On Monday, Korea Electric Power (NYSE:KEP) Corp. (015760:KS) (NYSE: KEP) received an upgrade from Citi, with a new Buy rating, elevated from the previous Sell status. The firm also increased the price target for Korea Electric Power Corp . to KRW28,000.00 ($1 = 1,331 KRW), a significant rise from the former target of KRW17,700.00.
The upgrade is attributed to anticipated reductions in unit fuel costs, including a projected 18.8% year-over-year decrease in LNG costs to W1,100k/ton in 2024. Additionally, an increased generation mix from nuclear power, which has lower unit fuel costs, is expected due to capacity additions.
Korea Electric Power Corp. reported a net profit of W2.1 trillion in the second half of 2023, marking a return to profitability after a period of losses since the second quarter of 2021. Citi forecasts net profits of W2.2 trillion for 2024 and W2.3 trillion for 2025, citing the main driver as the reduction in fuel costs. The new discounted cash flow (DCF) target price represents a 58% increase to W28,000, reflecting the anticipated improvement in earnings.
Citi suggests that Korea Electric Power Corp. is likely to be at the forefront of the Corporate Value Up Program initiated by the Korean government and may resume its payout with annual profits. The firm assumes a 30% payout ratio for 2024-2025, based on historical levels.
With a 2024 estimated price-to-book (PB) ratio of 0.4x, a return on equity (ROE) of 6.0%, and a yield of 4.6%, the stock is considered attractively priced. Following this upgrade, Korea Electric Power Corp. has been removed from Citi's Pan-Asia Focus List.
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