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At the forefront of the nuclear revival

Order outlook brightening on revival of nuclear power projects

The nuclear power sector is seeing a resurgence both at home and abroad, which should support long-term growth in plant operation/maintenance demand. In Korea, the Shin-Hanul unit 2 reactor came online in April, and the Saeul unit 3 reactor is scheduled to commence operation in October. Over the long term, the government is planning to build more nuclear power plants to replace thermal energy.

Globally, nuclear power projects are increasing to meet the need for carbon-free power generation and increased electricity demand, particularly from data centers. In the US, the Palisades nuclear plant in Michigan and the Three Mile Island unit 1 station are set to resume operation in 2025 and 2028, respectively. In Japan, the Shimane unit 2 reactor will be restarted in 2H24. And in Europe and Canada, efforts are underway to build new nuclear power plants and extend the lives of existing ones. Against this backdrop, we expect KEPCO KPS to see growing export opportunities and maintenance demand. Notably, the company is seeking to win orders related to a performance upgrade project for the Cernavoda power plant (unit 1) in Romania (W2.5tr; 2026).

Nuclear division to remain key earnings driver in 2H24

The nuclear division is driving company-wide earnings. While overall revenue grew only 1.4% YoY in 1H24, nuclear/hydro power-related revenue jumped 16.9% YoY, offsetting an 8.9% YoY fall in thermal-related revenue. Moreover, operating profit grew 22% YoY thanks to mix improvements (led by a 22.8% YoY drop in domestic IPP revenue).

In 2024, we forecast the number of planned maintenance projects for thermal power plants to decline to 87 (from 98 in 2023), partly due to green energy policies (increase in LNG power generation and decrease in coal-fired power generation). In contrast, we expect the number of planned maintenance projects for nuclear power plants to increase to 23 (from 18 in 2023), including 13 in 2H24 (vs. 10 in 2H23). The thermal division should remain weak in 2H24, while the nuclear division should continue to grow.

Lift TP to W50,000 and maintain Buy

We lift our target price for KEPCO KPS to W50,000 (from W44,000), as we raised our EPS estimates by 15.9% for 2024 and 12.8% for 2025. With our target price implying 21% upside, we maintain our Buy rating. Our target P/E of 12.6x (unchanged) represents a 10% discount to the stock’s five-year average, reflecting a potential earnings decrease in 2025. While KEPCO’s soft earnings should reduce its investment capacity, we think demand for high-margin operation/maintenance services will continue amid the increase in nuclear power projects.