourth-quarter operating profit of 1.88 trillion won ($1.4 billion), a 71% jump over the market consensus of 1.1 trillion won and a sharp recovery from a loss of 10.82 trillion won in the same period a year earlier. The operating profit in the third quarter of 2023 marked an end to nine quarters of losses, with second-half earnings slashing the accumulated full-year losses to 4.57 trillion won for 2023 from a record shortfall of 32.65 trillion won in 2022. The utility also said its fourth-quarter revenue rose to 22.52 trillion won from 19.49 trillion won a year ago.

KEPCO’s financial performance had been under pressure from its decision since 2021 not to fully pass on the surge in energy prices following Russia’s invasion of Ukraine in late February 2021, in line with a government policy intended to hold down inflation. But, last year, KEPCO increased its electricity rates a total of three times, by some 26.8% per kilowatt-hour (Kwh) to 152.8 won, enabling them to surpass its purchase price of coal and natural gas at 145.2 won per Kwh. That led to the fourth-quarter results ending four straight years of annual losses and setting it up for a possible string of gains, with market consensus for KEPCO’s operating profit at 7.5 trillion won this year and nearly 10 trillion won in 2025.

Analysts, however, are concerned the strong performance could embolden KEPCO to keep electricity rates frozen for an extended period and lead to further increases in its liabilities. As of the third quarter of 2023, KEPCO had consolidated liabilities of 204.06 trillion won, with daily interest payments of 11.8 billion won. There’s speculation that KEPCO may be mulling an increase in electricity bills after National Assembly elections around that time to support necessary investments in its power transmission and distribution grids for semiconductor giant Samsung’s new facilities in the smart-tech city of Yongin and other big manufacturing facilities.

On a stand-alone basis, KEPCO said its fourth-quarter profit came to 1.40 trillion won, its first nonconsolidated profit since the fourth quarter of 2020. Analysts said KEPCO needs to reach an EBITDA (earnings before interest, taxes, depreciation and amortization) of at least 23 trillion won this year to effectively manage its interest costs and required energy investments, despite its projected EBITDA of 21 trillion won based on stable energy prices in 2024.

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