On Wednesday, JPMorgan updated its assessment of Korea Electric Power (NYSE:KEP) Corp (015760:KS) (NYSE: KEP), increasing the price target to KRW23,000 from the previous KRW22,000, while keeping a Neutral rating on the stock. The firm's analysis highlighted the mixed performance of KEPCO's shares, which saw a significant upswing until March 15, outperforming the KOSPI index with a 31% rise compared to the KOSPI's flat movement.
The analyst noted that KEPCO's shares experienced a downturn as the week began, dropping by 10% against the KOSPI's 1% gain. This change in stock performance comes despite expectations of a profit turnaround and support from Korea's "Corporate Value-up" initiatives. The positive outlook is tempered by the anticipation of profits rebounding and the possibility of dividend resumption.
On the other hand, the analyst pointed out several challenges facing KEPCO. The potential for tariff increases seems limited after approximately 50% growth over the past three years, and the recent uptick in oil and LNG prices, coupled with unfavorable foreign exchange rates, adds to the pressure. The company's inability to set prices independently and the ongoing political scrutiny are seen as structural issues.
KEPCO's financial situation is also a cause for concern, with past losses and debt accumulation, which reached a net debt of W127 trillion, constraining the company's ability to significantly improve its capital management in the short to medium term. Although the analyst expects a profit turnaround, they believe the market's first-quarter operating profit expectations of W2.2 trillion are overly optimistic, predicting a more conservative W1.2 trillion.
The report concludes that while the downside may be limited with an anticipated profit turnaround, KEPCO does not fit the profile of a "Corporate Value-up" stock due to its weak balance sheet and limited potential for increased shareholder returns. The new price target of KRW23,000 is set for March 25.
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