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Additional overseas orders needed

4Q25 review: Top-line growth outweighed by cost pressures

For 4Q25, KEPCO KPS posted revenue of W440.8bn (+2.2% YoY). Revenue from the nuclear/hydro segment increased by W24.6bn YoY to W200.4bn, supported by higher contributions from refurbishment/repair projects. However, overall revenue growth was capped by a weaker performance in the thermal segment, where refurbishment/repair projects fell to W131.1bn (-13.6% YoY).

Operating profit declined 53% YoY to W19.2bn despite the modest revenue increase, as cost pressures intensified (+8% YoY). Material costs surged 39.1% YoY due to higher expenses related to life extension projects. Outsourcing expenses―including subcontracting and safety management costs―also rose significantly. Meanwhile, labor expenses increased 2.4% YoY, reflecting higher retirement benefit costs. As a result, net profit fell 44% YoY to W19.8bn.

2026 outlook: Expecting improvement in domestic maintenance business

For 2026, KEPCO KPS is targeting YoY increases in planned preventive maintenance projects in both the thermal (from 87 units to 101 units) and nuclear (from 13 units to 20 units) segments. This expansion should underpin stable earnings growth.

For reference, thermal-related revenue rose 6% YoY in 2025, driven by an increase in maintenance volumes (from 71 units to 87 units). Meanwhile, nuclear/hydro revenue declined 3% YoY in the same year amid a decline in the number of projects (from 19 units to 13 units). However, taking into account that 2025 maintenance volumes fell short of the company’s initial targets (91 units for thermal; 13 units for nuclear), actual revenue growth is unlikely to accelerate meaningfully.

Over the longer term, KEPCO KPS is expected to secure meaningful orders from overseas nuclear projects in Romania and the Czech Republic. However, these projects are unlikely to begin contributing to revenue until 2027 or later.

Raise TP to W64,000; maintain Hold

We raise our target price on KEPCO KPS to W64,000 (from W55,000), applying a P/E of 17x (the average peak multiple since 2022). However, given limited upside of 3.2%, we maintain our Hold rating. Our target price revision reflects a change in the earnings base year.

While the company is expected to maintain a dividend payout ratio of over 50% in 2025, absolute dividend payout could decline due to weaker earnings. For a meaningful re-rating to take shape, visibility on additional nuclear maintenance orders beyond existing projects will need to improve.