Hanwha Investment Cuts KEPCO Target Price, Cites Energy Price Risk

Hanwha Investment & Securities cut its target price on Korea Electric Power (KEPCO, 015760) from 64,000 won to 47,000 won on July 28, pointing to earnings risk stemming from swings in global energy prices, while keeping its investment rating at 'Buy'. Shares of the state-run utility fell sharply the same day, dropping about 7% to close near 33,650 won.

Analyst Song Yu-rim of Hanwha Investment & Securities noted that KEPCO's stock is trading at a consensus-based 12-month forward price-to-earnings ratio of just 3.2 times and a price-to-book ratio of 0.4 times, levels that look inexpensive on paper. However, she argued that with earnings risk tied to energy price volatility still an open question, a stabilization in profit forecasts would need to come first before the stock becomes attractive for bargain hunters.

For the second quarter, KEPCO's results are expected to broadly match market expectations. The brokerage projected revenue of 21.8 trillion won and operating profit of 2 trillion won, down 0.7% and 6.1% respectively from a year earlier, but still about 2.3% above the consensus operating profit estimate of 1.96 trillion won. The relatively resilient bottom line reflects limited declines in fuel and purchased-power costs even as overall revenue growth remained flat.

The outlook darkens heading into the second half of the year. Hanwha Investment & Securities cut its full-year operating profit estimate for KEPCO from roughly 12 trillion won to around 9 trillion won, citing persistent energy price volatility linked to renewed tensions in the Middle East. The brokerage expects the year-on-year decline in operating profit to become more pronounced in the latter half of 2026.

Global energy prices had peaked in March before stabilizing, but volatility has picked up again recently as Middle East tensions flared once more. Song warned that the possibility of further downward revisions to earnings estimates as the company enters a period of sharper profit declines could continue to weigh on KEPCO's valuation appeal.

Still, the analyst suggested that the utility's historically cheap valuation means nuclear-related developments could serve as a catalyst for a share price rebound later this year. Potential triggers cited include an announcement on U.S. investment plans, progress on a nuclear power project in Vietnam, and the finalization of South Korea's 12th Basic Plan for Long-term Electricity Supply and Demand.