Utility
The author is an analyst of NH Investment & Securities. He can be reached at minjae.lee@nhqv.com. -- Ed.
Although the decision to raise electricity and city gas rates in 2Q23 has been put on hold, investment focused on the need for rate hikes remains valid.
EU energy market in last week of March
Over Mar 26~Apr 1, the EU’s power generation rose 1.3% w-w to 47.3TWh. Its power mix consisted of nuclear 25.5% (-0.4%p w-w), coal 12.1% (-0.9%p w-w), gas 11.1% (-2.4%p w-w), wind 24.2% (+3.5%p w-w), solar 7.7% (+0.3%p w-w), hydro 13.8% (+0.8%p w-w), and other 6.7% (-0.9%p w-w).
In the twelfth week of 2023 (Mar 22~28), the EU’s natural gas imports grew 3% y-y and 26% w-w, with North America, Africa, and the Middle East accounting for 37%, Norway 31%, Algeria 11%, the UK 8%, and Russia 8%. Natural gas inventory in the EU grew to 61.0bn m3, entering a period of stockpiling.
Energy source prices for the week
As of Apr 3, energy source prices stood at: WTI US$80.4/bbl (+10.5% w-w), NewCastle coal US$200.0/ton (+13.5% w-w), Northeast Asia natural gas (Japan/Korea Marker) US$12.75/MMBtu (+1.8% w-w), European natural gas (Dutch TTF) US$16.44 (+22.1% w-w), and US natural gas (Henry Hub) US$2.10/MMBtu (+0.4% w-w).
Top-picks for April: KEPCO KPS and KOGAS
Absolute returns for our top picks in March came to KEPCO -0.2%, Doosan Enerbility +4.6%, and KEPCO KPS +16.7%. Absolute returns at other industry players stood at KOGAS -3.4%, KEPCO E&C +18.7%, SK Gas -5.9%, LS Electric +12.5%, Hyundai Electric -9.9%, Hyosung Heavy Industries -6.2%, and SGC Energy -3.0%. In March, interest in nuclear power plants rose amid issuance of equipment orders for Shin Hanul Units 3 and 4.
We maintain KEPCO KPS as our top pick for April, and newly present KOGAS, which is highly likely to collect accounts receivable from 2H23. Even without a city gas rate hike, KOGAS should be able to collect accounts receivable thanks to falling natural gas prices. Doosan Enerbility and KEPCO are excluded from our top-pick list considering the absence of nuclear power plant news and the government’s failure to raise electricity rates in the near term. For reference, KEPCO is unlikely to recover its short-term profits, as the electricity rate hike was put on hold last month. We note that the firm is set to reach its bond issuance limit this year, so additional discussions on rate hikes seem urgent.