Korea Electric Power cut at BofA on 'unfavorable leverage to global commodity hikes'

[The Korean flag hanging in a high-rise building.]
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Korea Electric Power (KEP [https://seekingalpha.com/symbol/KEP]) up 3% on Tuesday even after the stock was downgraded to Neutral from Buy at Bank of America, which cited the company's increasing cost burden due to recent price hikes for oil and liquefied natural gas alongside rising geopolitical tensions between the U.S. and Iran.

While increasing the utilization of coal and nuclear power is being discussed as an alternative,
structural power grid bottlenecks likely will limit the immediate impact of such a shift, and pass-through of these escalating costs into retail electricity tariffs seems to be constrained in the near term, dampening expectations for Kepco's (KEP [https://seekingalpha.com/symbol/KEP]) H2 margins, BofA's Taekyoung Ha said.

Kepco (KEP [https://seekingalpha.com/symbol/KEP]) is highly levered to global commodity hikes, Ha noted, with ~40% of operating expenses exposed to oil and LNG prices via power purchase costs on IPPs and fuel costs on generating companies; "while SMP typically reflects long-term LNG contracts tracking oil prices with a ~six-month lag, the ongoing LNG supply disruption in the Middle East is likely to push up SMP further with higher spot LNG exposure," the analyst said.

While the government's long-term plan to raise nuclear power generation remains accretive, Ha said he sees limited room to immediately offset the impact of energy price hikes given NPP's maintenance schedule and grid bottlenecks.

MORE ON KOREA ELECTRIC POWER

* Korea Electric Power: The Turbine That Supplies The Global Market HBM [https://seekingalpha.com/article/4882597-korea-electric-power-stock-turbine-that-supplies-the-global-market-hbm]
* Korea Electric Power: Spotlight On Electricity Tariffs And Cash Distributions [https://seekingalpha.com/article/4857519-korea-electric-power-spotlight-on-electricity-tariffs-and-cash-distributions]
* Seeking Alpha’s Quant Rating on Korea Electric Power [https://seekingalpha.com/symbol/KEP/ratings/quant-ratings]