KEP Q2 2026 Earnings Call Transcript

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DATE

Wednesday, Aug. 12, 2026 at 4:00 a.m. ET

CALL PARTICIPANTS

• Head of Finance-Heung-Bok Oh
• Senior IR Manager-Taeseop Eom

TAKEAWAYS

• Consolidated Operating Income -- KRW 4,912.7 billion for the first half of 2026, compared to the prior year period.
• Revenue -- KRW 46,317.3 billion, representing an increase of 0.3% year over year.
• Power Sales Revenue -- KRW 43,964.1 billion, a decrease of 0.4% reflecting lower industrial demand.
• Other Revenue -- KRW 2,353.2 billion, an increase of 16.7% driven by overseas business performance.
• Cost of Goods Sold and SG&A -- KRW 41,404.6 billion, rising 2.8% year over year.
• Fuel Costs -- KRW 10,142.9 billion, an 8.8% increase primarily due to higher LNG and coal prices.
• Purchase Power Costs -- KRW 17,206.9 billion, a decrease of 0.9% year over year.
• Depreciation Expense -- KRW 5,951.5 billion, representing a 1.3% increase.
• Interest Expense -- KRW 2,079.1 billion, representing a year-over-year decrease of KRW 132.2 billion.
• Net Income -- KRW 2,796.5 billion for the first half of 2026.
• Power Sales Volume -- 266.7 terawatt hours, a 0.6% decrease due to an industrial demand slowdown.
• Bituminous Coal Price -- $128.2 per ton for Australian coal during the first half.
• JKM LNG Price -- KRW 939,000 per ton on average during the first half of 2026.
• System Marginal Price (SMP) -- KRW 112.3 per kilowatt hour in the first half, though recent August rates rose to 151.
• Consolidated Total Borrowings -- KRW 133.3 trillion as of the end of the first half.
• Stand-alone Total Borrowings -- KRW 84.8 trillion as of June 30, 2026.
• Consolidated RPS Cost -- KRW 2,533 billion for the first half of 2026.
• Stand-alone RPS Cost -- KRW 2,938.9 billion for the same period.
• Nuclear Capacity Factor -- Projected to reach early to mid-80% for the full year, despite first-half weakness.
• Coal Capacity Factor -- Expected to be in the low to mid-50% range for the full year 2026.
• LNG Capacity Factor -- Projected to be in the low to mid-20% range for the full year 2026.
• Maintenance Impact -- KRW 101.3 billion in other operating expenses due to prolonged preventive maintenance at nuclear facilities.
• KHNP Provisional Liabilities -- KRW 164.2 billion in net write-backs during the first half of 2026.

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RISKS

• Management warned that prolonged preventive maintenance of nuclear generation units negatively impacted first-half capacity factors, with one executive stating, "in the first half, the capacity factor numbers were quite weak."
• The company identified rising international fuel costs as a risk to the System Marginal Price, with Heung-Bok Oh noting that higher prices are beginning to be reflected in July and August rates after a time lag.
• Executives noted that meeting the statutory bond issuance cap reduction from fivefold to twofold of capital by the end of 2027 remains a challenge that requires significant profit generation from operating activities.

SUMMARY

Management at Korea Electric Power (NYSE:KEP) reported a consolidated operating income of KRW 4,912.7 billion for the first half of 2026, supported by a 0.3% increase in revenue. The company noted challenges from an economic slowdown affecting industrial power demand and prolonged maintenance schedules for nuclear generation units that constrained first-half capacity factors. Strategy focused on meeting a statutory bond issuance cap reduction from fivefold to twofold of capital and reserves by the end of 2027 through operational profit generation and potential tariff adjustments. Executives emphasized a balanced approach to funding mid- to long-term national grid expansion projects without compromising the corporate financial position.

• The company plans to add Saeul Unit 3 to the grid and implement more timely maintenance to reach a full-year nuclear capacity factor in the early to mid-80% range.
• Management confirmed that a regional pricing differentiation system for electricity is undergoing public hearings and is expected to be finalized and introduced by the end of 2026.
• Heung-Bok Oh clarified that the shift in the generation mix toward coal in the first half was driven by "the increase in LNG prices triggered by the Middle Eastern conflict and also higher bituminous coal prices."
• Company leadership stated that they are working closely with the government to achieve tariff hikes necessary to address accumulated operating losses and meet bond issuance requirements.
• Management reported that while System Marginal Prices (SMP) were lower year over year in the second quarter, they have since risen to 151 in August from 117 in the prior year period.
• The company is developing a long-term capital expenditure plan to distribute the funding needs for large national grid projects across multiple years to manage liquidity constraints.
• Executive leadership stated they are focusing on "increasing profit generation from operating activities" rather than solely reducing the total bond issuance amount to meet the 2027 cap requirement.

INDUSTRY GLOSSARY

• Baseload Generation: The minimum amount of electric power delivered or required over a given period at a constant rate.
• JKM LNG: Japan Korea Marker, the price assessment for liquefied natural gas spot deliveries in the North Asia region.
• KHNP: Korea Hydro & Nuclear Power, a subsidiary of KEPCO responsible for nuclear and hydroelectric power generation.
• RPS (Renewable Portfolio Standard): A regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and other geothermal sources.
• SMP (System Marginal Price): The price paid to electricity generators for the power they produce, determined by the variable cost of the most expensive plant operating at a given time.

Full Conference Call Transcript

Operator: [Interpreted] Good morning, and good evening. First of all, thank you all for joining this conference call, and now we will begin the conference of the fiscal year 2026 2nd quarter earnings resulted by KEPCO. This conference will start with a presentation, followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation.

Heung-Bok Oh: [Interpreted] Good afternoon. This is Heung-Bok, Head of Finance at KEPCO. I'd like to thank you all for participating in today's conference call for the business results for the second quarter of 2026, despite your busy schedules. Today's call will be conducted in both Korean and English. We will begin with a brief presentation on the earnings results, which will be followed by a Q&A session. Please note that the financial information to be disclosed today is preliminary consolidated IFRS figures and all comparison is on a year-over-year basis unless stated otherwise. Also, business plans, targets, financial estimates and other forward-looking statements mentioned today are based on our current target and forecasts.

Please be noted that such statements may involve investment risks and uncertainties. Now we will begin with an overview of the earnings results for the first half of 2026 in Korean, which will be then consecutively translated into English. First, I will go over the operating performance. The consolidated operating income in 2026 1st half stood at KRW 4,912.7 billion. Revenue increased by 0.3% to KRW 46,317.3 billion. Power Sales decreased by 0.4% to KRW 43,964.1 billion. Other revenue, including overseas business revenue increased by 16.7% to KRW 2,353.2 billion. Cost of goods sold and SG&A rose by 2.8% to KRW 41,404.6 billion. Fuel costs increased by 8.8% to KRW 10,142.9 billion.

Purchase power costs decreased by 0.9% to KRW 17,206.9 billion. Depreciation expense increased by 1.3% to KRW 5,951.5 billion. Of the nonoperating items, interest expense decreased by KRW 132.2 billion Y-o-Y to KRW 2,079.1 billion. As a result of the foregoing, the 2026 1st half consolidated operating income stood at KRW 4,912.7 billion and net income at KRW 2,796.5 billion.

Taeseop Eom: [Interpreted] Good afternoon. I'm Taeseop Eom, Senior IR Manager. I will now go over the main areas of interest, starting with Power Sales performance and outlook. 2026 1st half Power Sales volume decreased by 0.6% Y-o-Y to 266.7 terawatt hours due to a decrease in industrial demand caused by economic slowdown. For the full year, a higher economic growth rate and number of operating days are expected to slightly increase sales volume. Next, I will go over the fuel price by fuel source and SMP trends. In 2026 1st half for bituminous coal, Australian coal was around $128.2 per ton. JKM LNG was about KRW 939,000 per ton. SMP was approximately KRW 112.3 per kilowatt hour.

Looking at the subsidiaries generation mix in the first half, the capacity factor of nuclear power decreased and contribution to the generation mix decline. While for coal, utilization and contribution to the generation mix both increased due to the decrease of the capacity factor of nuclear power. In case of LNG, contribution to the generation mix increased as the overall volume of baseload generation decreased. In 2026, the contribution of nuclear power should slightly increase, coal should slightly decrease and LNG should largely be maintained. Also in 2026, the capacity factor of these power [ sources ] is projected to be low- to mid-80% for nuclear power, low- to mid-50% for coal and low- to mid-20% for LNG.

RPS cost as of 2026 1st half was KRW 2,533 billion on a consolidated basis and KRW 2,938.9 billion on a stand-alone basis. Lastly, on funding. As of 2026 1st half, total borrowings on a consolidated basis was KRW 133.3 trillion and KRW 84.8 trillion on a stand-alone basis. Now we will move on to the Q&A session. Since we will be conducting the Q&A session in Korean and English, with consecutive interpretation, please make your questions and answers clear and brief.

Operator: [Interpreted] [Operator Instructions] The first question will be given by Sung Jong Hwa from LS Securities.

Jong Hwa Sung: [Interpreted] I have one question on the contribution of nuclear power to the generation mix. Since Q3 last year, we have seen the contribution of nuclear power to the generation mix declined quite significantly on a Y-o-Y basis. And this Q2, I think we also saw a decline. That means this trend has been continuing for 4 consecutive quarters. But in your keynote today, you mentioned that for the full year, the contribution of nuclear power should show a slight increase. But as I just mentioned, in the first half of this year, already, we have seen significant decline on Y-o-Y basis.

And when we listened to the earnings call of your subsidiary, they mentioned that the preventive maintenance can be prolonged. So given all of these factors, does this mean in the second half, we will see a significant increase in the nuclear power contribution on a Y-o-Y basis to make sure that on a full year basis, nuclear power generation contribution still increased slightly, like you mentioned in your keynote? Or for this year, will you be managing these numbers more tightly?

Unknown Executive: [Interpreted] Thank you for the question. As mentioned in the keynote, the capacity factor of nuclear power is being expected to be around early or mid-80% by KEPCO. Like you've mentioned, there has been some issues in the prolonged preventive maintenance of some of the nuclear power generation unit. And as a result of that, in the first half, the capacity factor numbers were quite weak. However, we are monitoring the situation in the second half very closely. We are adding Saeul Unit 3 to the grid.

And we are planning to implement preventive maintenance in existing nuclear power plants in a more timely manner to make sure that we can maintain appropriate level of nuclear power generation contribution for the full year.

Operator: [Interpreted] The following question is given by Jo [indiscernible] from UBS.

Unknown Analyst: [Interpreted] First one is regarding cost. So if we look at the numbers of the first half and try to estimate Q2 numbers based on the first half results, there seems to be an increase in fuel cost, but more visibly an increase in other operating costs. So what would be the factors that drove the other operating cost on a Y-o-Y basis in Q2? My second question is regarding the tariffs. So I understand that the Ministry of Climate, Energy and Environment is preparing to announce a corporate differentiated tariff system. And so what would be the financial impact if this new differentiated charging system is introduced.

Unknown Executive: [Interpreted] Yes. I will take your first question regarding the nonoperating cost drivers. So we already talked about KHNP and that the preventive maintenance period has been prolonged, so this has generated around KRW 101.3 billion in other operating expense. And another factor is coming from the Korea Southeastern Power. And so they supply fuel or coal to private operators, and there was an increase of KRW 70.3 billion in terms of the material cost associated with the supply of coal to private operators. And then regarding your second question on the differentiated electricity pricing system, and so I think you are referring to the regional differentiation of electricity pricing.

And I believe, unfortunately, it is too early to disclose any detailed financial impact. Just to give you a little bit more color on the timing and progress. So there should be a public hearing on the regional pricing differentiation during the second half, and toward latter half of the year, I believe this system will be finalized. And this will be introduced by the end of this year. And it will also be conjunction with the reform of the regional wholesale power pricing mechanism.

Operator: [Interpreted] The following question is by Pierre Lau from Citibank.

Pierre Lau: I have 3 questions on KEPCO. The first one is, given that we have lower global oil prices as Middle East conflict seems to be -- have more stability now, do KEPCO expect its fuel cost in third quarter to be lower than that in second quarter or should it be similar? Second question is, what is KEPCO expectation regarding tariff rise? Could we expect any tariff rise for the rest of this year? Or we have to wait until 2027? The third question is does KEPCO think it's able to lower the ratio of corporate bond issuance to the sum of capital and reserves to below 2x by end of 2027?

Unknown Executive: [Interpreted] I'll take your first question on the fuel costs. So if we just look at the SMP in Q2 of 2026 and compare that on a Y-o-Y basis, it's lower than last year Q2. But if we look at the July and August numbers, so SMP in 2025 July was 121. And this year, it has been around 133. The SMP in August in 2025 was around 117 for the full month. This year, to date, it's around 151. There can be many different factors that caused the SMP to increase on a Y-o-Y basis. But I think one of the main drivers will be the increase of international fuel costs.

And there is a time lag between the actual increase in the market and when it is actually reflected in the SMP. So I think this time lag has started to kick in, in July and August. Yes, in terms of the tariff hikes, in order to address the accumulated operating loss and to also meet the bond issuance requirements, the increase in tariff will be very helpful. At the same time, there are various factors that need to be considered when raising the tariffs such as inflation and overall macroeconomic situation.

We will be monitoring the domestic and international markets and economies very closely, and we'll be discussing with the government to try to achieve the tariff hike in the future.

Heung-Bok Oh: [Interpreted] And then regarding your last question on bond issuance cap. So I don't believe it's an issue of whether we can meet this 2x requirement by end of 2027. We will be making utmost effort to ensure that we can meet those requirements by 2027 year-end. We are not really focusing on reducing the overall bond issuance amount. However, I think that is a more -- I think we are working more on increasing profit generation from operating activities. And like just mentioned, when answering second question, working closely with the government to achieve an appropriate level of tariffs to make sure that we can meet these requirements by the end of 2027.

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

Jaeseon Yoo: [Interpreted] The first half last year, KHNP's other provisional liabilities was KRW 471.3 billion, what would be this number for the first half of this year?

Unknown Executive: [Interpreted] The number for this half, so from January to June was KRW 307.8 billion, but there has been some write-backs. So it's actually a minus cost, KRW 164.2 billion.

Operator: [Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question is by Sung Jong Hwa from LS Securities.

Jong Hwa Sung: [Interpreted] I have one question on the 3 mega projects announced by government. I believe there is a critical role to play by KEPCO as the central power provider. But in order to do so, you will have to significantly increase the capacity and also expand the power grid, which should require considerable amounts of CapEx. We just discussed the bond issuance cap, reducing it from 5x to 2x. And you said, in order to meet these requirements, you will be working to boost the profit generation of KEPCO.

However, even considering all of these factors, I believe that given the sheer amount of capital required for such a large national projects, KEPCO will be needing additional amount of capital and funding. What is your solution in terms of funding such large national projects?

Heung-Bok Oh: [Interpreted] Thank you for the question. The mega project and the grid expansion that you just mentioned are mid- to long-term projects, meaning that it does not necessarily mean we need the full amount upfront at once. At the same time, we do face the challenge of reducing the bond issuance amount to 2x of capital. So I think we need to take a balanced approach. We need to develop a mid-, long-term CapEx plan and calculate the total CapEx amount that may be necessary for these projects and try to distribute that across multiple quarters and years and also have strict management approach toward the management of funds that we already have.

We will be working closely with government departments, the multiple stakeholders and all of the relevant departments and subsidiaries of KEPCO to try to come up with the most optimal way to approach these funding needs. And at the same time, of course, we will be also working to ensure that such CapEx does not undermine the business management of overall KEPCO.

Operator: [Interpreted] Currently, there are no participants with questions. [Operator Instructions]

Heung-Bok Oh: [Interpreted] Yes. And I would like to take this opportunity to make a correction in the keynote presentation today regarding the contribution of the different fuel sources to a generation mix. We mentioned earlier that the coal contribution increased. The main factors were the increase in LNG prices triggered by the Middle Eastern conflict and also higher bituminous coal prices as well. So I don't think that was very clearly stated in the presentation earlier, so I would like to make this correction. Thank you.

Operator: [Interpreted] [Operator Instructions] As there are no further questions, we will now end the Q&A session. For any additional inquiries, please contact our IR department. This concludes the fiscal year 2026 2nd quarter earnings resulted by KEPCO. Thank you for the participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

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