John Kim sends: Korea Electric Power Company (an ADR, ticker: KEP) is a utility almost as old as the Republic of Korea itself. The company controls 98% of the market in generation of power, and 100% of market in distribution of power, and marketing. This is potentially an undervalued stock, though rising crude oil prices, which cause operational costs to remain high, eat into the profit margins. Nevertheless, Korea Electric Power is an exceptional company at continually turning in profits. Despite being at a discount to comparable market prices, the future is very interesting for this country mainly because of the geopolitical position of the Republic of Korea (South Korea).

Korea Electric is already supplying a few factories and cities in North Korea with electricity, largely due to political pressures in South Korea to reconcile and open up future markets in North Korea. Should the Korean peninsula be united, the company has tremendous political and pricing power both in its own existing market, and the market that would open up. Korea Electric is also expanding outside its region, including such ways as building out infrastructures in countries such as Vietnam, Thailand, and China – while at the same time holding shares in foreign companies.

The bottom line is this: the company is a marching giant slowed down temporarily by high operating costs due to commodity fluctuations, mainly in the crude oil market. This is a major short-term challenge for Korea Electric, but also a buying opportunity for the focused investor able to see the company’s strategic advantages.

By the Numbers:
Market Cap - $16.5 billion
Enterprise Value - $31.9 billion
Revenue - $25.15 billion
P/E (ttm) - 13.7x
P/B (mrq) - 0.42x
Debt/Equity - 0.49x
EV/EBITDA - 4.3x