1. What Happened? Q2 Earnings Shock

KDHC announced its Q2 2025 preliminary results on August 12, 2025. Revenue came in at KRW 623 billion, 3% below market consensus, while operating profit turned negative to KRW -95 billion, significantly missing expectations. Net income also registered a loss of KRW -215 billion.

2. Why Did This Happen? Analyzing the Underperformance

This earnings shock is likely the result of several factors:

  • Increased Volatility in International Oil Prices: This was a major contributor to the decline in electricity sales prices.
  • Rising Raw Material Costs: A stronger KRW/USD exchange rate led to increased import costs.
  • Continued Interest Rate Hikes: High interest rates added to KDHC’s interest expense burden.

However, the first-half report showed positive fundamentals such as growth in the heating segment and improved cash flow. Therefore, the discrepancy between these factors and Q2’s poor performance requires careful analysis.

3. What’s Next? Outlook and Investment Strategies

While downward pressure on the stock price is expected in the short term, the long-term growth drivers, such as expansion of district heating projects and investments in renewable energy, remain valid. The investment recommendation is ‘Neutral’ for the short-term and ‘Hold and Monitor for Adjustment’ for the medium to long-term.

  • Short-Term Response: Monitor market evaluations of the reasons behind the poor performance and future outlook, and prepare for increased volatility rather than a dramatic trend reversal.
  • Medium to Long-Term Strategy: It is crucial to determine whether the causes of the Q2 underperformance are temporary or structural. Continuously monitor energy price fluctuations, government policy changes, and the progress and results of new projects and adjust investment strategies accordingly.

4. Investor Action Plan: Key Checkpoints

Investors should closely monitor the following:

  • Analysis of the reasons for the weak Q2 results through detailed business reports.
  • Updates on potential earnings improvement and forecasts from Q3 onwards.
  • Trends in international oil prices, exchange rates, and interest rates.
  • Changes in energy policies and the progress and results of new projects.