Korea Electric Power Corporation (NYSE:KEP) Q2 2025 Earnings Call Transcript

Korea Electric Power Corporation (NYSE:KEP) Q2 2025 Earnings Call Transcript August 12, 2025

Korea Electric Power Corporation beats earnings expectations. Reported EPS is $0.637, expectations were $0.619.

Operator: Good morning, and good evening. First of all, thank you all for joining this conference call. And now we’ll begin the conference of the fiscal year 2025 second quarter earnings results by KEPCO. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2025 second quarter earning results by KEPCO.

Unidentified Company Representative: [Interpreted] Good afternoon. I am [indiscernible], Head of Finance and IR team at Korea Electric Power Corporation. We sincerely thank you all for joining us for KEPCO’s Q2 2025 earnings conference call despite your busy schedule. Today’s conference call will be conducted in both Korean and English, and after a brief earnings presentation, we will proceed to a Q&A session. The figures presented today are based on IFRS consolidated preliminary figures, and all comparisons are made year-over-year, unless otherwise stated. Please also note that any business plans, targets and estimated financial data mentioned during the call reflect on current outlook and are subject to uncertainties investment risk. We will now present the Q2 2025 profit and loss details first in Korean and then provide the same content in English.

Siyung Yang: [Interpreted] Good afternoon. This is Siyung Yang, General Manager of the IR team. Let us begin by reviewing the operating profit. The consolidated operating profit for the first half of 2025 was KRW 5, 889.5 trillion. If you look into the details, revenue was KRW 46, 174.1 trillion, up by 5.5%. Of this, electricity sales revenue accounted for KRW 4.157 trillion, up by 5.9%, and other revenue, including publicly listed business income posted KRW 2.016 trillion, down by 2.1%. Cost of sales and SG&A expenses totaled KRW 40,284.6 trillion, down by 2.3%. Of this, fuel cost is KRW 9.252 trillion, down by 14.6%, and power purchase cost is KRW 17,357.8 trillion, up by 1.1%, affected by fuel price changes. Depreciation expenses came to KRW 5.878 trillion, increased by 4.4%.

Among nonoperating items, interest expense amounted to KRW 2,211.3 trillion, down by KRW 72.8 billion from the same period last year. Based on the factors mentioned, the first half 2025 consolidated operating profit was KRW 889.5 billion and net cost for the period was KRW 3,538.1 trillion.

Taeseop Eom: [Interpreted] Good afternoon. This is Taeseop Eom, Senior IR Manager of the IR team. I will now go over the key points of interest, first on electricity sales performance and outlook. Electricity sales volume in the first half reached 28.4 terawatt hours, down 0.05% Y-o-Y due to reduced industrial sales on the back of sluggish exports. For the full year 2025, we project sales to go down slightly due to the impact of downward adjustment of the economic growth rate and downturn in the manufacturing sector. Next, let me cover the fuel price by type and the SMP trend. In the first half of 2025, the bituminous coal price based on Australian oil was around $103.1 per ton, while LNG based on JKN was approximately KRW 1.05 million per tonne. Additionally, the system marginal price, or SMP, was around KRW 118.9 per kilowatt hour.

Unidentified Company Representative: [Interpreted] Looking at the generation mix of KEPCO subsidiaries, the generation mix for nuclear went up due to the introduction of a new power plant and the increase of utilization rate. As for coil, generation mix is down from lower utilization, while LNG also is partly down from decreased capacity and increase of base load generation. For the full year of 2025, we expect that the nuclear generation will go down and coal is expected to be maintained, while LNG mix is expected to go down slightly. Expected utilization rate by generation source for 2025 are for nuclear is at the mid-80% range, coil in the upper 40% range and LNG at the mid-20% range. And for — I will now touch upon the RPS related cost.

In the first half of 2025. RPS costs were KRW 1,958.9 trillion on consolidated basis and KRW 2,176 trillion on a separate basis. Finally, to go over the funding status, as for the first half of 2025, borrowings stood at KRW 131.9 trillion on a consolidated basis and KRW 86.5 trillion on a separate basis.

Unidentified Company Representative: [Interpreted] And now we will proceed to a Q&A session. Since we will conduct the session with consecutive interpretation into English as well as Korean, we would like to ask all the participants to take your questions and answers complete and clearly. We’ll now receive questions.

Q&A Session

Operator: [Interpreted] [Operator Instructions] The first question will be given by Jong Hwa Sung from LS Securities.

Jong Hwa Sung: [Interpreted] I am Sung, Jong Hwa from LS Securities. I would like to ask just one question. This is true for LG Chemical, starting from this June, they have announced that it will be purchasing directly from KPX and also this is also true for SK as well that they’re going to get repurchase power from the power exchange. So there seems to be the trend that the companies are going to directly purchase the power from the power exchange. Recently, the industrial tariff has come up and starting from the fourth quarter of last year, the sales unit price of the industrial power has actually exceeded that of the commercial power. In this situation, what is your view on the future direction? And what kind of impact would this have on your company?

And going forward, in order to free or lower the industrial power prices, would — is it possible for you to actually raise the unit price of the commercial power prices? So what kind of basic directions do you have about the situation and potential solutions for this issue?

Unidentified Company Representative: [Interpreted] So let me first take the question about the direct power purchase from the power exchange. As you have already mentioned, LG Chemicals Yeosu plant have announced that they will be directly purchasing the power from the power exchange, and this announcement came in June. And therefore, in the case of this customer, they will now be excluded from our sales as well as from a cost of sales as well. And the exchange will be during the settlement. And so this will happen in fact to our sales volume as well as on our cost of sales. And we do understand there is a couple more companies that have applied for this direct purchase from the power exchange, but we’re not in a position to disclose who those companies are at this point.

And in order to stabilize the corporate power market in order to prevent any abuse of the current system by the direct purchasers, we have actually agreed with the Korea Power Exchange to improve upon the direct power purchasing system. And the key to this agreement is that the mandatory transaction period of the direct purchasers will be extended from 1 year to 3 years. And the sales operator currently bears the burden for the other welfare costs and the DR settlement. And this will be actually imposed in this manner. The system will be improved.

Unidentified Company Representative: [Interpreted] In order to ease the burden of the accumulated deficit as well as improve the financial soundness of the company, yes, we are in a situation where we do need to raise the tariffs additionally. However, the tariff increases until now has been more concentrated on the industrial tariff. And so at this point, there is limited room to engage in additional tariff adjustment for the industrial power. For the other non-industrial sectors, we are reviewing the potential increase of tariffs. And in order to ease the burden on the industrial sector as well as in consideration of the various external factors, we will be engaging in close consultation with the government on ways in which to undertake these cash adjustment.

Operator: [Interpreted] The following question is by Moon, Kyeong Won from Meritz Securities.

Kyeong Won Moon: [Interpreted] So I have 2 questions. My first question has to do with some of the media reports that came out recently. According to these media reports, it is stated that KEPCO is preparing to enter into the nuclear power market of United States. And if we assume that KEPCO is indeed going to enter into this U.S. market, regardless of whether this is true or not at this point, I would like to ask what kind of preparations have been made by KEPCO in order to do so. So for instance, you need to set up your organization in order to prepare to enter into the overseas nuclear power market or you need to perhaps prepare for the possible licensing related issues. Or is it the case that you don’t need to make any further preparation and you can immediately enter into the U.S. market?

Which of the two is your situation? That is my first question. And my second question has to do with the SMP. Especially starting from July as well into the month of August, SMP is being maintained at a lower level than have initially been expected, despite the fact that we’re now in the high season. Compared to previous quarter, SMP is maintained at a lower level, and what is KEPCO’s views of the causes of this more than expected SMP? And what is your SMP-related outlook till the year-end?

Unidentified Company Representative: [Interpreted] First, let me take your question about our possible entry into the U.S. nuclear power market. Recently, United States has announced that by 2050, they will increase the nuclear power capacity from the current 100 gigawatts to 400 gigawatts, in short a fourfold increase from the current capacity. Now this policy by United States to expand their nuclear power generation from the point of view of global nuclear power expansion is indeed positive news. And as such, KEPCO has taken an interest in the potential entry into the U.S. market. And we are taking a positive view and engaging in a review of the overall circumstances, but we’re not in a situation to disclose any specific details, so we’d like to ask for your understanding on this.

Unidentified Company Representative: [Interpreted] Let me take your second question about why the SMP levels in the month of August was lower than expected. This was because in the month of July due to unexpected cheap rates, there was much higher demand than had been initially expected. SMP is actually conducted by the power exchange. They predict the demand, and they calculate the SMP. And due to the impact of the summer vacations and the weather situation, what the power exchange has initially anticipated about the demand in August was actually different from the actual numbers. In short, there was less demand in the month of August than had been anticipated by the KPX. And also added to that, we do believe that the KPX had changed, to a certain extent, the curtailment method, and this also served as another factor.

Operator: [Interpreted] The following question is Ryu, Jae-Hyun from Mirae Securities.

Jae-Hyun Ryu: [Interpreted] So I have 4 questions. First, you talked about the generation mix a while ago, but can you also give us your outlook for the utilization rate for the second half of this year? And actually, the next question has to do with the progressive tariff system. Compared to last year, is there any significant difference? If there is, can you elaborate on that? And finally, during one of your comments, you said that there was little room to raise the industrial tariffs. If that is the case, then is there any possibility of raising the tariff for the residential area or other sectors? So — and also, is there any possibility of introducing a differentiated tariff system as well?

Unidentified Company Representative: [Interpreted] So let’s say, an outlook for the utilization rate, in the case of nuclear, our outlook is mid-80% level and for coal is the upper 40% level. And utilization for LNG is the mid-20% range.

Unidentified Company Representative: [Interpreted] Yes. So let me take your question about the progressive tariff system. So introducing this current system is something that we have done since 2019. So for the month of July up until the month August, we have actually expanded the progressive tariff intervals in order to ease the public burden on the tariff payment. And this system has been in place since 2019, and we do not believe that the impact has grown any larger since last year.

Unidentified Company Representative: [Interpreted] And your next question was about the industrial tariffs, the fact that we have mentioned that there was little room to engage in additional hikes of the industrial tariffs and whether we had any plans for raising the tariffs and other sectors. Well, it is true that because the tariff increases up until now has been concentrated largely in the industrial segment that there’s little room to engage in additional tariff increases there. But we also recognize the fact that we need to raise the tariffs in other segments. However, in terms of specifically which sector will be targeted for tariff increase, the level of the tariff increases and the timing is something that has not been specifically decided as of yet. We will be continuously persuading the government on the need to do so, and we will closely work with the government in order to make sure that tariff adjustments can come through.

Unidentified Company Representative: [Interpreted] Next, about the possibility of introducing a regional-based tariff system, currently, in keeping with the government plan to introduce a tariff system that is differentiated by the region, so we are currently engaging in research and study And through further consultations with the government, we are designing the possible introduction of a regionally differentiated tariff system. So our target is to introduce this system by early 2026, and we will be working to come up with a detailed plan for the implementation. And by the first half of next year, while we intend to gather the opinions of relevant stakeholders, and we’re targeting introducing the system within the year 2026.

Operator: [Interpreted] [Operator Instructions] The following question is by Hur, Minho from Daishin Securities.

Minho Hur: [Interpreted] So I have 3 questions. it seems as if in the first quarter, the settlement unit price related to the nuclear is on a rising trend. So I’d like to ask what was the drivers behind this rise in the settlement unit prices of nuclear. And also can you elaborate on what the adjusted coefficient for the coal-fired power plant and other segments in first half of the year? And then moving on to the regional wholesale and retail tariff system that you have mentioned, you said earlier that you plan on introducing the system starting from 2026. Is this going to be a simultaneous introduction of both wholesale and retail tariff system? Or is it going to be only wholesale tariff system that will be introduced first?

Because they seem to be different in your report related to this. And my final question has to do with the RPS cost. What was the reference unit price on a consolidated basis as well as on a separate basis? And also can you elaborate what the cost was related to the EPS as well?

Unidentified Company Representative: [Interpreted] Let me take your question about the rise of the segment — unit price of the nuclear power segment. So this is something that we will be actually getting back to later on. And moving on to the next question is about the adjusted coefficient. For the nuclear and the coal-fired power plant, the thermal power generation, the adjusted coefficient has not been changed in the first quarter and the second quarter. With regards to the future outlook, we will be reassessing it at a level that allows us to maintain financial health and balance. We will be consulting with the government in order to come up with an appropriate coefficient.

Unidentified Company Representative: [Interpreted] Yes. Let me take your question about the regionally differentiated tariff system. So this tariff system that we are aiming to introduce by 2026 is actually the retail tariff system. And as for the wholesale system, this is something that is led by KPX, and we understand that they’re making preparations to introduce this system within 2025..

Unidentified Company Representative: [Interpreted] Let me get your question about the RPS. So in the case of the consolidated financial statement, the RPS related costs come to KRW 1, 168.3 trillion and on a separate basis, the number is KRW 1,191.7 trillion. And also regarding the costs related to greenhouse gas emissions, this is already something that is reflected in the power purchase cost and it is already settled. So there is nothing that is reflected in our financial statements related to this item.

Operator: [Interpreted] The following question is [indiscernible] from Citi Group.

Unidentified Analyst: So I just have one questions about the fuel price outlook for the full year 2025. Can you please give some color about the coal and LNG oil price in the second half of the year?

Unidentified Company Representative: [Foreign Language]

Operator: [Interpreted] [Operator Instructions] The following question is by Hwang, Sung Hyun from Eugene Investment & Securities.

Sung Hyun Hwang: [Interpreted] Yes. I have a question on your dividend policy. Of course, given your current performance, I don’t think you’re in a very good position to pay out dividends. However, from your positioning, do you sense any change in the government stand about KEPCO possibly paying out dividends going into the future?

Unidentified Company Representative: [Interpreted] Let me get your question about the dividends. As you are probably well aware, in the mid- to long term, the government’s target for the dividend related to KEPCO is a 40% payout — the dividend payout ratio. When the new administration took office, we have not been separately notified either by the MOE, Ministry of Economy and Finance, or the government’s side about any possible changes to the KEPCO’s dividend payout ratio. However, going forward, in consideration of our financial situation as well as our need to make investments in order to expand our power grid, we will be considering our dividend payout ratio in the direction that will allow for the enhancement of shareholder value.

Operator: [Interpreted] [Operator Instructions] The following question is by Hwang, Sung Hyun from Eugene Investment & Securities.

Sung Hyun Hwang: [Interpreted] I have a question about last year’s dividend payout ratio. Last year, the dividend payout ratio was 15%. I’d like to know how that figure has been decided. And my second question has to do with KHNP’s role. It seems that, recently, the role of KHNP is expanding, and we want to know what KEPCO’s views or position on the potential role of KHNP is.

Unidentified Company Representative: [Interpreted] Yes. With regards to last year’s dividend payout ratio of 15%, actually, it is the Ministry of Economy and Finance, that is the lead ministry in deciding the dividend payout ratio of KEPCO. And so we do not actually have — we’re not in the know of how exactly that figure came about. But during the consultations with that ministry, we did put in a request that our financial situation as well as our future investments needs to be taken into consideration in setting the dividend payout ratio.

Unidentified Company Representative: [Interpreted] And as relating to your second question about potential IPO of KHNP, we have not officially engaged in any review of this possibility.

Operator: [Interpreted] [Operator Instructions] The following question is by Sung, Jong Hwan from LS Securities.

Jong Hwa Sung: [Interpreted] I have further questions about the dividend. So maybe this is a question that is difficult to answer, but I’ll ask this question anyway. In the case of last year, your — compared to your consolidated net income, your separate base net income share was exceptionally low. Despite that being so, the dividend payout ratio that was determined was only 15%. So although we are seeing in recent days a meaningful profit that is coming out of KEPCO, but on the other hand, if we take into consideration your accumulated losses, it is, I believe, challenging for the company to pay out the dividend that you have paid out in the past. And so if that’s the case, is it possible for you to adjust the settlement coefficient, so that the ratio between the consolidated basis, net profit and the separate net profit can be adjusted and dividends possibly be paid out in that manner? What is your view on this?

Unidentified Company Representative: [Interpreted] Let me answer your question. So in the case of the adjusted coefficient, it is based on cost assessment and also based on our regulations and policy. So is it unrelated to dividend payout ratio.

Unidentified Company Representative: [Interpreted] So let me add to that. In the Cost Assessment Committee, they take into consideration the fuel costs as well as the fixed cost in coming up with these calculations. So this is something that is determined unrelated to dividend policy.

Operator: [Interpreted] [Operator Instructions] As there are no further questions, we’ll now end the Q&A session. For any additional inquiries, please contact our IR department. This concludes the fiscal year 2025 second quarter earning results by KEPCO. Thank you for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]