On Jul 3, we have issued an updated research report on
Korea Electric Power Corporation
). The Republic of Korea-based utility firm is maintaining a
disciplined investment strategy through the expansion of its
generation capacity while gradually raising the capital outlay.
Korea Electric continues with its systematic capital investments
under the new capacity addition plan. The company plans to increase
its electricity generation capacity to 138,424 megawatt (MW)
through 2027 from the current level of 86,970 MW.
In 2013, Korea Electric invested approximately KRW15.8 billion as
capital expenditure, up 19.7% from the prior-year comparable
figure. Within a time span of 2014 to 2016, the company intends to
spend around KRW54.7 billion, including nearly KRW19.9 billion in
Korea Electric is currently in the middle of several domestic and
international ventures, including two each nuclear unit at Hanul
and Kori in the Republic of Korea and two power generation projects
in China. The scheduled completion of these projects will help the
company to attain its future power generation target.
In addition to enhancing generation capacity, Korea Electric is
focusing on infrastructure projects under the transmission and
distribution operations. These initiatives will enable the company
to offer uninterrupted services to its customers.
Korea Electric, a Zacks Rank #4 (Sell) stock, reported favorable
result in first-quarter 2014. Both top as well as bottom line
improved significantly from their respective prior-year figures.
The outperformance was primarily driven by a rise in electricity
volume sales and improvement in overseas business.
Korea Electric maintained a stable cash generation capacity, which
supports its investment in organic growth ventures. During the
first three months of 2014, the company's cash flow from operating
activities increased 22% to KRW3.66 million from the prior-year
On the flip side, uncertainty associated with the pending
regulatory cases is a cause of concern. Korea Electric's
profitability depends on the rate relief and several other
mechanisms. Any unfavorable decisions on pending regulatory cases
may negatively impact Korea Electric's results.
Moreover, the utility firms' performance mainly depends on its
capability to manage the operations of its transmission and
distribution businesses. We believe several operational risks like
breakdown, failure or damage of equipments or processes might
disrupt the companies' regular operations, thereby negatively
impacting financial performance.
Key Picks from the Sector
However, some better-ranked stocks in the same industry include
NRG Energy, Inc.
Wisconsin Energy Corporation
). All the stocks carry a Zacks Rank #1 (Strong Buy).
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