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

[Interpreted] 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 2025 third quarter earnings results by KEPCO. [Operator Instructions]. Now we shall commence the presentation on the fiscal year 2025 third quarter earnings results by KEPCO.

[Interpreted] Good afternoon. I am Jong Taek Lee, Head of the Finance team at Korea Electric Power Corporation. We sincerely thank you all for joining us for KEPCO's Q3 2025 earnings conference call despite your busy schedule. Today's conference call will be conducted in both Korean and English. And after a brief earnings presentation, we will proceed to a Q&A session. The figures presented today are preliminary based on IFRS consolidated standard, and all comparisons are made year-over-year unless otherwise stated. Please also note that any management plans, targets and estimated financial figures mentioned during the call reflect our current outlook and are subject to uncertainty and investment risk. We now present the Q3 2025 profit and loss details in Korean and then provide the same content in English.

[Interpreted] Good afternoon. This is Siyung Yang, Head of the IR team. Let us begin by reviewing the operating profit. The consolidated operating profit for Q3 of 2025 is KRW 11,541.4 billion. If you look into the details, sales revenue was KRW 73,746.5 billion, up by 5.5%. Of this, electricity sales revenue posted KRW 70,631.6 billion, accounting for 5.9%. And other revenue, including overseas business income recorded KRW 3,114.9 billion, down by 0.9%. Cost of sales and SG&A expenses totaled [ KRW 52,205.1 billion ], down by 2.7%. Among these, the fuel cost is KRW 14,826 billion, down by 16%. And power purchase cost is KRW 26,606.3 billion, down by 0.8% affected by fuel price changes. Depreciation expenses came to KRW 834.4 billion, increasing by 3.5%. Among the nonoperating items, interest expense is down Y-o-Y by KRW 143.5 billion to post KRW 3,279.4 billion. Based on the factors mentioned, Q3 2025 consolidated operating profit was KRW 11,541.4 billion, and net profit for the period was KRW 7,328.1 billion.

[Interpreted] Good afternoon. This is Taeseop Eom, Senior IR Manager of the IR team. I will now go over the key points of interest. First, on electricity sales, performance and outlook. Electricity sales volume in Q3 reached 419.9 terawatt hours, up 0.4% Y-o-Y due to mostly the summer heat wave, among other factors. For the full year of 2025, we project sales to go down slightly due to the impact of lower economic growth rate and also the impact of the downturn in the manufacturing sector. Next, let me cover the fuel price by type and the SMP trend. In Q3 of 2025, the bituminous coal price based on Australian coal was around $105.0 per ton, while LNG based on JKN was approximately KRW 1.01 million per ton. Additionally, the SMP was around KRW 118.2 per kilowatt hour. Looking at the generation mix of KEPCO's GENCOs, our generation mix for nuclear went up due to the entry into operation of new nuclear power plants. As for coal, generation mix is maintained with no major changes in generation capacity and utilization rate, while LNG decreased slightly from decreased generation capacity and increased baseload generation. For the full year of 2025, we expect that the nuclear generation will increase and coal is expected to decrease, while the LNG mix is expected to be maintained. Expected utilization rate by generation source for 2025 for nuclear is at the mid- to high 80% range; coal, mid-40% range; and LNG, mid- to high 20% range. Now let me touch upon the RPS-related costs. In Q3 of 2025, the RPS costs were KRW 2,876.1 billion on a consolidated basis and KRW 3,469.4 billion on a separate basis. Finally, to go over the funding status, as of Q3 of 2025, borrowings stood at KRW 130.5 trillion on a consolidated basis and KRW 86.1 trillion on a separate basis. We now move on to the Q&A session. Since we're providing consecutive interpretation, we would appreciate it if you can keep your questions and answers brief. We now begin Q&A session.

[Interpreted] [Operator Instructions] The first question will be given by Hyun Sung Hwang from Eugene Investment & Securities.

[Interpreted] Yes. My name is Hyun Sung Hwang from Eugene Securities. Congratulations on your good results. I have brief four questions. The first has to do with your short-term corporate bonds. When rolling over these securities, is there any impact because of the volatility in the interest rate? And my second question has to do with the localized marginal pricing. So can you explain further about whether the wholesale and the retail pricing will be introduced simultaneously, and the point in time in which this new system will be introduced? My third question has to do with the direct purchase transaction system. So it is expected that this will go up to 50% by 2030. And what would be your responses with regards to the GENCOs' settlement? And with regards to my fourth question, this has to do with the energy highway. It is expected that greater room will be given to the private sector players to increase their investment, and this will be advised to issue the settlement as well as others. So can you provide more details about this matter?

[Interpreted] With regards to your first question about any impact or issues regarding the rollover of our short-term corporate debt, with regards to the volatility and the interest rates related to the sovereign bonds or the treasury bonds, we have read news reports that there is very close monitoring undertaken by the government part, and we are also closely monitoring the situation as well. As of yet, no such signs are being detected, but we will be working closely with the relevant government authorities as well as looking closely into the market development and ensure that proactive responses are made when it comes to this [indiscernible].

[Interpreted] With regards to the second question about the localized marginal pricing. So by -- in the May of 2024, it has been decided that within the year 2025, the wholesale system will be introduced. And by 2026, the retail system will be introduced. After that announcement, there has been -- no further announcement that has been made. And we will be completing the research that has been commissioned to outside organizations regarding this issue by the month of February of next year, and a more detailed plan will be designed by next year. Thirdly, with regards to your question on the emission trading scheme. So on the 10th of November, the fourth plan period ETS has been announced and finalized. And it is expected that for the GENCOs, they will be subjected to 10% to 50% of the paid allocation. With regards to this, we will make sure that these charges are fully reflected in our environmental charges, and we will continue to maintain close consultations with the government authorities. With regard to your last question about the possible private sector investment into the energy highway, what has been finalized as of present is that for the West Coast Energy Highway, private sector investment will be allowed. However, that is something that has already been included and reflected in the 10th Basic Plan for Electricity Supply and Demand. And there has been no further official announcements made about any additional private sector investment since then. But once discussions become initiated about the 12th Basic Plan for Electricity Supply and Demand, it may be reviewed. However, as of yet, no official discussion is underway.

[Interpreted] The following question is by Moon Kyeong Won from Meritz Securities.

[Interpreted] I'm Moon Kyeong Won from Meritz Securities. So I have two questions. My first question is, I would presume that you are having discussions with the relevant government authorities about the additional increases in the electricity tariffs. So there may -- I do presume that there are many factors and many grounds for raising the tariffs. What in your view will be the strongest basis for further increases in the tariffs? Would it be your debt levels? Or would it be the need to invest further in grid expansion. [ So you can answer that question. ] And my second question has to do with the adjusted coefficient. So has there ever been a case where in the second quarter or the third quarter, you have actually raised the adjusted coefficient. And do you have any plans of changing the adjusted coefficient until the end of this year?

[Interpreted] With regards to the electricity tariff with expansion of the use of renewable energy and also to supply stable electricity for the advanced industries in this country, there is a need to make further investments into our power grid. And so yes, it is necessary to raise the tariffs in order to raise the funds to finance these investments. In addition, in order to achieve the greenhouse reduction target that is set by the government, this will lead to additional costs, and this is also expected to further reinforce the need to raise our tariff. So in principle, there is a need to adjust the tariffs so that it reasonably or adequately reflects all the cost involved.

[Interpreted] Let me take your second question. With regards to the adjusted coefficient, there has been already one change to the adjusted coefficient range in the third quarter and whether we will engage in an additional change to the adjusted coefficient is something that we will need to determine through consultations with the relevant authorities.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question is by Hur Minho from Daishin Securities.

[Interpreted] This is Hur Minho from Daishin Securities. So if you look at the news, in the year 2026, a lot of the nuclear power plants are expected to go through scheduled maintenance, and that it is possible to make up for the gap through renewable energy. So can you give us an outlook for the utilization rate for the nuclear power generation for 2026? And also my second question has to do with the HVDC. When do you expect that the preliminary or first round of construction -- first phase construction completion and the operation of this HVDC project to be? And if that happens, do you expect an increase in the utilization rate of the coal-fired power plant and the nuclear power generation? And also, another question has to do with your entry into the United States nuclear power market. Is there any update that you can provide to the analysts and investors?

[Interpreted] So let me answer your question about the scheduled maintenance for nuclear power for 2026. Let us verify the actual schedule and get back to you at a later date.

[Interpreted] So let me take your second question about the transmission capacity constraints that are occurring in the East Coast area. At present, the construction is underway for the HVDC project. And the first phase of the project is expected to be completed by October of 2026, and the second phase of the construction is expected to be completed by December of 2027. Once the HVDC project is completed, then it will be providing additional 4 gigawatt of transmission capacity, which is, we do believe, sufficient to address the 7.8 gigawatt of constraint that we are currently experiencing.

[Interpreted] So let me answer your third question. So as you are well aware, the Trump administration in the United States has announced a policy to increase the nuclear power generation within the United States, and they are looking forward to cooperating with KEPCO and team Korea in this area. So we are looking into various options in how we can participate in the U.S. nuclear market, and we'll be looking at the various risk factors that are involved and continue the review of this matter.

[Interpreted] The following question is by from Yoo Jaeseon from Hana Securities.

[Interpreted] I'm Yoo Jaeseon from Hana Securities. I have three questions. So I have a very good disclosure about the delay in the HVDC project. What about the substation issue? Has that been resolved? That's my first question. And my second question has to do with the exchange rate volatility. So how much of exchange rate hedging is incorporated into your fuel cost? That is my second question. And you said that the utilization rate for the nuclear power generation is in the mid-80% range. When was that established? But when we look at the website of KHNP, the plant overhaul is set at 79% or so. So I'd like to know when these plans were established. And so do these numbers perhaps include a possibility that those reactor units that have been suspended operation like Kori-2 units that they will be back into operation perhaps. Is that possibility included in those numbers that you have established?

[Interpreted] With regard to your first question about the HVDC project in the East Coast, with regards to the licensing and permit issue of the substation that you have mentioned, as of yet, the licensing process has not been completed. It is based on the assumption that all the licensing and permit will come through, that the first phase of the construction will be completed on October 2026.

[Interpreted] So let me touch upon the exchange rate issue that you have raised in your second question. With regards to the LNG that we procure from KOGAS, on a monthly basis, we settle on an average -- settled the price based on the average exchange rate.

[Interpreted] As we have mentioned during our presentation for the full year nuclear power utilization rate, we expect that it will be around mid- to high 80% range.