3Q operating profit to meet forecasts…: Our estimates have Kepco’s consolidatedsales flat y-y in 3Q and meeting the consensus estimate of KRW15.9t, along with anoperating profit of KRW3.3t (vs the consensus figure of KRW3.1t). Earnings hikes in 2Hwill likely be led by: 1) power-generation mix improvements as four new coal-poweredplants come online over end-June to September; and 2) utilization rate hikes for nuclearpower plants with this year’s planned maintenance nearly wrapped up. Still, ASP hikesrelated with applying a recently-revised progressive tariff system, as well as cost increasesfor raw materials, should lead to reduced profitability y-y in 3Q17.    ...but near-term earnings hikes unlikely to spur share-price rebounds:Earnings improvements in 2H would surprise no one, while Kepco’s ROE is forecast toreach 6% this year, but its shares still trade at an undervalued 0.34x 2017 P/B. There areno signs of rebound, however, which we attribute to concerns of regulatory risk—eg, thegovernment’s energy policy moving away from nuclear—lingering for some time, whichundermines the stock’s valuation merits.

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