Korea Electric Power Co., or KEPCO (KEP) registered a net loss in the first half of 2008, bogged down by substantial increase in foreign currency valuation loss, escalating fuel cost and increased price of purchased power.
Also falling Korean Won against the U.S. dollar is affecting import-intensive companies such as utilities with significant dollar-denominated debt. Going forward we expect much improved performance and modest price appreciation.
KEPCO is the dominant player in Korea's electricity sector, and the Korean company continues to be well-positioned to capitalize on growth opportunities in this market and to benefit from the current industry restructuring initiated by the Korean government.
However, in the scenario of volatile global energy prices, Chinese embargo on coal exports and higher fuel costs, stagnation of electricity rates, KEPCO continues to face risks of increasing costs, thereby often reporting lower operating earnings and net income. Therefore, we maintain our Hold recommendation on KEPCO common stock with a six-month target price of $17.
South Korean Ministry of Strategy and Finance in a statement in July 2008 said it will not seek the privatization of companies in the electricity, gas, tap water and health insurance sectors. This will affect the privatization of subsidiaries of Korea Electric Power Corporation.
Also myriad uncertainties weigh on the company's stock valuation, including risk of the Korean government's efforts to restructure the country's electricity sector, the need to raise tariffs, volatile oil and coal prices, and constant exchange rate and interest rate exposure. Progress of the Korean government's efforts to restructure the country's electricity sector has been slower than initially expected.
Read the full analyst report on KEP
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