Korea Electric Power Corp (KEP) 2023 Q2 法說會逐字稿

[Interpreted] 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 2023 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 2023 second quarter earnings results by KEPCO.

[Interpreted] Good afternoon. This is [Nam Yong Jang], Head of Finance and IR team. On behalf of KEPCO, I would like to thank all the participants who attend today's conference call to announce earnings results for the second quarter of 2023. Today's call will be proceeded in both Korean and English, with a brief presentation on an earnings results, followed by a Q&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 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 we will go over the overview of earnings results for the second quarter of 2023 in Korean and English. (foreign language)

[Interpreted] Now we will provide the overview in English, starting with operating income.

In the first half of 2023, KEPCO recorded an operating loss of KRW 8.5 trillion. To take a closer look, operating revenue has increased by 29% to KRW 41.2 trillion year-on-year. Power sales revenue rose by 31% to KRW 38.6 trillion while revenue from overseas and other businesses increased by 3% to KRW 2.6 trillion.

Next is on operating cost. Cost of goods sold and SG&A expenses increased by 7% to KRW 49.7 trillion. Fuel cost was hiked by 3% to KRW 15.1 trillion due to continuous impact from the rapid increase in LNG and coal price last year.

Next is on purchased power cost, which surged by 11% to KRW 21.1 trillion. This was also due to increased fuel price last year.

Depreciation cost increased by 4% to KRW 5.6 trillion, mainly due to newly constructed facilities and power plant.

Now let me explain KEPCO's nonoperating segment. The net financial loss was KRW 1.9 trillion year-on-year basis. Loss was increased KRW 0.9 trillion, mainly due to increased debt and interest rate. As a result of the foregoing, we recorded a consolidated net loss of KRW 6.8 trillion. This is the end of overview of KEPCO's earnings results for the first half of 2023.

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[Interpreted] This is Senior IR Manager, [Wanje 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 first half of 2023 recorded KRW 260,000 per ton for coal and KRW 1.8 million per ton for LNG.

On generation mix by GENCOs in Q2, nuclear generation has increased in Q2, but coal-based generation is down. Shin-Hanul #1 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 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-80% for nuclear, mid-50% for coal and mid-20% for LNG.

Next is on RPS and ETS-related costs. Renewable portfolio standard cost recorded KRW 735 billion on a consolidated basis and KRW 850 billion on a stand-alone basis. ETS cost is KRW 35 billion on a consolidated basis and negative KRW 800 million on a stand-alone basis. This concludes a brief update on the business environment.

[Interpreted] We will now move on to the Q&A session. I'm now joined by our IR Committee members in charge of different businesses within KEPCO. We are now ready to accommodate your questions. Our Q&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.

[Interpreted] (Operator Instructions) The first question will be given by Mr. Pierre Lau of Citibank.

I have four questions. The first one is your generation is reduced by 6% year-on-year in the second quarter. So what is your guidance regarding generation's change in 2023 versus last year?

And second question, if you look at Page 4 about interest expense from your result announcement, interest expense reduced by 21% year-on-year. So what was the reason for the lower interest expense in the first half given that, that amount becomes higher and also interest cost becomes higher?

And the third question is, what is the current progress regarding any applications regarding tariff hike. Do you expect any tariff hike in second half this year?

And the last question is would you give us the guidance regarding the unit coal LNG and oil costs for 2023 for the full year? (foreign language)

[Interpreted] To answer your first question, this is [Yong Soo Wang]. For the 2023 power generation guideline, what we have expected initially is to see increase in overall generation volume. But as we're seeing a decrease in 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.

[Interpreted] To answer your second question on interest expense, on a first half consolidated basis, our interest expense is KRW 2.2 trillion, 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 a unit of fuel cost expectation, we are anticipating early KRW 200,000 per ton for coal. And for LNG, KRW 1.3 million to KRW 1.4 million for LNG. However, these projections may change depending on the overall energy price trend.

[Interpreted] 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.

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

[Interpreted] I have two questions. First, just 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&D cost.

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[Interpreted] 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.

[Interpreted] To answer your question on the overall long-term T&D CapEx, there is no significant change on CapEx for T&D for this year and next year. So it will stay at the level of KRW 6 trillion to KRW 7 trillion for the overall T&D CapEx.

[Interpreted] Currently, there is no participant waiting with the questions. (Operator Instructions) The next question will be given Mr. Sung Hyun Hwang of Eugene Investment Securities.

[Interpreted] I 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 a decrease in overall maintenance?

[Interpreted] So as mentioned, the plant maintenance schedule is largely focused around the first half of the year. So as such, we can expect that in the second half of this year, we will have less plant maintenance scheduled.

[Interpreted] The following question will be given by Mr. Lee Minjae of NH Investment Securities.

[Interpreted] I have three questions. First is on the 11th 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 potential possibility that you will be lowering the overall tariff due to this adjusted unit cost by passing through the fuel costs.

[Interpreted] So to answer your question on the 11th 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 -- 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 overseas nuclear power plant projects, currently, our group is dividing the overall coverage of regions between KEPCO and KHNP. KEPCO is covering Saudi Arabia, UAE and U.K. region, whereas KHNP is covering East European region and Egypt. At the moment, we do not have any newly planned project going on.

[Interpreted] To answer your question on the offshore wind project, to share with you the first progress on the Chungbuk area, southeast region offshore wind project of 1.2 gigawatts, we are currently carrying out pilot projects 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 January of 2023.

And also for the extended project of 800-megawatt, we have carried out our feasibility research in June of 2023. And also, we are pursuing Shin-Hanul offshore wind project of 1.5 gigawatt, and we have carried out risk assessment committee for the Unit 1 of Shin-Hanul offshore wind in July of 2023.

[Interpreted] 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.

[Interpreted] Currently, there is no participant waiting with the questions. (Operator Instructions)

This concludes the conference of the fiscal year 2023 second quarter earnings 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.]