Undervalued Electric Provider: Korea Electric Power

Significant value as stock is trading just a third of its equity

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Stock: Korea Electric Power Corp ADR KEP, 015760.KS

Korea Electric Power, a ₩24.4 trillion power transmission and distribution of Korea’s energy, caught my attention as it just traded 66% discount to its equity as of December 3, 2017. Korea Electric also has a trailing dividend yield of 4.92%.

As of December 31, 2016, Korea Electric Power and its generation subsidiaries owned approximately 74.7% of the total electricity generation capacity in Korea (excluding plants generating electricity primarily for private or emergency use).

In addition, the Korean electric company is 51.1% owned by the Korean Government, as mandated by its country’s laws. This stipulation makes the company an even more secure bet for conservative investors out there.

Income statement
As for its recent six months of operations, however, Korea Electric showed 3.1% revenue reduction year over year and a not so impressive 69% drop in profits.

In contrast, the electric company recorded 3.62% revenue growth and 390% profit growth averages in the past three years.

Balance sheet
In the recent six months, the company also took in more debt in the same period net repayments and other financing activities having added ₩662.8 billion from last year resulting to a total liability to equity ratio of 1.52x (vs. 1.56x a year earlier).

Cash flow
In the recent six months, Korea Electric also generated a free cash outflow of ₩2.3 trillion compared to positive 1.5 trillion a year earlier.

In comparison to its three year period, the utility company reduced its overall debt by nearly ₩9 trillion, raised ₩853 billion in share issuances, and provided ₩2.7 trillion in dividend payouts out of its ₩4.6 trillion free cash.

Analysts have an average overweight recommendation on the company with a target price of $22.39 per ADR share (vs. $17.57 at the time of writing) indicating a possible 27.4% upside.

Sticking on the conservative side and placing a good 35% off its book value provided a value of ₩36,309 per share or $33.51.

Minus the possibilities of having a war being brought by its country’s neighbor and having returned total losses of 4.9% so far this year, Korea Electric Power is of definite value.

Disclosure: I have shares in Korea Electric Power.

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