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Korea Electric Posts Higher Profits

Zacks Equity Research

South Korean utility behemoth – Korea Electric Power Corporation (KEP) – in the third quarter of 2012 registered an operating income of KRW 1.98 trillion (USD $1.82 billion), compared with an operating income of KRW 1.42 trillion (USD $1.31 billion) in the third quarter of 2011. Tariff hikes and increases in power sales volumes drove power sales revenue, which in turn resulted in higher operating revenue and profits.  
Operating revenues went up by 17.1% year over year to KRW 13.72 trillion (USD $12.62 billion). Electricity sale – the principal source of operating revenues – increased 17.6% to KRW 12.99 trillion (USD $11.94 billion). This increase was attributable mainly to increase in electricity unit tariff, and power sales volume growth. Power sales volume was driven by increase in demand.

Operating expenses rose 14.7% to KRW 11.90 trillion (USD $10.94 billion), of which power purchase costs increased 35.1% to KRW 2.27 trillion (USD $2.08 billion) and fuel costs rose 15.2% to KRW 5.78 trillion (USD $5.31 billion). The rise in fuel costs was primarily due to increase in power generation volume, and rising cost of feed stocks.

Overall, the company reported a net income of KRW 956 billion (USD $0.88 billion) in the third quarter of 2012, versus net income of KRW 293 billion (USD $0.27 billion) in the same period of 2011.

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 88.4% of the total electricity generating capacity in Korea. In 2011, the company sold approximately 455 billion kilowatt-hours of electricity.

We maintain our long-term Neutral recommendation on Korea Electric Power. In the near term, the quantitative Zacks #3 Rank (Hold) indicates no directional pressure on the shares. We would over the near term advise investors to focus on the company’s Zacks #1 Rank peers who have a Strong Buy recommendation such as Pike Electric Corporation (PIKE) and Westar Energy, Inc. (WR).

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