Aboitiz Power Corporation (AP) Earnings Call Transcript & Summary

Good afternoon. Welcome to AboitizPower's earnings results briefing for the first 9 months of 2025. My name is Jacqui De Jesus, and I will be the moderator for today's call. [Operator Instructions] This briefing will be recorded. By joining this session you consent to your name, voice, image and chat comment being recorded for use and dissemination. Our CFO, Sandro Aboitiz, will present the earnings results for 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 all, and welcome to our third quarter 9 months earnings briefing. We appreciate all of you making the time to join us this afternoon. AboitizPower reported a beneficial EBITDA of PHP 22.2 billion for the third quarter of 2025. The 16% increase versus the PHP 19.1 billion EBITDA in the second quarter was driven by margin growth across the generation segment, which was largely due to 2 things: number one, a reduction in exposure to the spot market as new PSAs have started delivery in the third quarter; and number two, higher water inflow at our hydro plants. The improvement in the third quarter helped offset the weakness in the first half that was primarily driven by low spot prices, bringing our EBITDA for the first 9 months of 2025 to PHP 56.3 billion, which is slightly ahead of last year's PHP 56.1 billion. The power generation segment accounted for 88% of our beneficial EBITDA, followed by the distribution utility and RES segments, which accounted for 11% and 2% of total beneficial EBITDA, respectively. Last month, we energized our 93-megawatt peak San Manuel solar plant, bringing the attributable capacity of our generation portfolio to 5.6 gigawatts as of October 2025. Renewable energy now accounts for 1.5 gigawatts of our total portfolio, representing a share of 27% of total capacity. Conversely, coal generation capacity now accounts for just under 55% of the total share of generating capacity. Progress on our other ongoing renewable energy builds remains on track. On top of the recently energized San Manuel solar plant, we are also targeting to energize our 221-megawatt Olongapo solar plant by -- before the end of the year, which will bring the total completed megawatts of our initial 1.2 gigawatt pipeline to 817 megawatts. Beyond renewables, our transition business group continues to progress on their own build program with 2 battery energy storage systems, or BES projects in our oil units, the 30-megawatt EAUC BES in Central Visayas and the 48-megawatt TMI BES #2 in Nasipit in Mindanao. Both projects, which are set for completion in 2026, will enhance the ability of our oil plants to serve the ancillary service requirements in their own respective grids. The TVI Unit 3 expansion is also progressing as planned and is targeting for completion in 2028. The CBK acquisition is currently being evaluated in the PCC. We still expect for financial close to happen at the end of November or early December, with turnover of the asset planned for February 2026. We also recently participated in the GEA-4 auction that was conducted in September. Based on the preliminary results released by the DOE, we are expecting notices of award totaling 640 megawatts across 5 projects. Of these 5 projects, 3 of them are ground-mounted solar with integrated batteries, 1 is wind and 1 is a floating solar project. Our 5.6 gigawatts power generation portfolio produced 24.7 terawatt hours of energy in the first 9 months of 2025. This brought AP's total energy sold to 32.1 terawatt hours, which is 19% higher year-on-year. Of this 27.3 terawatt hours -- of that 32.1 total, 27.3 terawatt hours or 85% of the total energy sold was sold bilaterally through contracts with DUs, RESs and NGCP for ancillary services. The balance 15% was sold to the spot and reserve markets. The last set of our expected new contracts started to deliver at the end of the third quarter, slightly ahead of schedule. This brings our baseload capacity to just about 90% contracted on a nominal basis, which was our target for this year. The beneficial revenue of our power generation segment rose by 14% year-on-year to PHP 137.3 billion in the first 9 months of 2025. Apart from growth in energy sold, the revenue growth was attributable to the growing revenue contribution of our contracted portfolio, which offset the significant decline in spot prices year-on-year. Again, you will see in the chart at the bottom right portion of the slide that average spot revenue has come down almost PHP 2 per kilowatt hour compared to the same period last year, reflecting a downward trend in the load weighted average price across the 3 grids. We do expect this trend to continue for the rest of the year. However, despite a 14% year-on-year increase in revenue, the increase in gross profit was more subdued at 5% due to lower spot margins and an increase in replacement power costs due to various plant outages during the third quarter. Availability in the third quarter was at 78%, with planned outages accounting for about 9% in the third quarter versus no planned outages in the second quarter. In the distribution utilities segment, higher demand from residential, commercial and industrial customers drove a 5% year-on-year increase in volume sales. The sustained growth in consumption resulted in an EBITDA of PHP 7 billion in the first 9 months of 2025, up from PHP 6.8 billion in the same period last year. Finally, our market share in the RES segment is largely unchanged, resulting in a RES segment EBITDA contribution of PHP 1.4 billion. While EBITDA grew slightly year-on-year, NIAT is down primarily because of the full impact of the recognition of depreciation and interest expenses from GNPD, which we began recognizing in March 2024. In addition, we are carrying almost a full year's worth of interest expense related to the Chromite acquisition without a full year's impact on earnings given that it took the plant some time to ramp up to full capacity. This resulted in a lower net income of PHP 23.3 billion in the first 9 months of 2025 compared to PHP 27.3 billion in the same period last year. Despite the challenges in the first half of the year, our balance sheet remains strong and well positioned for further growth. The increase in our total assets is still primarily driven by Chromite Gas Holdings, which was partially funded by debt. Although this raised our net debt-to-equity ratio to 1.08x as of September, we feel it still remains within a manageable range. Our debt profile remains mostly unchanged and well structured, reflecting our commitment to financial stability and prudent risk management. The majority of our debt carries fixed interest rates and is predominantly denominated in Philippine pesos. As of September 2025, AboitizPower, together with our partners, have spent a total of PHP 64.2 billion in capital investments, including the amount spent for our 40% stake in Chromite Gas Holdings. Nearly PHP 10 billion of this amount was allocated or has been allocated to build out the renewable energy pipeline previously shown. Last but not least, we are excited to share that on October 30, we announced that we have an agreement to acquire a 25% equity stake in Van Phong Power Company Limited, or VPCL, from Sumitomo Corporation. VPCL owns and operates a 1.3 gigawatt high-efficiency, low-emission coal-fired power plant in Khanh Hoa province in Vietnam. This acquisition will mark AboitizPower's first major investment outside of the Philippines. The Van Phong Power Plant, which began commercial operations in January of 2024, operates under a 25-year power purchase agreement with Vietnam Electricity or EVN. It supplies about 8.5 billion kilowatt hours annually, which represents approximately 4% of Vietnam's total power generation and is the largest foreign invested power plant in the Van Phong Special Economic Zone in the Khanh Hoa province. In the fiscal year 2025, it generated revenues of USD 422 million and NIAT of about USD 110 million. The closing of this transaction is subject to customary closing conditions, including securing the necessary regulatory approvals in Vietnam. And as such, we are unable to provide other details beyond what we've already disclosed thus far. This ends my presentation. Thank you for your attention and looking forward to answering your questions. Thank you.

Thank you, Sandro. We will start off with the questions we received in advance. [Operator Instructions] So the first question is on FIT. So do you have top line earnings guidance regarding the impact of the latest FIT-All rate hike?

So the FIT-All rate hike does not affect our earnings or the earnings of the other developers. It doesn't change the approved FIT rate for the developers. The rate hike basically ensures that the FIT-All fund is sufficiently funded, which ensures timely payments to all renewable energy producers under the FIT program. So no impact to AP's earnings.

Okay. The next 2 questions will be on Chromite. First question is, how did Chromite contribute to AP's beneficial EBITDA and NIAT in the first 9 months of 2025?

So in the first 9 months of 2025, Chromite accounted for PHP 6.4 billion of our beneficial EBITDA and PHP 4.3 billion of our beneficial NIAT. I would like to note, however, that we are still in the process of finalizing the purchase price allocation, pending the completion of the fair value assessment related to the transaction. We expect to complete that process before the end of the year.

And then next question on Chromite as well. When do you plan to push down the short-term debt that was incurred at the Chromite -- for the Chromite acquisition?

So the team over in LNG PH, which is a team that runs the OpCos, is in the process of raising debt at the OpCo level.

Okay. That's clear. The next question is basically on our contracting strategy. How much of your baseload capacity is expiring in 2026?

2026, we've got about 190 megawatts worth of contracts expiring throughout the year.

Okay. And then for our contracted base, can you provide the average tenor of AP's contracts?

Yes. So I guess there are 2 ways to look at this, right? The simple average is about 5.5 to 6 years. But when you weight that average based on megawatts, it's closer to 10 years, which maybe is the more relevant number here.

What is the group-wide contracted capacity level? And how do you see this level in 2026?

So as we showed in the slides, today, when you combine bilateral contracts with DUs, with RES -- with our own RES and other RESs, along with the ancillary service contracts we have with NGCP, which were effectively paid fixed fees for. We're about 90% on the baseload portfolio in 2026. This does not include CBK yet, which is going to be turned over to us, we're expecting, in February. Because of those expiries, the 190 megawatts as explained throughout the year, if we do nothing, obviously, then the contracting level falls below 90%. But we're expecting between -- anywhere between 800 to 1.6 gigawatts worth of CSPs to happen throughout next year based on the procurement plans of the various DUs that we sell to. So our plan is to participate in those CSPs and hopefully bring that contracting level above 90% before the end of next year.

Related to that one, how would the additional bilateral contracts improve AP's margins in fourth quarter 2025 and full year 2026?

Well, given that -- I guess, given that our outlook on spot prices is that they will remain fairly low rest of the year, and we're also expecting that trend to continue into 2026, the current price differential between contracts, I mean, there is still a price differential between contracts and spot. The spot -- average spot for this year is under PHP 4, right? So we're expecting that relative to spot, the new contracts will generate better margins, not just this year, but next year as well.

That's clear. Shifting a little bit to ASPA. So ASPA price level as collected versus recently approved and the related underlying megawatts contracted, this is to estimate the potential profit windfall for AP.

Yes. So we're still at the tail end of the process in terms of reconciling the volumes with NGCP. So what we can give are some, I guess, some data related to the contracts themselves, right? So as of October 2025, there's about 200 megawatts of our ASPA CSP contract that received final approval on the applied rate of PHP 0.0225 per kilowatt hour. That 200 megawatts was previously being built at about PHP 0.0150 per kilowatt hour. And then there are 2 other contracts that are both under 50 megawatts. One of those contracts had approved rates of PHP 1.25 versus a previously the billed rate of PHP 0.85. And then the other one was PHP 1.6 versus a build rate of PHP 1.5. But again, just reiterating that we're still in the process or in the final stages of the process of reconciling the volumes with NGCP.

I see that Jelline hand is raised. Jelline?

Just as a follow-up on the discussion on ASPA. Can you give us an idea on how -- what's the usual acceptance rate or nomination rate by NGCP to get a better gauge of volumes?

Yes. So these are ASPAs not reserve market bids, right? So reserve market bids are typically where you see acceptance rates. Here, there's clearly defined volumes in the contracts. It's just a matter of having -- I guess, there are also like planned outages -- some planned outages throughout the year, right? So it's just a matter of confirming those volumes with NGCP, but it's different contract to contract depending on what you bid for in the auction themselves.

Okay. But maybe just again how should we better factor this in if we're doing on a modeling perspective?

I mean we've given you some information on the rates. We can't guide for the number yet because we haven't finalized that with NGCP at this moment.

Understood. But in terms of timing, is it reasonable to expect this to happen within the year or maybe next year?

Yes. Our expectation is that this will happen this year.

Within the year. Okay. Can we talk a little bit more about how RES pricing has been so far? How are clients thinking about proper pricing given the decoupling of generation charge of Meralco as well as the spot price?

Yes. I think you're certainly seeing some pressure on RES pricing given that market -- there are alternative source of supply, which is the WESM has come down substantially. So I think in addition to margin pressure, you're going to see contract tenors start to shorten as well, right? I don't think RES customers will want to lock themselves into longer-term contracts given that market prices are low, on the spot at least, right? So we are seeing some margin pressure there. And again, the impact of like the shorter tenure of the contracts, and you might start to see customers who prefer to actually take a little bit of spot exposure if they believe market prices will be low in the interim as well, too, right? I think for us, what this means, we are eager to participate in the CSPs of the various DUs next year because that market allows us to secure long-term capacity-based fuel pass-through contracts while still being able to participate where it makes sense on the RES side. And I think there's a question later on the impact of the lowering of the thresholds, but ERC announced recently that they're lowering the threshold from 500 kilowatts to 100 kilowatts. So you've got that, and you've also got the impact of the retail aggregation program, which now they have to just meet the 100-kilowatt threshold, right, which you can imagine might also accelerate more retail conversion. So I think the market will be also maybe large enough so that there's kind of room for everybody to play without maybe so much pressure on the margins, but we'll have to see how that plays out.

Understood. And maybe last question for me. How is the company thinking about the mandatory procurement of local DUs from power plants using local gas? And how that might impact the procurement plan of AP?

You say local -- sorry, can you repeat that, Jelline?

The local gas, which is under the Republic Act on natural gas industry development.

Yes. So I think that's something we're going to have to kind of watch to see how that plays out as well.