Aboitiz Power Corporation (AP) Earnings Call Transcript & Summary

Good afternoon. Welcome to AboitizPower's earnings briefing for the first half of 2025. My name is Jacqui De Jesus, and I will be the moderator for today's call. [Operator Instructions] Lastly, this briefing will be recorded. By joining this session, you consent to your name, voice, image and chat comments being recorded for use and dissemination. Our CFO, Sandro Aboitiz, will present the earnings results of AboitizPower. After the presentation, we will open the floor for Q&A. Sandro, you have the floor.

Thank you very much, Jacqui, and good afternoon to everybody. We appreciate you all taking the time to join us this afternoon as we share our -- the results of our second quarter and first half of 2025. AboitizPower recorded a beneficial EBITDA of PHP 19.1 billion for the second quarter of 2025, a 27% increase versus the PHP 15 billion in EBITDA recorded in the first quarter was largely attributable to three things: The first, the full 3-month contribution of Chromite Gas Holdings; the second, higher margins across the Generation segment due to better plant availability and reduced exposure to the spot market. And the third, continued sales growth in the Distribution business. However, despite the positive trend in the second quarter, our beneficial EBITDA of PHP 34.1 billion for the first half of 2025 was 6% lower compared to the same period last year. New contributions from Chromite Gas and new solar plants such as Laoag, Armenia and Calatrava were offset by significantly lower spot market prices. The largest contributor to beneficial EBITDA was the Power Generation segment, which accounted for close to 90% of total EBITDA in the first half. This was followed by the Distribution Utility and RES segments, which contributed 13% and 3% of total beneficial EBITDA, respectively. Although no new solar or wind facilities were commissioned in the first half of 2025, our renewable energy pipeline continues to progress. We anticipate the 93-megawatt San Manuel solar plant to be completed by year-end, bringing our total renewable energy projects under construction to 421 megawatts as of June 2025. In addition to our renewable energy pipeline, our thermal business group is also actively developing several projects. These include multiple battery energy storage system projects that will be integrated as hybrids in our existing oil units, replicating the success of our first battery project in TMI in Mindanao. The EAUC BES is a 30-megawatt facility poised to be one of the first large-scale energy storage systems in Central Visayas, while the TMI BESS 2 is a 48-megawatt project in Mindanao, replicating the first that we did in TMI some years ago. Aim for completion between 2026 and 2027, these assets will provide the needed ancillary services to enhance power supply reliability amidst increasing demand from industries, businesses and new economic zone locators. Furthermore, the 150-megawatt third unit expansion of coal-fired Therma Visayas in Toledo, Cebu is progressing and is slated for completion in 2028. This project will be crucial in addressing Cebu's urgent need for new baseload supply to meet its growing demand. We achieved financial close on this project a few months ago. In the first half of 2025, energy sold totaled 19.4 terawatt hours, which represent a 9% year-on-year increase. Of this total, 14.7 terawatt hours or 75% was sold through contracts to both regulated and retail markets. The spot market accounted for 13% of total volumes sold. Energy sold for ancillary services rose by 36% year-on-year, primarily due to new ancillary services contracts secured by SNAP and the base effects from the suspension of the reserves market from March to August of last year. In the second quarter of 2025, new contracts totaling 400 megawatts in GNPD, TLI and TVI went live. Including our attributable capacities in Chromite, 87% of our baseload capacity is now contracted, up from 70% at the end of March 2025. Considering the timing of delivery of other contracts that were awarded in 2024, we are expecting 800 more megawatts of contracts to start delivery throughout the second half, which will bring the contracted level of our baseload fleet to around 90% by year-end. Having said that, we do not intend to stop at 90% and continue to seek opportunities to bring this up to as close to 100% as possible. The beneficial revenue of our Power Generation segment rose by 6% year-on-year to PHP 86.2 billion in the first half of 2025. Apart from the increase in energy sold, the revenue growth was attributable to the higher price per kilowatt hour of our contracted portfolio, which offset the significant decline in spot prices. You will see in the chart at the bottom of the right portion of the slide that average spot revenue has come down almost PHP 2.5 per kilowatt hours compared to the same period last year, reflecting the downward trend in the load weighted average price. Typically, prices tend to trend up, as you know, as we come into the summer months. And you'll see in the graph here that in 2025, the trend was actually downwards despite it being an election year when demand typically comes up. Despite an increase in revenue, gross profit remained flat at about PHP 33.8 billion as the weak spot prices and outages of our coal plants negatively impacted margins. On a like-for- basis, if you adjust the impact of new plants and compare against last year, the impact of the lower spot prices alone, that PHP 2.5 difference versus last year, would have been PHP 8 billion year-on-year, which the decline in generation costs due to lower coal prices would not have been able to offset. Essentially, the spot prices dropped much faster than the cost of generation. For our Distribution Utility segment, growth in energy consumption demand across all customer segments drove volume sales up 4% year-on-year. This sustained volume growth drove distribution EBITDA higher to PHP 4.5 billion in the first half of 2025 from PHP 4.4 billion in the same period last year. Finally, AboitizPower and its affiliates continue to maintain a market-leading 28% market share of the RES market. Its stable customer base contributed a segment EBITDA of PHP 900 million for the first half of 2025. The decline in AboitizPower's beneficial EBITDA in the first half of 2025 as well as the full impact of depreciation and interest expense for GNPD, which we began recognizing in March 2024, translated to a lower net income of PHP 12.7 billion in the first half of 2025 compared to PHP 17.1 billion in the same period last year. Ultimately, the biggest impact to the business on a year-to-year basis is the steep decline in spot price, which offset new contributions from Chromite and new RE plants. The growth in our total assets is still primarily due to Chromite Gas Holdings, which was partially funded by debt. Although this raised our net debt to equity to 1.17x as of June, it remains to be within a manageable range. As of June 2025, together with our partners, we have deployed PHP 56.7 billion in capital, the bulk of which was for our share in Chromite, which we closed earlier in the year. Outside of M&A, we have thus far deployed approximately PHP 10 billion towards our internal growth projects, which we expect to continue to ramp up as the year goes on. This ends my presentation for now. Thank you for your attention and looking forward to answering your questions in a little while. Thank you.

Thank you so much, Sandro. So now on to Q&A. We will start off with the questions we received in advance. [Operator Instructions] So the first question is on plant availability. How was plant availability in the second quarter versus the first quarter? Was this less of an issue for the Generation segment's performance in the second quarter?

So the bottom line is yes. So the weighted average availability of the coal fleet in the second quarter was about 90%. That was about 70% in Q1, and the difference between those two numbers is primarily because of the front-loaded planned outages that we explained in the quarter 1 briefing. And the reason why they were really front-loaded was because of the preparations for the elections in May.

The second question is on spot exposure. How much of generation volumes were exposed to the spot market?

Yes. So we showed this in the presentation. About 13% of volumes sold went to the spot market. On a positive note, right, we're expecting this to drop in the coming 2 quarters because of the 800 megawatts of contracts that we're expecting to start delivery over the next couple of months, the bulk of which are with Meralco. And then again, because of these contracts, we're expecting the baseload portfolio to be 90% contracted by year-end. And we're still, as I mentioned earlier, seeking opportunities in the market to close the remaining 10% to get that baseload portfolio as close to 100% as possible.

In relation to that question, how much is the decline in net income attributable to the decline in spot market prices?

If spot prices remained flat year-on-year. And again, the difference in the selling price for the first half this year and last year was PHP 2.5 per kilowatt hour. Our [ NIM ] would have been higher by PHP 6.5 billion in the first half of the year just from that spot impact alone. So it's the single biggest driver of year-on-year results.

Next question is on contracted capacity. How much capacity will be contracted in the second half? And by how much will spot exposure decrease with the commencement of the additional bilateral contracts?

So the only ones that we know of today that are coming in are the 800 megawatts worth of new contracts or roughly 800 megawatts of new contracts. Again, having said that, we are still looking for opportunities, both on the regulated and retail side to bring in more contracts before the year ends. But as of today, what we expect to start delivery because we've already won those contracts is the roughly 800 megawatts that are coming in the next couple of months.

Thank you. So I see [ Jelline ] has her hand raised, but maybe before that, I'll just go through clients' questions on Chromite. So this is very similar to questions that were sent in as well. How much did Chromite Gas contribute to net profit in the first half of 2025?

In the first half, Chromite contributed PHP 2.4 billion to AP's NIAT.

[ Jelline, ] you can ask your questions now.

My first question really is on the spot price outlook. You mentioned that it's a major driver of earnings for the first half and likely so going forward. Can you comment on your expectations on trends and what will be the most potent drivers going forward?

Of spot prices themselves?

Yes, spot prices.

Yes. I think our broad expectation is that spot prices will remain low. And I think that's because of two things, right? One thing we're seeing this year is definitely on the -- so we know about the new capacity, right? So there's the gas plants that have come in, all of the new renewable projects. We're also seeing, I guess, a lot more rooftop solar that's coming into the grid, right? That's taking demand away from the centralized grid. Other things from a demand perspective, this year, temperatures and -- temperatures have been cooler than last year, like generally speaking. There's been more rainfall this year than last year as well, which impacts demand. And then on the -- I guess, on the economy side, right, a weaker economy can translate into kind of like weaker demand, right? But I think on a more medium-term basis, the expectation is that because of all of these new GEA auctions that are adding so much supply to the grid, especially in Luzon, I think there's an expectation that supply will outpace demand in the medium term, which means spot prices will, I think, continue to be pretty muted, which I think just reinforces all the more the need and the strategy to contract the remaining 10% of our portfolio because 10% of a large portfolio can obviously have a significant impact on bottom line if we're talking about PHP 1 to PHP 2 differentials in spot price.

Understood. But going back on the more near term, you mentioned 800 megawatts of new contracts will come in. You already have visibility of where these contracts are currently contracted. Can you give us an idea about unit margins 2Q versus second half? Will these new contracts offer some [ reprieve ] even with your lower spot price outlook?

Yes, it should because it will replace the, I guess, the merchant capacity and the margins there should be higher than what we should expect to get on spot. So spot prices are -- can you go to the spot slide so we can show what they were for the first half. Yes, PHP 4, right? In some months, that's lower than PHP 4 even, right? So contract prices are higher than that. And so I think the expectation is that there will be margin reprieve when the contracts come in. But again, the 10% of exposure is not small, right? And so we are actively trying to close that exposure as fast as we can of the 10%.

And on that recontracting for the next 10%, which particular segment of the power portfolio would you want to be more active? Will it be RES on upcoming PSAs or other avenues that you might have? How are you thinking about contracting?

Yes. I think the preference is long-term contracts, long-term capacity-based contracts. And those contracts are you can find those contracts in the regulated space when the DUs and cooperatives auction out the requirements. So we're always -- so that's always top of mind for us. Having said that, there are opportunities to contract still in retail, but I think our preference at this point in time is to find long-term capacity-based fuel pass-through type contracts. But as a secondary market, retail is there. And there are, I guess, policy mechanisms on the retail side, like the retail aggregation program of ARC, which allows the best of all customers currently under the threshold to aggregate their demand, right, to become eligible that will free up a much larger, I guess, portion of the captive market for retail. That's always a potential secondary market for us. And we are still, I guess, open to trading non-AP capacity, right, to continue serving the retail market as a way to complement our existing portfolio, which should allow us to, I guess, serve both markets if we're able to execute that strategy.

Understand. Is there an aspiration in terms of timing for closing that 10% gap?

Yes. I mean we are, to a large extent, dependent on the needs of the customers and when they hold the auctions, right? But we are expecting a host of CSPs next year.

Understand. And sorry, if I may, just another one on the CBK. I'm not sure if you're already in the liberty to disclose how much stake AP has, in thunder and expected funding as well as earnings impact from this asset?

Yes. I think it's a bit -- so we haven't financially closed yet, and we haven't gone through the PCC process yet. So I think it's a little bit premature.