Korea Electric Power - Earnings Call - H1 2023

Transcript

Speaker 0

Good morning and good evening. First of all, thank you for joining this conference call. And now we will begin the conference of the fiscal year twenty twenty three second quarter earnings result by Kepco. This conference will start with a presentation followed by a divisional Q and A session. Now we shall commence the presentation on the fiscal year twenty twenty three second quarter earnings result by Kepco.

Speaker 1

Good afternoon. This is Nam Young Chang, Head of Finance and IR team. On behalf of Kepco, I would like to thank all the participants to attend today's conference call to announce earnings results for the 2023. Today's call will be preceded in both Korean and English with a brief presentation on an earnings result followed by Q and A session. Please note that the financial information will be to be disclosed today is on a preliminary unaudited and consolidated basis in accordance with KRFRS.

Any comparison will be on a year on year basis between last year and this year. Business strategies, plans, financial estimates and other forward looking statements included in today's call are based on our current expectations and plans. Please be noted that such statements may involve certain risks and uncertainties. Now we will go over the overview of earnings results for the 2023 in Korean and English. Now we will provide the overview in English starting with operating income.

In the 2023, Kepco recorded an operating loss of KRW 8,500,000,000,000.0. To take a closer look, operating revenues increased by 29% to KRW 41,200,000,000,000.0 year on year. Power sales revenue rose by 31% to KRW 38,600,000,000,000.0, while revenue from overseas and other businesses increased by 3% to KRW 2,600,000,000,000.0. Next is on operating cost. Cost of goods sold and SG and A expenses increased by 7% to KRW 49,700,000,000,000.0.

Fuel cost was hiked by two, 3% to KRW 15,100,000,000,000.0 due to continuous impact from the rapid increase in LNG and coal price last year. Next is on purchase power cost, which surged by 11% to KRW 21,100,000,000,000.0. This was also due to increased fuel price last year. Depreciation cost increased by 4% to KRW 5,600,000,000,000.0, mainly due to newly constructed facilities and power plant. Now let me explain Keppa's non operating segment.

The net financial loss was KRW 1,900,000,000,000.0 year on year basis. Loss was increased by KRW 900,000,000,000.0, mainly due to increased debt and interest rate. As a result of the foregoing, we recorded a consolidated net loss of KRW 6,800,000,000,000.0. This is the end of overview of Kaepo's earnings results for the 2020 This is senior IR manager, Wonky Cho. First is on sales outlook.

Electricity sales volume in the first half is down by 0.8% due to decrease in industrial use from sluggish export. On an annual basis, we expect limited increase in sales volume Y o Y as the Korean economic growth slows down. Next is unit fuel cost by fuel type. Unit fuel cost in the 2023 recorded 260,000 won per ton for coal and 1,800,000.0 won per ton for LNG. On generation mix by Gencos in q two, nuclear generation has increased in q two, but coal based generation is down.

Shinano number one is in operation, but generation volume is slightly down from lower utilization due to increase in plant maintenance. Coal generation is down from decreased electricity demand and utilization, and LNG generation volume is also down from reduced demand. On an annual basis, we expect to see increased generation mix for nuclear as utilization of nuclear power plant goes up, and coal and LNG mix is expected to stay around at the current level. Annual power plant utilization by fuel is expected to be in early to mid-eighty percent for nuclear, mid-fifty percent for coal and mid-twenty percent for LNG. Next is on RPS and ETS related costs.

Renewal portfolio standard costs recorded KRW735 billion on a consolidated basis and KRW850 billion on a stand alone basis. ETS cost is KRW 35,000,000,000 on a consolidated basis and negative KRW 800,000,000 on a standalone basis. This concludes a brief update on the business environment. We will now move on to the Q and A session. I am now joined by our IR committee members in charge of different businesses within Kepco.

We are now ready to accommodate your questions. Our Q and A session will be proceeded in both Korean and English, and we would like to ask you to make your questions and answer brief and clear.

Speaker 0

Now q and a session will begin. Please press 1 if you have any questions. For cancellation, please press 2 on your phone. The first question will be given by mister Pierre Lau of Citibank. Please go ahead, sir.

Speaker 2

Hello. Good afternoon, management. Thank you for your time. I have four questions. The first one is your generations reduced by 6% year on year in the second quarter.

So what is your guidance regarding generations change in 2023 versus last year? Second question, if you look at Page four about interest expense from your result announcement, interest expense reduced by 21% on year. So what was the reason for the lower interest expense in the first half given that that amount become higher and also interest cost become higher? And the third question is what is the current progress regarding any applications regarding CALPHI? Do you expect any CALPHI in second half this year?

And the last question is would you give us the guidance regarding the unit coal, LNG and oil courses for 2023 for the full year. Thank you.

Speaker 1

To answer your first question, this is Young Soo For the 2023 power generation guideline, what we have expected initially is to see an increase in overall generation volume. But as we're seeing a decrease demand in the second half of the year, on a Y o Y basis, we believe the overall generation volume will stay at par with last year or have a slight increase compared to last year. To answer your second question on interest expense, on a first half consolidated basis, our interest expense is KRW 2,200,000,000,000.0, which is a 79% increase on a Y o Y basis, And it is mainly driven by increased borrowing and debt that we have and also increased interest rate. I would like to answer the fourth question first. On the unit of fuel cost expectation, we are anticipating early KRW 200,000 per ton for coal and for LNG, KRW1.3 million to KRW1.4 million for LNG.

However, these projections may change depending on the overall energy price trend. Regarding, the adjustment for tariff in the second half, we are in the process of discussing with the government on the overall process for adjusting tariff. But at the moment, nothing has been determined in terms of increasing our power price.

Speaker 0

The following question is by mister Song Yeon Hwang of Yuzhen Investment Securities. Please go ahead, sir.

Speaker 1

I have two questions. First is on the ETS cost. It seems that the overall ETS cost has gone up. I would like to understand if there are other factors driving this cost up other than the overall requirement or the standard ratio that is required and also the impact from the unit cost? Second question is would like to understand your overall guideline on CapEx and also breakdown for your T and D cost.

So it's not ETS, but RPS cost drivers. To answer your question on RPS cost increase, the overall standard ratio has gone up from 12.5% to 13%. And because of this, Genco's execution volume has gone up. To answer your question on the overall long term T and D CapEx, there is no significant change on CapEx for T and D for this year and next year. So it stay at the level of KRW 6 to KRW 7,000,000,000,000 for the overall T and D CapEx.

Speaker 0

Currently, there is no participant waiting with the questions. Please press 1 to give your question. Once again, please press 1 if you have any question. The next question will be given by mister Song Hyun Hwang of Eugene Investment Securities. Please go ahead, sir.

Speaker 2

I

Speaker 1

have one follow-up question on the overall preventive maintenance schedule. You also mentioned about the nuclear power plant increased preventive maintenance. So when you look at the annualized maintenance volume, it seems that in the first half of this year, the overall maintenance volume has gone up. So can we expect that in the second half of the year, we will see decrease in overall maintenance? So as mentioned, the plant maintenance schedule is largely focused around the first half of the year.

So as we as such, we can expect that in the second half of this year, we will have less plant maintenance schedule.

Speaker 0

The following question will be given by mister of NH Investment Securities. Please go ahead, sir.

Speaker 1

I have three questions. First is on the, eleventh, basic plan on the electricity supply and demand plan. What is the progress to date on the development of this plan? And also for nuclear power plant, is there certain regions overseas that you're tapping for opportunities? And if you could share that with us, that would be great.

And second question is on the domestic offshore wind generation. Would you please share the current progress to date that is going on for offshore wind for both KEPCO and Genco, if you can share any? And next is on the fuel cost pass throughs unit cost. In the second half of this year, is there a potential possibility that you will be lowering the overall tariff due to this adjusted unit cost of bypassing through the fuel costs. So to answer your question on the eleventh basic plan on the electricity supply and demand, currently, the first, comprehensive conference by the government agencies has been carried out on July 27, and they have plan they are planning to announce, the overall working level plan within this year.

As far as I know, at this point, there is no additional nuclear power plant, that is being shared at the moment. To answer your question on the over overseas nuclear power plant projects, currently, our group is dividing, the overall coverage of regions between KEPCO and KHNNP. KEPCO is covering Saudi Arabia, UAE, and, UK region, whereas KHNP is covering East European region and Egypt. At the at the moment, we do not have any, newly planned project going on. To answer your questions on the offshore wind project, to share with you the first progress on the Jeongguk areas, Southeast Region offshore wind project of two point 1.2 gigawatt.

We are currently, carrying out pilot project for 400 megawatt offshore wind, and we're planning to have extended 800 megawatt extended project for this year. And currently, we have held, the selection committee in Jan on in January 2023. And also for the extended project of 800 megawatt, we have carried out a feasibility research in in June 2023. And, also, we are pursuing Xinhan offshore wind project of 1.5 gigawatt, and we have carried out risk assessment committee for the unit one of Shinan offshore wind in July 2023. To answer your question on the fuel cost pass through, unit price for the overall electricity, currently, it is true that the overall global fuel price is on the trajectory to decline.

However, at the moment, the oil price is uncertain and fluctuating. Therefore, at this point, we regret to say that it's difficult to have a projection for the ongoing fuel cost. So we ask for your understanding.