NH Weekly Utility 16
The author is an analyst for NH Investment & Securities. He can be reached at minjae.lee@nhqv.com -- Ed.
For June, we change our recommended plays to Doosan Enerbility and KEPCO, drawing attention to both expectations for large-scale NPP projects and improved profitability (thanks to a progressive rate system for individual households).
EU energy market for last week of May
Over May 25~31, the EU’s power generation declined 0.4% w-w to 40.8TWh. Its power mix consisted of nuclear 23% (-1.1%p w-w), coal 9% (-1.1%p w-w), gas 12% (+0.5%p w-w), wind 16% (-0.7%p w-w), solar 15% (+2.9%p w-w), and hydro 17.0% (-0.9%p w-w). During week 21 of 2023 (May 24~30), the EU’s natural gas imports decreased 23% y-y and upped 3% w-w. By region, North America and the Middle East accounted for 42%, Norway 27%, Algeria 7%, the UK 11%, and Russia 8%. Natural gas inventories reached 73.6bn m3, signaling entry into a full-fledged restocking period.
Energy source prices for week
As of Jun 1, energy source prices came to US$68.5/bbl (-4.7% w-w) for WTI, US$135.0/ton (-15.6% w-w) for NewCastle, US$9.29/MMBtu (-0.7% w-w) for Northeast Asia natural gas (Japan/Korea Marker), US$8.42/MMBtu (+5.0% w-w) for European natural gas (Dutch TTF), and US$2.26/MMBtu (-1.9% w-w) for US natural gas (Henry Hub).
For June, suggest Doosan Enerbility and KEPCO as our preferred plays
As for our preferred plays in May, KOGAS posted a stock return of -2.1% and KEPCO KPS -4.8%. Other than that, KEPCO saw +2.1%, Doosan Enerbility -3.7%, and KEPCO E&C recorded -5.0%.
For June, we suggest Doosan Enerbility and KEPCO as our preferred plays. Large-scale nuclear power plant (NPP) projects deserve attention in 2H23, as there are agreements with Westinghouse, Poland (main contract) and the Czech Republic (selection of preferred bidders). In addition, we note that at times when electricity use increases, the unit sales price for residential use is set higher (up to W307.3 per kWh) on a progressive basis, a correlation which bodes well for an earnings recovery at KEPCO. But, as in the past, there may be negative variables such as easing of the progressive rate system or temporary rate cuts, so we prefer Doosan Enerbility and KEPCO (in that order). For reference, KEPCO's earnings performance in 2024 is highly likely to improve sharply if winter in 2023 is as warm as that seen last year.