Huaneng Power International, Inc. (902) Earnings Call Transcript & Summary

I have 3 questions. First, could you please provide us the net equity breakdown to different energy resources by the end of 2021? My second question is about the renewable energy. So the company have -- will add 3 gigawatts of wind capacity this year. But how many is from the last years and by what percentage is new capacity added? And because the PV module hasn't decreased much this year, so will company change the investment hurdle rate for this year's project consideration? And my third question is about coal contract. So by how many percentage of our contracts can be implemented in the 570 to 770 range as the NDRC has released the document? So what is the company's expectation of unit fuel cost change this year?

[Foreign Language]

Because company has 300 subsidiaries, and so this is only a demonstration for net equity breakdown.

[Foreign Language]

For coal sector, it was CNY 61.8 billion and for gas sector, it's about CNY 5.8 billion.

[Foreign Language]

For wind sector, it was CNY 35 billion. And for solar sector, it was CNY 5.7 billion.

[Foreign Language]

There was CNY 700 million for hydropower and CNY 900 million for biomass power.

[Foreign Language]

The company is quite confident about this year's 8 gigawatts of renewable energy. And as I just said, this year, there will be 3 gigawatts of wind put into operation. And for last year's capacity, a lot of our projects has been complete the construction and connected to the grid. And including 2.65 gigawatts of capacity has been connected to the grid, but not reached the requirement of operation because of the solar condition and also the wind condition. So this year, we are quite confident about this 8 gigawatts capacity.

[Foreign Language]

The company continued our prudent investment policies. So our investment hurdle rate hasn't changed from the last year.

[Foreign Language]

Please let me answer your question about medium- to long-term contract of coal. For now, the company hasn't completed the signing of those contract. Now we are still negotiating with our upper stream industry.

[Foreign Language]

For now, the contract signed has increased by 8.9%, but the specific number will be released later after the work is complete.

[Foreign Language]

For now, the spot market price has great difference with range that's provided by the NDRC, the long-term coal contract range. So this brought difficulties in the signing process.

[Foreign Language]

But the current situation have attract great attention from the government, and the government have used the price law and also other regulatory methods. So we are quite confident about the following signing of contracts.

[Foreign Language]

In the signing of the contract, the company will strictly implement relevant policies released by the government, strive for 100% coverage in long-term contract. And also, in terms of the price, we will implement NDRC's released price zone.

[Foreign Language]

We will ensure our contract -- seaborne contract in the price range of CNY 570 to CNY 770. And our inland coal will calculate those price, respectively.

[Foreign Language]

The 100% coverage in long-term contract coal will help to reduce the company's cost in coal and help with our profit.

[Foreign Language]

Because 1/4 of the company's coal purchases from is imported coal. So what is this change of this year?

[Foreign Language]

In the first quarter, because the ban of Indonesia imported coal and also the conflict between Russia and Ukraine, we can see the coal price overseas is higher than the coal price of domestic coal. So it minimize the support from our imported coal.

[Foreign Language]

But after our evaluation, we think the impact is limited, the total risk is under our control.

[Foreign Language]

The government had paid higher attention about the energy security last year. And we can see in the first quarter, there were 500 million tons has advanced capacity that put into the market by the government. And for this year, the government will put another 300 million tons of coal. So the capacity is guaranteed.

[Foreign Language]

So this year, the coal capacity release have increased by 10.9%. Although the COVID pandemic has spread in March, it hasn't affected the coal capacity. In March, the average coal capacity release daily amounted to 12 million tons.

[Foreign Language]

And the government have add transportation capacity in the north port. So the inland coal can help with the imported coal decrease.

[Foreign Language]

And the government have set some of our inland coal to fill in the gap from the imported coal and the form was a long-term contract.

[Foreign Language]

And the company has always been guarded against the imported coal risk. In the fourth quarter, the company has optimized our coal structures and used the group's port capacity to support the inland coal transportation.

[Foreign Language]

The group has enforced the synergetic effect within the group and increase the seaborne coal to fill in the gap of our coastal power plants.

[Foreign Language] The next question comes from [ Lei Zhang] of Citic Securities.

[Interpreted] I have 2 questions. First, could you please provide the profit situation of Tuas Power this year? And the second question is about our tariff of market-based power sold. So what the percentage of the market-based power volume this year? And is that -- is the tariff can exist 20% of our benchmark tariffs? And my third question is, could you please clarify about the company's net assets? You just said about CNY 100 billion net assets break into different energy resources. But if we deduct the perpetual bond from all the net assets, it's only -- we only have CNY 60 billion of net assets. So could you please explain the difference?

[Interpreted] So in 2021, the Tuas power has stable -- have been operating stability. And the profit of 2021 was about CNY 163 million, it increased by CNY 26 million year-on-year. And in the year of 2022, as the electricity demand increase in Singapore, we can see the demand and support -- and the supply of our market has reached equivalent. And as the gas was in a tight supply, we can see some opportunity of high tariffs in Singapore power market. In 2022, the company will seize the opportunity of high tariffs and try to make a better profit this year. I'll answer the question about our market-based power sales. So the company has implemented government document and in our operating areas, 20 -- our subsidiaries in 20 provinces have achieved a 20% increase of market-based power. Except for provinces like Guangdong, Hunan, Chongqing and Shanxi, at those areas, the users have great willingness to cut the tariff. The government haven't had implemented the 20% increase. But our market-based volume that have achieved 20% increase accounts for about 83% of our total contracts signed. And the high energy consuming industry power sales in Gansu have increased by 30% comparing to the benchmark tariff. Thank you.

[Foreign Language] The next question comes from [ Juten Wei ] of JPMorgan.

[Interpreted] I have a 3 questions. First is what is the company's dividend payout plan in the future? And my second question is about the high debt ratio. This year, the company's debt ratio have been higher than 70%. So what is the company's target debt ratio in the future? And my third question is about renewable energy. So what is the asset injection plan in the group about the renewable energy?

[Interpreted] About the company's dividend payout policy, since 1998, the company has in total paid CNY 62.6 billion of dividend. According to the company's Article of Association, if that year the company has achieved profit and the cash flow can guarantee the company's operating and business development, the company will pay out dividend in cash form. The company's dividend payout policy hasn't been changed that 50% of our undistributed profit can be paid out to the shareholders. Because of the fuel costs have risen dramatically, so the company's debt ratio have also risen accordingly. This year, the company has suffered a loss of CNY 14.3 billion, and the company's operating cash flow has decreased from 2020's CNY 42 billion to this year's CNY 6 billion. As the government policy released by the NDRC about both in coal market and in electricity power market. It's unsustainable that the coal -- high coal price can be continued in the future. About the company's tackle with our high debt ratio, the company will increase our operating revenue and increase our inflow of cash to help with the debt ratio issue. The company will follow up with the newest market trend, for example, the insurance of REITs. We estimate that our debt ratio will decrease to 70% with all those measures taken by the company.

[Interpreted] For now, the company hasn't had any divestiture plans of the renewable energy part, and there is no plan of assets injection as well. The company will continue to develop renewal energy. And the company has already made our 14th 5-year plan and strive for a 45 percentage of renewable energy capacity by the end of 14th 5-year. And the company will pay back to our shareholders, continue our transformation in the power sector.

[Interpreted] About the company's equity breakdown, the company's consolidated equity was CNY 123.8 billion. And for the breakdown numbers, all added together, it was CNY 110.3 billion. So in order to use these numbers conveniently, the company have just announced the above numbers.

[Foreign Language] The next question comes from Wu Jie of Haitong Securities.

[Interpreted] I have 3 questions. My first question is about the tariffs. So what was the company's tariff of coal fire units in the first quarter? And other than the 20% increase for our market-based volume, other power sold by the company, is that implemented the benchmark tariffs? And my third -- and about the Guangdong, Hunan provinces, which haven't had a 20% increase in market-based volume, what's the tariff in those provinces? And the second about the coal markets. So could you please provide us the detailed implementation of our coal contract? And my third question is about the company's unit fuel costs. As you just said, as the company released, the domestic unit fuel cost was CNY 316 per megawatt hour. So is that for the power sold by the company or power sold only by the thermal power? And also, about the CNY 146.5 billion coal cost, what proportion was from the domestic market? And what proportion from our overseas market? And could you please break it down to coal and gas sector?

[Interpreted] First, about our tariff in the first quarter. The tariff of our coal units was CNY 474.39 per megawatt hour. It increased by CNY 58 per megawatt hour comparing to the third quarter. About our market-based tariff, increased less than 20%. For our long-term contract of coal units, it's about 15% to 20% increase comparing to the benchmark tariff because some of our contracts have floating mechanism. In provinces like Jiangxi and Hunan, the provincial government has released its own policies in the coal and tariff linkage mechanism. And also in provinces like Heilongjiang, Hainan and Guangzhou, they have their own floating mechanism. And also, the time-based market sales, the tariff difference between the peak area and value hours also have some impact on our average tariffs. According to the above factors, we estimate the tariff will decrease in the future and also the tariff of the bidding market and also the spot market will flow with the coal price change. Combined, all of this situation, we think there will be 10.6% increase in our market-based tariff. In Guangdong, the company's average tariffs have increased 7.2% compared to the benchmark. In Chongqing, the market-based tariff increased about 14% compared to the benchmark. And also, in Chongqing, there's a policy about the time-based market sales. All those incremental power will be calculated to the power plants. And in Jiangxi, there's floating mechanism. In the first quarter, the market-based tariff is about the same with the benchmark tariffs. And in Hunan, the increase is about 9.7%. About the second question, in [ February 24 ], the revenue authority has released the Document #303. And by this time, our long-term contract coal has its guidance. For now, the company has strictly implemented with the government policy and resized some of our contracts. For now, the work hasn't been completed yet. For now, the company continued the resign process under the government policy. In March 16, the NDRC released another notice to regulate the price and volume of long-term contracts signed in January and February. In the notice, the government have clarified that the contract signed in January should implement the price and volume in December last year and the 5,500 kcal coal is about CNY 725 per ton. And the notice also regulated that those contracts signed in February also implemented the volume and price about December last year. The company will retire our long-term contract in January and the February implemented the notice released by the government.

[Interpreted] About the unit fuel cost of the company, the number of CNY 316.36 per megawatt hour is a combined number with gas and coal-fired units. The unit fuel cost of coal-fired units were CNY 312.2 per megawatt hour. The unit fuel cost for gas-fired units were CNY 371.86 per megawatt hour. The total coal cost of combined coal-fired and gas-fired units was about CNY 141.4 billion. Of this number, the domestic coal cost was about CNY 129.3 billion. The domestic gas field cost is about CNY 12.1 billion. The coal cost for both domestic and for overseas projects is about CNY 146.5 billion. The difference is the gas fuel cost of our Tuas Power, it's about CNY 5 billion.

[Interpreted] So could you please provide the proportion of long-term contract in January and February?

[Interpreted] So now, the company haven't resigned all the contracts yet and will strive for 100% coverage. For now, we haven't had any number. Please wait for our release in the first quarter announcement.

[Foreign Language] The next question comes from [ Yin Fubing ] of Guotai Junan Securities.

[Interpreted] I have 3 questions. First question is about the company inventory. By the end of the third quarter last year, the company inventory accounted for CNY 7.6 billion, and it increased CNY 1.3 billion in the first quarter. So what was the average coal price at fourth quarter? And second question is about the company's reserve projects. Could you please tell us some information of the company's reserve projects and its location? My third question is about the NDRC and NEA's release on the 14th 5-year energy structure plan will company update our renewable energy capacity plan during the 14th 5-year.

[Interpreted] First, I'll answer your question about our renewal energy development. The company has expanded our channels to get all the renewable energy resources. And in 2021, the company has acquired 25 gigawatts of renewable energy capacity in total. And the company will accelerate approval of the renewable energy on the premises of ensure the profitability the company will develop that investment prudently. About the guideline released by the NDRC of Renewable Energy projects, the company hasn't changed our targets in renewable energy development and maintained the same target of 40 gigawatts of renewable energy added during the 14th 5-year. About the coal reserve of the company, the company will put with relevant authorities plan on reserve coal and give full play to the company's inner inventory capacity. For now, the company is pushing forward inventory increase. In the North, we have the [indiscernible] port. In South, we have [indiscernible] port, we will fully use our inner capacity to push forward the coal inventory increase. And in the future, the company will set several bases in the -- in our power plants that meet certain conditions to ensure the coal supply. Thank you.

[Interpreted] I'll use some numbers to explain the inventory increase in the fourth quarter. In the third quarter, the company's local purchase price was CNY 744 per ton. In the fourth quarter, the local purchase price was CNY 1,083 per ton.

[Foreign Language] [Operator Instructions] The last question comes from [ Joe Zhou ]of Essence Securities.

[Interpreted] My question is about offshore wind. The company has several projects of off-shoring that's still under construction. Will that project get the feed-in tariffs?

[Interpreted] The company projects in Dalian and Shandong hasn't been put into operation, but it's fully connected to the grid. For now, there are some projects that compete for the feed-in tariff. The company hasn't -- the company's 900 megawatts of capacity haven't connected to the grid. Otherwise, we will ensure the operation in the first quarter. Thank you.

Thank you so much for all the questions and participation today. [Foreign Language] Finally, Mr. Zhao would like to give a bit of summary.

[Interpreted] Thank you for participating in the conference call. Thank you for your continued support. Here, we come to the end of today's conference call. Please contact our IR department if you have any further questions. Thank you.

[Foreign Language] Thanks again for your attendance of the conference call regarding the annual results announcement of 2021. We are looking forward to meeting with all of you in our next results announcement. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]