Korea Electric Q3 Earnings Up on Strong Overseas Business - Analyst Blog

South Korean utility major, Korea Electric Power Corporation's (KEP) third quarter 2014 earnings increased on strong overseas contribution as well as lower operating costs. Recently, the country's monopoly distributor reported a net income of KRW 1,569 billion ($1,412.1 million) in the third quarter of 2014, up from KRW 974 billion ($876.6 million) in the year-ago period. Its share price edged up more than 2% from Nov 12, 2014 to end at $20.56 on Nov 14, 2014.

During the third quarter 2014, operating revenues increased 4.3% year over year to KRW 14.9 trillion ($13.4 billion). This was mainly buoyed by a 6.7% year-over-year increase in power sales revenues and a 27% jump in overseas business revenues.

On the cost front, selling, general & administrative (SG&A) expenses decreased 2.2% year over year to KRW 37.65 trillion ($33.9 billion). Fuel cost declined 14.3% to KRW 15.52 trillion ($14 billion). Low power demand led to a 1.2% decrease in power generation cost while the unit cost of fuel declined 13.3% during the quarter. However, purchased power cost increased 8.9% to KRW 8.89 trillion ($8 billion).

Depreciation expenses rose 4.1% to KRW 5.06 trillion ($4.6 billion), mainly due to the newly constructed substations and new facility additions by power plants.

The company's operating income stood at KRW 2,862 billion ($2,575.8 million), up from KRW 1,547 billion ($1,392.3 million) in the year-ago period.

Korea Electric Power is an integrated electric utility engaged in the generation, transmission and distribution of electricity in South Korea. The company is the dominant player in Korea's electricity sector. It is well positioned to capitalize on growth opportunities in this market and to benefit from the industry restructuring initiatives of the Korean government.

Higher electricity tariff rates, increasing electricity volume sales and an improving overseas business will all add to Korea Electric Power's growth story. However, this would to a large extent be offset by increased price of purchased power and uncertainty surrounding pending regulatory cases.

We appreciate Korea Electric Power's effort towards expansion of its power generation assets. Within a time span of 2014 to 2016, the company intends to spend around KRW54.7 billion, including nearly KRW19.9 billion in 2014.

Apart from expanding operations in South Korea, Korea Electric Power is also strengthening its overseas footprint, particularly in China, Saudi Arabia, the Philippines and United Arab Emirates. We appreciate the company's steady efforts to expand its international operations, while adding new assets to its domestic portfolio.

Korea Electric Power current sports a Zacks Rank #1 (Strong Buy). Apart from Korea Electric Power, one can also look at other well-placed utility players like Black Hills Corporation (BKH), PG&E Corporation (PCG) and Consolidated Edison, Inc. (ED). Black Hills and PG&E also boast a Zacks Rank #1, while Consolidated Edison holds a Zacks Rank #2 (Buy).
 

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