Aboitiz Power Corporation (AP) Earnings Call Transcript & Summary

Good afternoon. Welcome to Aboitiz Power's Earnings Results Briefing for the First Quarter of 2026. 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 your name, voice, image and chat comments being recorded for use in dissemination. Our CFO, Sandro Aboitiz, will present the earnings results for Aboitiz Power. After the presentation, we will open the floor for Q&A. Sandro, you have the floor.

Thank you very much, Jacqui, and good afternoon, everyone. Thank you for joining us today as we walk you through our financial and operating performance for the period January to March 2026. In the first quarter of 2026, AP's beneficial EBITDA reached PHP 20.3 billion, 35% higher year-on-year. While all of our businesses posted growth in Q1, Generation was a primary driver, accounting for 89% of total beneficial EBITDA. Generation EBITDA grew 42% year-on-year, reaching PHP 18 billion in the first quarter, up from PHP 12.7 billion in Q1 2025. The key drivers here were increased contracting volumes, higher availability of our coal plants, contributions from new solar power plants and full quarter earnings from Chromite Gas. Our Distribution Utility segment contributed PHP 2.3 billion in EBITDA, up 11% from PHP 2 billion in the first quarter of 2025. Our Retail Electricity Supply business, or RES segment, contributed PHP 0.5 billion, up from PHP 0.4 billion in the same period last year. Let me now turn to our renewable energy pipeline, which is a key pillar of our growth story. As of the end of the first quarter 2026, 655 megawatts of our initial RE pipeline is now operational. This includes solar plants in Cayanga, Laoag, Armenia, Calatrava, San Manuel and Olongapo as well as geothermal and BESS projects. We currently have 138 megawatts under active construction today across 6 projects, the Bay BESS, Magat BESS 2, Binga BESS Units 1 and 2, Ambuklao BESS and the CamSur Wind farm. I want to highlight a few near-term milestones. The Magat BESS 2 is at 99% completion and is expected to be commissioned this month. The Bay BESS is at 95% completion, also targeting commissioning this month. Binga BESS Unit 1 is at 79% completion and is targeted for commissioning within the second quarter of this year. The CamSur Wind project is at 57% completion and is on track for commissioning in Q4 of this year. Additionally, other ongoing projects outside of our RE pipeline continue to advance, including the EAUC BESS at 30 megawatts, the TMI Nasipit BESS at 48 megawatts, both expected this year in 2026 as well as TVI Unit 3 Coal at 120 megawatts targeted for 2028. Looking further ahead at our longer-term RE pipeline, we have a robust set of projects under development for completion in 2027 and beyond. A total of 639.5 megawatts of GEA capacity was awarded to AP. Construction is already underway on the 49.5-megawatt Presentacion 2 Wind project, which is at 7% completion, while site works have commenced on the 130-megawatt San Marcelino Floating Solar project. Outside of GEA, site works have also commenced on the 137.5-megawatt Ubay Solar project in Bohol, which is targeted for delivery in Q3 2027. Moving on to energy volumes. Total energy sold in the first quarter grew by 30% year-on-year to 11.2 terawatt hours. This was supported by a 24% increase in energy generated to 8,087 gigawatt hours, driven primarily by the full quarter contributions from Chromite Gas, the addition of CBK to the portfolio, which was turned over to us in February and higher availability from GMEC, TLI, GNPD and TSI. Turning to the sales mix, 87% of total energy sold was through bilateral contracts with utilities and RESs and Ancillary Service procurement agreements with NGCP. The remaining 13% was sold to the spot and reserve markets. Volumes sold to the spot market itself were lower by 4% year-on-year. This reflects our deliberate strategy of maximizing contracted revenues and limiting our spot market exposure. Beneficial revenue for the Power Generation segment rose 29% year-on-year to PHP 48.1 billion in Q1 2026 from PHP 37.3 billion in Q1 2025. This growth was driven by contributions from Chromite Gas Holdings, the CBK Hydroelectric complex and our new solar plants. Looking at pricing, our average BCQ revenue per kilowatt hour rose modestly to PHP 5.35 in Q1 '26 from PHP 5.30 in Q1 '25. This slight increase reflects the impact of higher coal prices as the Newcastle coal benchmark averaged $120 per metric ton in Q1 of this year compared to $105 per metric ton in Q1 of last year. Average spot revenue per kilowatt hour increased more noticeably from PHP 3.73 last year to PHP 4.10 in the first quarter this year. The Luzon Weighted Average Price, or LWAP, for Q1 '26 was PHP 3.79 per kilowatt hour, slightly above the PHP 3.66 recorded in the same period last year. The higher prices this year have been driven by multiple forced and planned outages and transmission constraints in the Visayas region, which constrained inter-island power flows and fuel cost pressures. Our gross profit in the Power Generation segment rose by 37% year-on-year to PHP 19.4 billion in Q1 '26 compared to PHP 14.1 billion in Q1 '25. What we find particularly encouraging is the operating efficiency reflected in these numbers. While energy generated volumes grew by 24%, generation costs increased by 15%, rising from PHP 18.9 billion to PHP 21.7 billion. This favorable cost leverage demonstrates improved plant utilization and operational discipline. As a result, our average gross profit per kilowatt hour improved by 6% from PHP 1.91 in Q1 '25 to PHP 2.02 in Q1 '26. The combination of volume growth and margin improvement is a clear indicator of the quality of our earnings this quarter. Turning to our Distribution Utility segment. Power sales on a beneficial basis grew 6% year-on-year to 1,707 gigawatt hours in the first quarter from 1,606 gigawatt hours in the first quarter last year. This continues a multiyear upward trend in our distribution volumes, which have grown from 5,583 gigawatt hours on an annual basis in 2021 to 6,927 gigawatt hours in the full year '25. In terms of customer mix, commercial and industrial customers accounted for 69% of volumes at 1,177 gigawatt hours, up 6% year-on-year. Residential customers contributed the remaining 31% at 529 gigawatt hours, also up 6% year-on-year. As noted earlier, the Distribution segment's EBITDA contribution for the first quarter of this year rose 11% to PHP 2.3 billion, reflecting steady volume growth. In our Retail segment, we continue to hold a leading market position. According to the latest CREM report as of Feb 2026, our RES segment holds a market share of 26.45%, making us one of the 2 largest retailers in the country. Manufacturing commercial customers continue to be -- to represent the bulk of our customer base and our scale and diversification across customer types supports stable RES revenues and underpins our competitive position in the open electricity market. The strong EBITDA in Q1 translated to a core net income of PHP 7.6 billion for the first quarter of 2026, 61% higher than the same period last year. After accounting for FX gains and losses and other nonrecurring items, AP recorded a net income of PHP 7.9 billion for the first quarter of 2026, a 71% increase over the PHP 4.6 billion recorded in the same period last year. Net interest expense of PHP 5.1 billion, representing an increase of PHP 650 million, reflects the increase in debt from our recent investments and capital expenditure program. Depreciation and amortization increased to PHP 5.1 billion from PHP 4.2 billion in the first quarter last year as new assets, particularly from our RE pipeline and the Chromite and CBK acquisitions came into service. This all translates to an earnings per share of PHP 1.1 in Q1 '26 compared to PHP 0.64 in Q1 '25. Turning to our balance sheet. Total assets grew slightly from PHP 622.8 billion to PHP 632.2 billion, primarily reflecting the addition of CBK. Total interest-bearing debt rose to PHP 352.2 billion from PHP 332.5 billion, driven by incremental borrowings for our investments in Chromite, CBK and our RE expansion. Net debt stands at PHP 275 billion. The resulting net debt-to-equity ratio of 1.32x and debt-to-equity ratio of 1.69x remain manageable given the long-term nature of our business and the predictable cash flows generated by our contracted Generation portfolio, ensuring sufficient headroom for our upcoming renewable energy and BESS pipelines. On debt structure, I'd like to highlight that our debt profile is well positioned to support our long-term growth strategy. Our debt maturities are well spaced, while the majority of our debt carries fixed interest rates and is predominantly denominated in Philippine pesos to align with our peso-denominated revenue streams. We believe this disciplined approach to debt management, maintaining fixed rate long-term peso-denominated debt provides AP with a stable and predictable financing cost structure as we continue to execute on our growth agenda. That concludes our presentation for today. We're now happy to take your questions. Thank you very much.

Thank you, Sandro. So as mentioned earlier, we will start off with the questions we received in advance. [Operator Instructions] Kicking off with one of the more exciting questions. So several analysts sent this in. The first question reads as, overall, was AP affected by the WESM price cap imposed by the administration under the state of energy emergency? Sorry, Sandro, you're on mute.

Sorry about that. So the market was suspended primarily as a way to conserve the use of more expensive fuel sources, so primarily gas and oil. Under the market suspension, market prices were subjected to administered pricing, which essentially means taking the average of similar intervals prior to the suspension of the market. Aside from that, coal plants were given a modified administered price of PHP 6 to cover the anticipated impact to operational costs considering that dispatch was expected to be much higher than normal. So I guess from an operational perspective, there wasn't a big impact to AP. And given that most of our merchant capacity is sitting in our coal fleet, the impact was a net positive for the month where that suspension was in place.

Still related to the WESM suspension under the state of energy emergency, how did your renewable energy, coal and oil power plants operate or perform in April, particularly in terms of dispatch priority and capacity factor?

So for RE, no real impact as RE continues to be a must dispatch technology even before the market suspension. So no impact on dispatch in our RE facilities. Coal, on the other hand, operated at much higher dispatch factors, which again was aligned with the goal of the prioritization of the use of this technology over gas and oil. In the case of the oil assets, dispatch was also quite minimal because the assets are typically providing ancillary services and are not dispatched unless they are called on to replace a loss of generation. So no real big difference in the dispatch of the oil assets as well.

Got it. And then how has the resumption of WESM last May 1 impacted AP's generation portfolio so far?

Well, so far, what we're seeing is higher market prices since the suspension was lifted. So for us, we're expecting this to be a benefit, again, given the fact that we still have merchant capacity in our portfolio, so we should be able to benefit from the higher prices.

Okay. Next question is, what is AP's contracted capacity level right now? And are any of these contracts due to expire within the year? Which of AP's plants comprise the 10% uncontracted capacity?

So the contracting level as of March is about 92% on a nominal basis. And this is, again, primarily for our baseload portfolio. So that consists of the coal plants, APRI and our share in Chromite Gas. So we're about 92%, again, contracted on a nominal basis for that baseload portfolio. The bulk of our merchant capacity is currently sitting in coal, specifically in Therma Luzon. And this year, we're -- we've got under 150 megawatts of expiries throughout the year, but we also have contracts that are pending approval and finalization. So we should end the year in a similar position or higher than we are today given the various opportunities in the market that we are hoping to contract. I also just want to note that this does not include CBK. CBK is not operated as a baseload plant, but it is a merchant facility. Again, our objective -- our long-term objective here is to secure a tariff for this asset.

Thank you for that. The next question is, how will the company's contracting and reserve market strategy evolve this year, considering the ongoing state of energy emergency and the potential emergence of a Super El Nino in the second quarter?

So we feel that our strategy of continuing to maximize opportunities to secure long-term contracts, we feel that strategy is still sound despite the potential short-term opportunity of high market prices as a result of everything that's happening today. So I think while we'll obviously try and take advantage of near-term opportunity, at the same time, it should not result in a material shift in our contracting strategy, which we feel is still more valuable for the business long term to secure long-term contracts at healthy margins.

And then still on El Nino, the potential impact of El Nino, how do you expect it to impact the operations, particularly in terms of electricity demand patterns and system reliability?

So from a demand perspective, I think we'll likely see an increase in demand, which would be, again, beneficial for us because that would result in higher market prices, which will benefit from -- in a portion of our portfolio that's not contracted. Operationally, we'll likely see lower generation in our hydro facilities. The last El Nino in 2024, what we saw was that overall, this was a net positive for us, higher market prices, but lower water. But I guess it remains to be seen how deep or long this El Nino will be. But using 2024 as a data point, it ended up being a net benefit for us.

Moving on to Chromite. So what is the impact -- what is the EBITDA and NIAT contribution of Chromite in the first quarter?

Chromite EBITDA and NIAT contribution in the first quarter was at PHP 2.7 billion and PHP 1.6 billion, respectively. The NIAT of PHP 1.6 billion is before interest expense at the parent that's related to the acquisition, but it's already net of the purchase price allocation, which is amortized on a monthly basis in 2026.

And then any curtailments in the nat gas power plants under Chromite Gas given the fuel constraint caused by the U.S.-Iran war?

So far, there are no curtailment issues directly as a result of the conflict. The gas plants have a diversified LNG sourcing strategy. So in fact, only a handful of shipments were sourced through the Middle East before the war erupted. But the team continues to study how it can create more resilience in its supply portfolio, and they're currently exploring further diversification of LNG sources.

The next question is on another new asset of ours, which is CBK. Could you share the EBITDA contribution of CBK in the first quarter?

In the first quarter, CBK contributed EBITDA of PHP 330 million in the first quarter of 2026. It started -- we took over the plant in Feb, so it wasn't the full quarter. So we'll see the full quarter impact of CBK starting in the second quarter this year.

The next one is on Van Phong. Any updates on the Van Phong acquisition in Vietnam?

I guess, no material update to report at this time. We continue to work with our partner, Sumitomo, to ensure that we get the necessary regulatory approvals to consummate the transaction, but no material updates at this point in time.

Okay. The next one is on CapEx. We released the CapEx guidance in our fourth quarter briefing. And the question is what drove the decline in CapEx budget for 2026 compared to 2025, and which projects or plants will be directly affected by the reduction, if ever?

Yes. Maybe it's worth noting here that the 2025 number includes M&A, so included our investment in Chromite Gas. So for 2026, the number that was disclosed only consists of organic development and excludes M&A. So the biggest component of that 2026 CapEx number is actually to build the GEA projects that were awarded to us, which I spoke about briefly earlier. So that number could change if there are any M&A, I guess, opportunities that come into the pipeline this year, right? But it's not an apples-to-apples comparison. So there are no, I guess, projects or plants that were affected given that the bulk of that CapEx really is for organic growth in 2026.

Thank you for that clarification. The next question is more on outlook. What is the energy supply-demand outlook of AP over the near term or medium term -- and medium term?

So on the supply side, the inflationary pressure, I think, could have an impact, not just on us, but I think the whole industry's ability to deliver on committed projects. So number one, most of the equipment for these plants are imported. So the depreciation of the peso can have an impact on the, I guess, the viability of these projects. Rising interest rates also need to be managed deliberately in order to protect the committed project returns. So that's something that we're watching quite closely and deliberately trying to manage. On the demand side, I think it's not unreasonable to expect a potential slowdown in growth, right? So energy consumption is very closely tied to the performance of the economy. This is probably the most worrying thing in terms of potential long-term impact for not just our business, but of the country. And I think it's -- I don't think anyone really understands the potential long-term impact here, how deep it might be given what's happening in the world right now.

Thank you for that. The next question is on our Distribution Utility segment. So the question reads as distribution volume growth has been strong in comparison to another Distribution Utility. Do we expect this to continue for the rest of 2026? I think we have Jeihan on the line. Jeihan, can I throw this question to you, please?

Sure. Okay. So for DU, although we delivered strong growth in Q1, driven by our commercial and industrial customers, we are seeing some softening in the next few months in light of the -- as Sandro mentioned earlier, the ongoing war, we are seeing some of our commercial and industrial customers scaling down on their production because of low demand, most likely driven by the war. But nonetheless, there are specific sources of growth that we have identified that we feel will be sustained for the balance year. And therefore, barring any significant external shifts, we should be on track to end the year in a growth position at least for the DU business.

Thank you so much for that one. That was the last of the sent-in questions. [Operator Instructions] We do have a question on the Q&A box and it reads as current ratio fell in the first quarter, primarily driven by incremental loans to finance Chromite Gas and CBK acquisitions. Are there any plans to convert these loans into long-term debt and refinancing plans -- or refinancing plans to improve liquidity?

Yes, there definitely is a plan to term out the short-term loans that were used to finance the acquisition of Chromite and CBK. A project finance facility was just recently closed for one of the Chromite plants, and they're working on closing a second one. And we're currently in conversation with a couple of lenders for terming out the CBK debt as well. So definitely in the works.

The next question -- well, I see Jelline's hand is raised.

My first question is on the CBK. May I understand how the trading strategy played out for first quarter, and if you intend to continue this or any changes you intend for the second quarter as we await for the contract? And if you have any updates on the contract renegotiation or negotiation with the government, that would be great. That's my first question.

Both questions are CBK, right, Jelline? Did I get that correctly?

Yes, correct.

So I think trading strategy, we're not -- it's primarily being, I guess, sold in 2 ways. Number one, to the reserve markets. And the second way, just arbitrage on the energy side. I think it's going as expected so far. But because it's a merchant asset, we are, again, completely dependent on market outcomes, right? So I don't think there's any -- there's going to be any dramatic shift in the trading strategy. It doesn't change the fact that we want to secure a tariff, I think, as soon as we can. On the tariff side, I guess we're in the process now of preparing an application to the ERC for the tariff, but we're -- I guess, that application hasn't happened yet. We're currently in the process of preparing for it.

Okay. Understood. And my second question is on the maturity towers. I suppose that that's partly the bridge loans for Chromite and CBK. Can you disclose how much spread you're getting from the banks currently? I understand that the BSP has turned more hawkish and AP has one of the lowest floating-rate component of the debt among the utilities. So just wanted to get a sense on if there will be some interest savings once you lock in a longer-term loan for these assets -- for these...

Yes. I think what we're seeing is that the margins we're able to secure from our lenders are still fairly competitive. So that's not something that we, I think, expect to change given the market situation. In terms of disclosing what those margins are, I don't think we're in a position to do that right now.

Okay. Understood. And for the lifting of the WESM suspension, I understand that about 8% of the baseload capacity is available for spot offers. Can you walk us through your coal procurement strategy? How much is fixed? How much is tied up to NEWC or to Indonesian coal? And how should we think about whether there will be incremental margin gains if rates move -- or spot rates move in either direction or coal indices move in another direction? That's it.

Yes. On the coal sourcing side, a lot of our contracts are linked to Indonesian coal. And I would say we'll primarily benefit from any decreases in coal costs primarily on the merchant side, right? So in our contracted portfolio, a lot of that is passed on to the customer. So we'll primarily benefit from any, I guess, efficiencies created on the cost side in coal in our merchant portfolio, not on the contracted portfolio. I don't know if that answers your question.

Just as a follow-up, could you give us an idea how long you usually contract your coal requirements? Is there a lag impact on when we can expect the higher Indonesian coal indices reflect in your cost?

We'll have to get back to you on tenors. In terms of lag impact, I would say, between like 1 and 3 months, somewhere in that range.

So pretty quick...

Yes.

[Operator Instructions] I don't see any hands raised nor do I see any open questions on the Q&A box. Last call. Okay there. Jelline, go ahead.

It's a bit of a data check. How much CapEx did you spend in first quarter '26 compared to the budget disclosed of PHP 62 billion for the full year?

I don't have that number off the top of my head, Jelline. We can send that to you after this call. I will say, Jelline, that the bulk of that CapEx is really earmarked for the GEA -- the 5 GEA projects, and most of those projects will NTP throughout the year.

NTP throughout the year. Okay. Should we be concerned about the suspension of GEA allowance by the ERC recently?

I don't -- I wouldn't be concerned at the moment.

[Operator Instructions] I don't see any hands raised nor are there any open questions in the Q&A. So I think we can wrap the Q&A session already. So for the benefit of those who missed the entire session or would like to rewatch the event, a recording of this briefing will be uploaded on our website. On behalf of everybody and the entire presentation development team, we would like to thank you all for joining us today. For those who will join us for the earnings call of Aboitiz Equity Ventures, see you later at 5:00 p.m. And for the rest, see you again in August for our second quarter briefing. Thank you.

Thank you all. Appreciate the time.