Deep-dive 2022-22: Kansai Electric Power

Nuclear reactor restarts to be completed by the summer of 2023

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Kansai Electric Power Company (9503 JP) is one of Japan’s largest electric utilities. It owns coal- and gas-fired, nuclear and hydroelectric power plants across the Kansai region surrounding the key cities of Osaka, Kobe and Kyoto.

The sector has been troubled by the forced closure of its nuclear power plants after the Fukushima nuclear disaster in 2011. The Fukushima nuclear power plant was not owned by Kansai Electric, but the company still suffered negative consequences as the government required all nuclear power plants to shut down temporarily.

Ten years after Fukushima, the country’s nuclear reactors are beginning to come back into service. The country has 33 operable nuclear reactors, and 10 are now in operation.

After the war in Ukraine, prices for imported LNG and electricity prices have shot up. Japan’s prime minister Fumio Kishida considers it a national priority to restart at least 9 nuclear power reactors before winter returns.

The Japanese public has also become positive about nuclear power, with the majority now favouring a return to nuclear power generation. The country’s CO2 emission targets for 2030 also require the country’s nuclear power plants to be restarted.

In Kansai Electric’s case, it owned 11 nuclear reactors before Fukushima and 4 have now been decommissioned. The remaining 7 are now in the process of being restarted. The plan is for all 7 to be operational by July 2023.

In such a scenario, Kansai Electric believes that it will be able to earn a JPY 250 billion pre-tax profit by FY2026, which at a ~30% effective tax rate would lead to a P/E of 6.5x and a dividend yield of 3.8%. Historically, the stock has traded at a median P/E of 14.1x.

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