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Korea Electric (KEP) Q3 Net Income Down, Fuel Costs High

Zacks

On Nov 23, we issued an updated research report on integrated electric utility – Korea Electric Power Corp. KEP. The company is subject to risks arising from commodity price fluctuations, while its transmission and distribution operations face operational risks.

Recently, Korea Electric declared third-quarter 2016 adjusted net income of KRW 2,938 billion ($2,550.8 million), down 68.3% from the year-ago quarter’s equivalent. The company’s revenues, however, improved 3.1% year over year to KRW 15,944 billion ($13,842.6 million).

Yet, adverse decisions in pending regulatory cases, such as the automatic fuel cost pass-through mechanism, have the potential to dent Korea Electric’s earnings. Moreover, being a South Korean company, most of Korea Electric’s costs and expenses are denominated in the Korean won. Any devaluation of the currency could affect profitability in terms of U.S. dollars.

KOREA ELEC PWR Price


KOREA ELEC PWR Price | KOREA ELEC PWR Quote

During the third quarter, the company witnessed substantial volatility in fuel costs which might pose challenges in the fourth quarter.

On a brighter note, Korea Electric is the main supplier of electricity in the Republic of Korea and therefore enjoys a majority share in the Korean electricity market. Going forward, the company is committed toward achieving the national renewable energy mix of 11% of the total energy by 2035 and 10% of the Renewable Portfolio Standard by 2022.

Zacks Rank & Key Picks

Korea Electric Power carries a Zacks Rank #4 (Sell). Better-ranked stocks in the same space include FirstEnergy Corp. FE, Ameren Corporation AEE and DTE Energy Company DTE.

FirstEnergy has seen five upward estimate revisions for 2016 over the last 60 days. On an average, the company posted a positive earnings surprise of 7.34% in the trailing four quarters. FirstEnergy currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ameren has seen four upward estimate revisions for 2016 over the last 60 days. Last quarter, the company posted a positive earnings surprise of 10.14%. Ameren holds a Zacks Rank #2 (Buy).

DTE has seen six upward estimate revisions for 2016 over the last 60 days. On an average, the company posted a positive earnings surprise of 10.07% in the trailing four quarters. First Solar currently has a Zacks Rank #2.

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