Korea Electric Power Corporation (A015760) Earnings Call Transcript & Summary

[Interpreted] Good morning, and good evening. First of all, thank you all for joining this conference call, and now we will begin the conference of the fiscal year 2026 2nd quarter earnings resulted by KEPCO. This conference will start with a presentation, followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation.

[Interpreted] Good afternoon. This is Heung-Bok, Head of Finance at KEPCO. I'd like to thank you all for participating in today's conference call for the business results for the second quarter of 2026, despite your busy schedules. Today's call will be conducted in both Korean and English. We will begin with a brief presentation on the earnings results, which will be followed by a Q&A session. Please note that the financial information to be disclosed today is preliminary consolidated IFRS figures and all comparison is on a year-over-year basis unless stated otherwise. Also, business plans, targets, financial estimates and other forward-looking statements mentioned today are based on our current target and forecasts. Please be noted that such statements may involve investment risks and uncertainties. Now we will begin with an overview of the earnings results for the first half of 2026 in Korean, which will be then consecutively translated into English. First, I will go over the operating performance. The consolidated operating income in 2026 1st half stood at KRW 4,912.7 billion. Revenue increased by 0.3% to KRW 46,317.3 billion. Power Sales decreased by 0.4% to KRW 43,964.1 billion. Other revenue, including overseas business revenue increased by 16.7% to KRW 2,353.2 billion. Cost of goods sold and SG&A rose by 2.8% to KRW 41,404.6 billion. Fuel costs increased by 8.8% to KRW 10,142.9 billion. Purchase power costs decreased by 0.9% to KRW 17,206.9 billion. Depreciation expense increased by 1.3% to JPY 5,951.5 billion. Of the nonoperating items, interest expense decreased by KRW 132.2 billion Y-o-Y to KRW 2,079.1 billion. As a result of the foregoing, the 2026 1st half consolidated operating income stood at KRW 4,912.7 billion and net income at KRW 2,796.5 billion.

[Interpreted] Good afternoon. I'm Taeseop Eom, Senior IR Manager. I will now go over the main areas of interest, starting with Power Sales performance and outlook. 2026 1st half Power Sales volume decreased by 0.6% Y-o-Y to 266.7 terawatt hours due to a decrease in industrial demand caused by economic slowdown. For the full year, a higher economic growth rate and number of operating days are expected to slightly increase sales volume. Next, I will go over the fuel price by fuel source and SMP trends. In 2026 1st half for bituminous coal, Australian coal was around $128.2 per ton. JKM LNG was about KRW 939,000 per ton. SMP was approximately KRW 112.3 per kilowatt hour. Looking at the subsidiaries generation mix in the first half, the capacity factor of nuclear power decreased and contribution to the generation mix decline. While for coal, utilization and contribution to the generation mix both increased due to the decrease of the capacity factor of nuclear power. In case of LNG, contribution to the generation mix increased as the overall volume of baseload generation decreased. In 2026, the contribution of nuclear power should slightly increase, coal should slightly decrease and LNG should largely be maintained. Also in 2026, the capacity factor of these power [ sources ] is projected to be low- to mid-80% for nuclear power, low- to mid-50% for coal and low- to mid-20% for LNG. RPS cost as of 2026 1st half was KRW 2,533 billion on a consolidated basis and KRW 2,938.9 billion on a stand-alone basis. Lastly, on funding. As of 2026 1st half, total borrowings on a consolidated basis was KRW 133.3 trillion and KRW 84.8 trillion on a stand-alone basis. Now we will move on to the Q&A session. Since we will be conducting the Q&A session in Korean and English, with consecutive interpretation, please make your questions and answers clear and brief.

[Interpreted] [Operator Instructions] The first question will be given by Sung Jong Hwa from LS Securities.

[Interpreted] I have one question on the contribution of nuclear power to the generation mix. Since Q3 last year, we have seen the contribution of nuclear power to the generation mix declined quite significantly on a Y-o-Y basis. And this Q2, I think we also saw a decline. That means this trend has been continuing for 4 consecutive quarters. But in your keynote today, you mentioned that for the full year, the contribution of nuclear power should show a slight increase. But as I just mentioned, in the first half of this year, already, we have seen significant decline on Y-o-Y basis. And when we listened to the earnings call of your subsidiary, they mentioned that the preventive maintenance can be prolonged. So given all of these factors, does this mean in the second half, we will see a significant increase in the nuclear power contribution on a Y-o-Y basis to make sure that on a full year basis, nuclear power generation contribution still increased slightly, like you mentioned in your keynote? Or for this year, will you be managing these numbers more tightly?

[Interpreted] Thank you for the question. As mentioned in the keynote, the capacity factor of nuclear power is being expected to be around early or mid-80% by KEPCO. Like you've mentioned, there has been some issues in the prolonged preventive maintenance of some of the nuclear power generation unit. And as a result of that, in the first half, the capacity factor numbers were quite weak. However, we are monitoring the situation in the second half very closely. We are adding Saeul Unit 3 to the grid. And we are planning to implement preventive maintenance in existing nuclear power plants in a more timely manner to make sure that we can maintain appropriate level of nuclear power generation contribution for the full year.

[Interpreted] The following question is given by Jo [indiscernible] from UBS.

[Interpreted] First one is regarding cost. So if we look at the numbers of the first half and try to estimate Q2 numbers based on the first half results, there seems to be an increase in fuel cost, but more visibly an increase in other operating costs. So what would be the factors that drove the other operating cost on a Y-o-Y basis in Q2? My second question is regarding the tariffs. So I understand that the Ministry of Climate, Energy and Environment is preparing to announce a corporate differentiated tariff system. And so what would be the financial impact if this new differentiated charging system is introduced.

[Interpreted] Yes. I will take your first question regarding the nonoperating cost drivers. So we already talked about KHNP and that the preventive maintenance period has been prolonged, so this has generated around KRW 101.3 billion in other operating expense. And another factor is coming from the Korea Southeastern Power. And so they supply fuel or coal to private operators, and there was an increase of KRW 70.3 billion in terms of the material cost associated with the supply of coal to private operators. And then regarding your second question on the differentiated electricity pricing system, and so I think you are referring to the regional differentiation of electricity pricing. And I believe, unfortunately, it is too early to disclose any detailed financial impact. Just to give you a little bit more color on the timing and progress. So there should be a public hearing on the regional pricing differentiation during the second half, and towards latter half of the year, I believe this system will be finalized. And this will be introduced by the end of this year. And it will also be conjunction with the reform of the regional wholesale power pricing mechanism.

[Interpreted] The following question is by Pierre Lau from Citibank.

I have 3 questions on KEPCO. The first one is, given that we have lower global oil prices as Middle East conflict seems to be -- have more stability now, do KEPCO expect its fuel cost in third quarter to be lower than that in second quarter or should it be similar? Second question is, what is KEPCO expectation regarding tariff rise? Could we expect any tariff rise for the rest of this year? Or we have to wait until 2027? The third question is does KEPCO think it's able to lower the ratio of corporate bond issuance to the sum of capital and reserves to below 2x by end of 2027?