Korea Electric Power Corp (KEP) 2022 Q4 法說會逐字稿

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 2022 fourth 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 2022 fourth quarter earnings results by KEPCO.

[Interpreted] Good afternoon. This is [Damian Park], Head of Finance and IR team of KEPCO. On behalf of KEPCO, I would like to thank all of you for participating in today's conference call to announce earnings results for fiscal year of 2022. Today's call will be proceeded in both Korean and English. Beginning with our prepared presentation on the earnings results, Q&A session will be followed.

Please note that the financial information disclosed today is on a preliminary, unaudited and consolidated basis in accordance with K-IFRS. 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 IR Manager, Mr. (inaudible) will begin with an overview of earnings results for 2022, first in Korean and then repeat in English.

[Interpreted] Now we'll provide the overview in English starting with operating income. In 2022, KEPCO recorded an operating loss of KRW 32.6 trillion. To take a closer look, operating revenue increased by 70% to KRW 71.3 trillion year-on-year. Power sales revenue rose by 15% to KRW 66.2 trillion, while revenue from overseas and other businesses increased by 51% to KRW 5.1 trillion.

Moving on to main operating costs. Cost of goods sold, and SG&A expenses increased by 56% to KRW 103.9 trillion. Fuel cost was hiked by 78% to KRW 34.7 trillion due to rapid increase in LNG and coal prices. Next, purchased power costs surged by 94% to KRW 41.9 trillion. This was due to larger purchase power volume from the independent power producers and higher unit prices of purchased power. Depreciation cost increased by 4%, KRW 10.28 trillion, mainly due to newly constructed facilities and power plants.

Now let me explain KEPCO's nonoperating segment. The net financial loss was KRW 2.9 trillion, increased the loss by KRW 1.1 trillion from the last year. As a result of the foregoing, we recorded a consolidated net loss of KRW 24.4 trillion, which is the [KRW 19.2 trillion] increase from KRW 5.2 trillion of consolidated net loss in the previous year. This is the end of overview of KEPCO's earnings results for 2022.

[Interpreted] Good afternoon. This is IR Manager, Yoonhye Cho. I would like to briefly go over a few items related to earnings. First, on sales outlook. Electric sales volume in 2022 grew 2.7% year-on-year, driven by domestic economic recovery. In 2023, consumption is expected to decline due to slow global growth and trade as well as high interest and high oil price and high inflation, which will limit sales volume growth at a low level.

Next is on fuel unit cost by fuel source. Unit fuel cost in 2022 (inaudible) KRW 280,000 per ton for coal and 1 million 54 -- KRW 1,540,000 per ton for LNG, excluding unloading cost as the fuel price rises globally.

Generation mix by GENCO in 2022 for nuclear power plants saw increased volume from higher utilization and electricity demand. Coal went down slightly from planned maintenance days, mainly environmental equipment upgrade of Yeosu #1 and 2 and same for LNG due to increased nuclear utilization. Nuclear power plant generation is expected to go up as new plants are introduced for example, Shinhan #1 and 2, along with increased utilization, while coal and LNG is expected to have increased generation capacity from newly introduced plants, but generation volume remains to be determined as cap on coal generation is applied.

Generation mix outlook for 2023 is expected at mid-80% level for nuclear. And for coal, it will be similar to the previous year and mid-20% level for LNG.

Next is on RPS and EPS-related cost. In 2022, RPS cost has increased as the REC mandate increased from 9% in the previous year to 12.5%. And on a consolidated basis, the RPS cost is KRW 3.0016 trillion. And on a stand-alone basis, it's KRW 3.7081 trillion. For EPS costs on a consolidated basis, the cost is KRW 493.4 billion. And on a stand-alone basis, it's KRW 53.1 billion.

This concludes the briefing on the key business environment.

[Interpreted] Now we will move on to the Q&A session. We are joined by our IR committee members in charge of major business areas at KEPCO, and we're ready to accommodate questions that you will have. Since we are hosting the question session in both Korean and English, please make your questions and answers brief and clear.

[Interpreted] (Operator Instructions) Currently, there are no participants with question. (Operator Instructions). The first question will be given by Hwang Sung Hyun from using Eugene Investment Securities.

[Interpreted] I have a question on the impact of SMP cap that started since December. I would like to understand the impact on the financial balance sheet and also how much would the impact will be for the first quarter. Could you please share your prospects?

[Interpreted] So the question -- since the surge of the fuel price since December last year, in order to protect the consumers, we have implemented the emergency cap on the SMP price. If you look at the SMP price on average from December and January time period, it has ranged from KRW 250 to KRW 260 per unit, and the cap that was applied was KRW 160 for land power cost. Of course, this cap cannot be applied for 3 consecutive months, so this number will not be applied starting in March. So the optimal level of the cost will be determined, but this is expected to fluctuate depending on the international fuel cost range. So the impact of this cap can be only determined once we have the first half of the number ready for 2023.

[Interpreted] The following question is by Aram from Citi.

My name is Aram from Citi Research. So I would like to ask about your on outlook or any guidance regarding on the coal and oil cost assumption for the 2023, so yes.

[Interpreted] Just to comment on that first. The recent energy price is very difficult to predicted to uncertainties of the market. With that in mind, I would like to add the following price outlook. Sorry. So it's very uncertain for us to predict, so that is to be determined depending on the recent market trend.

[Interpreted] Currently, there are no participants with question. (Operator Instructions) The following question is by [Kim Dungha] from Kim Investment Asset Management.

[Interpreted] So I have 2 questions. The first question is on the progress to date for the construction of Shinhan #3 and 4. I believe the completion is expected at 2033 and '38 respectively for this nuclear power plant. So what is the current update on the progress? The second question is on the size and interest rate of KEPCO bond as of January. And what is your current utilization for the nuclear power plant?

[Interpreted] In regarding Shinhan -- on your question on Shinhan #3 and #4, we are currently following up on the government approval of the nuclear power plant. So we will actually follow up with you off-line on the current update.

So on the size and interest rate of KEPCO bond for January, we'll follow-up with you off-line after this conference call and give you that data separately.

[Interpreted] Currently, there are no participants with questions. (Operator Instructions)

[Interpreted] On your second question regarding utilization outlook for nuclear power plant for this year is expected at mid-80% level.

[Interpreted] The following question is by [Kim Dungha] from Kim Investment Asset Management.

[Interpreted] I have a follow-up question. For LNG price, there will be some lag to reflect that price change in the -- on the SMP. So the price is going down. And internally, what's your view on reflection of this decline in price on the SMP price? If you could also tie that answer to the bituminous coal price as well because that is a lagging index, and it will be great to understand when that will be reflected on the SMP.

[Interpreted] The reflection of the actual price on SMP will be different depending on the source of the fuel. For LNG, usually the lagging period would be 6 months. And for spot, it will be about 3 months. And for bituminous coal, it will be different based on the purchasing source of the bituminous coal. For new cast oil cost, it will be around 6 months to be reflected on the price. And for Australian coal, it will be 5 months. And for Indonesia, it's earlier than that, but it's -- at this point, it's difficult to confirm how early that would be.

[Interpreted] The following question is by Lee Minjae from NH Investment Securities.

[Interpreted] I have 2 questions. First is on how much buffer do we have to issue corporate bonds since the fourth quarter of 2022? And second question is what are some of the overseas nuclear power plant that we are currently proceeding at the moment?

[Interpreted] As of end of 2021, based on the KEPCO Act, we can issue 2x the capital that we can utilize, and the buffer that we had was up to KRW 92 trillion. As of last year, 2022, it is KRW 70 trillion.

And with the amendment to KEPCO Act, we can issue 6x as high as corporate bond, and the final amount could be determined once KEPCO finalizes on its final financial closure.

[Interpreted] At the moment, currently, KEPCO is pursuing overseas nuclear power plant in United Kingdom as well as Turkey. And we are currently pursuing 2 more nuclear power plant projects in Saudi Arabia.

[Interpreted] Currently, there are no participants with question. (Operator Instructions) The following question is by Lee Minjae from NH Investment Securities.

[Interpreted] So if I may ask one more question, you will probably pursue to increase the tariff in the remainder of the quarters. And I would like to understand which line items you will be leveraging to reflect this increased tariff.

[Interpreted] For 2022, we are going to make efforts to rationalize the tariff -- electricity tariff system in a phased manner. At the moment, the line items or items that will be used is not determined yet, but we will be working firstly with the government to reflect that in the final tariffs.

[Interpreted] The following question is by Hwang Sung Hyun from Eugene Investment Securities.

[Interpreted] I have a question on the increased other cost, and it has gone up by more than KRW 1 trillion. It will be nice to understand the line item that was involved in driving up this other cost line items compared to previous year or on a quarter-to-quarter basis.

[Interpreted] So most of the line item that was causing the increase of other operating costs higher -- up is the line item of other materials cost, and this is largely the overall acquisition cost of new projects for a combined power plant for GENCOs.

[Interpreted] Currently, there are no participants with questions. (Operator Instructions) The following question is by Park KwangRae from Shinhan Investment Securities.

[Interpreted] I may have missed this in your previous briefing, but for the last year, the fourth quarter, could you share with us your power purchase volume and as well as power purchase cost?

[Interpreted] As for the purchase volume in 2022, it's 571 terawatts for the whole year but this is the number combined for both GENCOs and IPPs. And for purchase cost, it's KRW 41.17 trillion -- KRW 41.19 trillion, up by KRW 22 trillion.

[Interpreted] Currently, there are no participants with questions. (Operator Instructions)

[Interpreted] If there are no further questions, we would now like to conclude our earnings conference call. Thank you for your participation.

[Interpreted] This completes the fiscal year 2022 fourth quarter earnings release 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.]