Korea Utilities:Mixed 2Q16e results ahead
摘要: Weexpectmixed2Q16eresultsforKorea’sutilities.Thesector’saccumulated2Q16erevenuesareestimatedtobeKRW1
We expect mixed 2Q16e results for Korea’s utilities. The sector’s accumulated 2Q16erevenues are estimated to be KRW17.7trn (down 7% y-o-y), with OP of KRW2.6trn(up 20% y-o-y). We believe Kepco’s solid earnings will stand out. Meanwhile, weexpect earnings at Kepco KPS, Kepco E&C and Kogas to be unexciting.
Kepco: We estimate 2Q16e sales of KRW13.8trn and OP of KRW2.5trn (6% aboveconsensus). We estimate the 20% y-o-y OP growth to be led by an 18% fuel pricedecline resulting from still declining LNG prices. We now assume no tariff cuts in2016e versus an expected 4% tariff cut in 2Q16e.
Kepco KPS: We estimate 2Q16e sales of KRW309bn and OP of KRW45bn (13%below consensus); this should be mainly due to: 1) slower top-line growth resultingfrom the 21% y-o-y drop in the overseas maintenance business, and 2) the continuedimpact from labour cost increases from the c470 new hires in 2H15.
Kepco E&C: We expect 2Q16e sales of KRW136bn and OP of KRW16n, meetingconsensus. We estimate revenues to drop 10% y-o-y as most EPC projects arenearing completion. Meanwhile, we expect OP to more than double, with OPMimproving to 12% from 5% in 2Q15 as EPC works are relatively low margin projects.
Kogas: We estimate 2Q16e sales of KRW3.4trn and OP of KRW11bn, meetingconsensus. We expect revenues to drop 32% y-o-y due to: 1) an ASP drop from thelower LNG prices, and 2) a gas sales volume decline resulting from a lower utilisation ofLNG power plants.
Kepco remains our preferred stock. We raise Kepco’s 2016e OP by 11% as weremove this year’s tariff cut assumption; our target price remains KRW70,000 asthere is a limited impact on 2016e BVPS. We raise Kepco E&C’s 2017e OP by 30%.
We were previously expecting a margin decline in 2017e due to low-margin EPCprojects, but this should normalise as the projects are now completed. Applying ourunchanged 18x target PE to our revised 2017e EPS estimate (rolled over from 2016e)yields our new target price of KRW34,000 (from KRW37,000). For Kogas, we raiseour target price to KRW34,000 (from KRW32,000), reflecting HSBC’s updated riskfreerate.
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