Dividend Merit to Grow
The author is an analyst of KB Securities. She can be reached at hyejung.jung@kbfg.com. -- Ed
Maintain HOLD; Raise TP by 18.8% to KRW38,000
We maintain HOLD on KOGAS, but lift our TP by 18.8% to KRW38,000. We have revised up 2021E-2030E OP by an average of 3.6% in light of a sharper-than-expected growth in international oil prices. Our DCF-based TP (1.8% WACC, 0.8% TGR) implies a 12m fwd P/B of 0.42x, and offers an upside of 14.5% (vs. May 28 close).
2Q21E OP of KRW68.4bn (TTP YoY) on oil price recovery and higher overseas E&P profitability
We project 2Q21 consolidated revenue of KRW4.8tn (+16.8% YoY), OP of KRW68.4bn (turn to profit YoY), and net losses (attributable to controlling interests) of KRW95.0bn (loss to loss YoY). We forecast OP will improve YoY on: (1) adjustments for power generation-use LNG supply costs; and (2) improved profitability at overseas E&P projects. In the past, different power generation-use LNG supply costs were applied based on seasonality (higher in winter; lower in summer). From this year, however, flat-rate costs are being reflected. As a result, 2Q21E and 3Q21E OP are likely to improve YoY, although full-year 2021E OP remains unchanged. Meanwhile, 2Q21E OP for overseas consolidated subsidiaries is expected to increase KRW35.8bn YoY, thanks to a surge in international oil prices (April-May average Dubai crude oil price of USD63.9/bbl; +133.3% YoY), as well as production normalization at the Prelude project in Australia.
Dividend merit to grow; Hydrogen business-related uncertainty needs to be resolved
We are optimistic about the company’s dividend outlook for 2021. However, uncertainty over its entry into the hydrogen business should be resolved before our investment rating is upgraded. We forecast 2021E DPS at KRW1,900 (dividend yield of 5.7%). Earnings available for dividend payments may increase further if oil prices continue to rise or the year-end KRW/USD rate outlook decreases. Meanwhile, the company plans to announce its second hydrogen business roadmap this year. If the roadmap includes more detailed plans, this should reduce uncertainty and catalyze shares upward.