State-run utility behemoth Korea Electric Power Corporation (KEP) incurred a net loss of KRW51 billion (USD$45.3 million) for the first nine months of 2010, a decrease of 117.7%, compared with a net income of KRW289 billion (USD$256.8 million) for the first nine months of 2009. This was primarily due to increased power purchase costs. Power purchase costs rose mainly due to an increase in the volume of LNG-based electricity generation.

In the first nine months of 2010, Korea Electric Power’s operating revenues went up 15.3% to KRW28.9 trillion (USD$25.7 billion). Sale of electric power, the principal component of operating revenues increased 13.6% year over year to KRW28.1 trillion (USD$25 billion). The increase was mainly due to an average tariff increase of 3.5% as well as a 9.8% year-over-year growth in the volume of power sold to end-users.

Volume of power sold rose mainly on account of the demand growth for air conditioning and increased demand from the industrial sector, fueled by economic recovery in South Korea.

In the first nine months of 2010, operating expenses grew 23.2% year over year to KRW30.8 trillion (USD$27.3 billion). Power purchase costs increased 24.7% to KRW26 trillion (USD$23.1 billion) due to a 9% increase in the volume of power purchased and a 27.6% increase in unit costs of power purchased, driven by increased LNG generation.

Overall, the company recorded an operating loss of KRW1.9 trillion (USD$1.7 billion) in the first nine months of 2010, compared with an operating loss of KRW80 billion (USD$71.1 million) in the same period of last year.

Korea Electric Power is an integrated electric utility engaged in the generation, transmission and distribution of electricity in South Korea. The company along with its generation subsidiaries owns approximately 87.1% of the total electricity generating capacity in Korea.

Korea Electric Power’s current Zacks Consensus EPS Estimate for fiscal 2010 is 7 cents, while the revenue estimate for fiscal 2010 is slightly above $31 billion.

We maintain our Neutral recommendation on Korea Electric Power with a quantitative Zacks #3 Rank (Hold), indicating no clear directional pressure on the shares over the near term. In the near term, we would advise investors to focus on the company’s Zacks #1 Rank peers, who have a Strong Buy recommendation such as Cleco Corporation (CNL), NRG Energy Inc. (NRG) and Ameren Corporation (AEE).

 
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