KEPCO's profit skyrockets by 76% to KRW8.7 trillion

Analysts are impressed and expecting further growth.

Moody's Investors Service says that Korea Electric Power Corporation's strong results for the first nine months of 2015 are credit positive.

"KEPCO's strong results in the first nine months of 2015, as well as its deleveraging efforts, will enable the company to further improve its financial profile over the next 12-18 months," says Mic Kang, a Moody's Vice President and Senior Analyst.

Moody's analysis is contained in its just-released report titled "KEPCO's strong nine-month results provide positive momentum to its financial profile," and is co-authored by Kang and Sean Hwang, an associate analyst.

According to KEPCO's preliminary earnings data, the company posted strong results for the nine months ended 30 September 2015, with unaudited consolidated operating profits of KRW8.7 trillion, up 76% compared to the KRW4.9 trillion in the same period last year.

Moody's expects KEPCO will continue to deliver, owing to strong operational cash flow and lower capital expenditure. Consequently, KEPCO's funds flow from operations (FFO)/debt and FFO interest coverage will likely improve to 22%-25% and 6.0x-6.5x over the next 12-18 months compared to 18% and 5.0x in 2014.

Moody's expects that the Korean government's (Aa3 positive) tariff cuts, if any, will not match the fall in KEPCO's input costs, as the government seeks to help the company fund its sizeable capital expenditure and curb any excessive demand for electricity.

The cash proceeds of about KRW9 trillion that KEPCO received in 2015 for its land sale will enable the company to further reduce its debt leverage. 

"And steady demand growth will support KEPCO's operational cash flows," adds Kang. "We expect KEPCO's sales volumes to grow at around 2% per annum over the next one to two years, despite the soft macroeconomic conditions in Korea."

Kang explains that KEPCO will benefit from steady demand growth in the residential and commercial sectors.