Samchully Co., South Korea`s largest city gas distributor that has suffered from falling sales and operating profits due to a struggling subsidiary, is expected to turn around soon on rising gas prices and reduced expenditures.

Samchully recently reported that its operating profit for the third quarter ended September halved to 47 billion won ($40.2 million) from 88.7 billion won a year ago, and sales fell to 2.16 trillion won from 2.69 trillion won despite an uptick in city gas sales, a key sales driver for the utility firm. Over the same period, cumulative sales volume of city gas inched up to 115.9 billion megajoule (MJ) from 113.5 billion MJ.

The company’s weak earnings were largely attributed to poor performance of its subsidiary S-Power in which Samchully owns a 51 percent stake. S-Power reported an operating loss of 2.8 billion won during the July-September period this year after its plant’s operation rate remained at about 60 percent amid intensifying competition from 24-hour operating power plants run by cheapest coal and nuclear power. In general, private power plants run at a 90 percent or higher operation rate.

However, market experts expect that Samchully would soon make a turnaround as the price of city gas that accounts for 78 percent of the company’s total sales has picked up. This year, gas bills climbed by 4.6 percent in Incheon and 2.1 percent in Gyeonggi province. The satellite cities make up the company’s key markets.

Lower international oil prices also bode well for Samchully. Oil prices have hovered at $50 or lower until September, bringing down liquefied natural gas (LNG) costs. During the July-September period, Samchully has paid 24 percent less for LNG imports per unit compared to last year.

In addition, Samchully has completed most of its investment last year, raising expectations that it would start to collect returns from the investment next year. As Samchully already accounts for 94.4 percent of gas supply in Incheon and 92.1 percent in Gyeonggi province, the biggest markets for the companies, it would not need to make any immediate major investment except for pipe maintenance.

Samchully with an estimated 129.3 billion won cash reserve this year is expected to pay out handsome dividends to shareholders and spend some to improve its financial structure, another positive factor that would prop up its stock price. Its dividend pay-out ratio remains at an average of 20 to 30 percent and dividend yield would reach around 3 percent this year, market analysts forecast.

On Wednesday, Samchully shares rose 1.3 percent, or 1,300 won, from the previous session to end at 100,500 won.

By Yoo Tae-yang

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