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

[Foreign Language] [interpreted] Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International Incorporated, I would welcome all to the conference call regarding the third quarterly results announcement of 2022. Now may I introduce the management of the company today. The Vice President and Board Secretary to the company, Mr. Huang Chaoquan.

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[interpreted] Supervisor and Assistant to the President Mr. [ Li Shuqing ].

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[interpreted] People in charge of the related departments are also joining us in this meeting. First of all, the Vice President and Board Secretary to the company, Mr. Huang Chaoquan will review the business performance for the third quarterly results of 2022, followed by Q&A session. May we have the honor to invite Mr. Huang to review the business performance and Ms. [indiscernible] will conduct the English interpretation.

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[interpreted] Ladies and gentlemen, good afternoon. Welcome the third quarter results conference call of Huaneng Power International. Please let me briefly introduce the operating results, and my colleague and I would like to answer your questions.

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[interpreted] The company has just released the operating results. In the third quarter, the company actively responded to the power consumption growth and tight supply of coal, orderly push forward the operations, transformation and development. The company has fulfilled the duty of suppling sufficient, reliable and environmentally friendly power. In the first 3 quarter, the company results were affected by a significant increase in coal prices, which resulted in a loss. Under the Chinese accounting standards, the company achieved the consolidated operating revenue of CNY 183.953 billion, increasing by 26.59%. Net profit attributable to the company's shareholders was negative CNY 3.942 billion. The earnings per share was negative CNY 0.35.

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[interpreted] In terms of power generation, in the first 3 quarter, the company's domestic power sales was 320.146 billion kilowatt hour, decreasing by 1.15%. The average tariff was CNY 507.01 per megawatt hour, increasing by 21.32%. The average utilization hours was 2,864 hours, a decrease of 205 hours year-on-year.

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[interpreted] In terms of fuel supply, with government support, the company moved forward the contract signing and implementation, however, affected by the overall situation the procurement price increased significantly, especially for the power plants that consume [ C brown ] coal. The unit cost in the first 3 quarter was CNY 378.64 per megawatt hour, a year-on-year increase of 37.26%.

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[interpreted] In terms of the development, the company is pushing forward clean energy development. In the first 3 quarter, the company added 3.99 gigawatts of units, including 3.57 gigawatts of renewable, 2.15 gigawatts of wind power, and 1.42 gigawatts of solar power. The company's installed capacity reached 122.57 gigawatts, among which 24.65% is low carbon clean energy. Wind and solar capacity reached 17.44 gigawatts.

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[interpreted] In terms of overseas operations, Tuas Power overcame the disadvantage of soaring fuel prices, maintained safety operation, optimized competition strategy and explored retail markets. In the first 3 quarter, the profit before tax was CNY 1.159 billion, increasing by [ CNY 1.174 billion ].

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[interpreted] In the fourth quarter, the company will continue to ensure the safety operation, power and heat supply. On the premise of the energy security in winter peak, the company will make efforts in signing and the fulfillment of long-term co contracts, optimize the strategy, coordinating volume and price, and strive for profitable power generation, overcome the difficulties of pandemic and module prices, move forward the clean energy development and construction, implement supporting financial policies to secure the fund, optimize the funding structure to reduce the operating cost. Facing completed market situation, the company will seek progress while maintaining stability focusing on quality and profitability. And complete the full year target in production, operation and development.

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[interpreted] Now my colleague and I would like to answer your questions. Thank you.

[Foreign Language] [interpreted] Thank you, Mr. Huang. [Operator Instructions] The first question comes from [indiscernible] of Citibank.

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[interpreted] I have 3 questions. First, could you please provide us with the proportion of long-term coal contracts in the third quarter? And what was the honor rate? And could you please let me know the changes comparing to the second quarter? And my second question is about the company's guidance. Could you please provide us the guidance of unit fuel cost in the first quarter and the year 2023? And the company has said that 8 gigawatts of renewable energy target in the beginning of the year. Will the company change the target?

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[interpreted] The company has signed 150 million tons of long-term contract coal with our upstream supplier by the end of September. It has a 5.92% increase comparing to the month of June.

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[interpreted] In the first 9 months, the company have implemented 69 million tons of coal with a honor rate of 71.8%. In the third quarter alone, the company has implemented 26 million tons of coal with a honor rate of 81%.

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[interpreted] We have made progress, and the 81% honor rate is 9% higher than the first half of the year.

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[interpreted] Firstly, let me introduce the unit fuel cost in the third quarter. The unit fuel cost of coal-fired units was CNY 374 per megawatt hour and standard coal price was CNY 1,193 per ton.

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[interpreted] Please let me answer the question about the 8 gigawatts renewable capacity plan.

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[interpreted] In the third quarter, the capacity of renewable energy added to the company will slowed down. In the third quarter, we have added 485 megawatts of renewable energy that have shrunk when comparing to the first and second quarters.

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[interpreted] Please let me introduce some numbers to you. In the first 9 months, the company has approved 3.57 gigawatts of renewable energy into operation. And now still there are 7 wind projects and 67 solar projects under construction with a total capacity of 4.79 gigawatts.

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[interpreted] There might be uncertainty in the following quarter, because we set 8.03 gigawatts of target in the beginning of the year, but currently, we are affected by several factors.

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[interpreted] First, the COVID pandemic led to poor labor organization and management. Second, the increase in PV module prices had some impact on our construction. So in order to maintain a certain investment hurdle rate, our construction process was affected.

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[interpreted] Government is taking measures to deal with the module prices. We're still under looking of future changes in the market.

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[interpreted] Now about renewable energy construction. The company is at full preparation for the construction and with our ongoing 4.79 gigawatts of renewable energy construction, we are striving to achieve this year's target.

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[interpreted] Affected by certain risks, for example, the COVID pandemic, we still face uncertainty, but the company won't change this year's target.

[interpreted] The next question comes from [indiscernible] for Huatai Securities.

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[interpreted] I have 2 questions. First about the coal price. Could you please provide us the unit fuel cast and standard coal price for the blended cost for the thermal units? And second question is about our long-term contract. You just said our honor rate was 81%, but by how much percentage was in the government regulated reasonable range? And if the company's unit fuel cost was a little than the upper level of this range?

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[interpreted] In the third quarter, the unit fuel cost for thermal units was CNY 381.6 per megawatt hour and the standard coal price was CNY 1,239 per ton.

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[interpreted] The company has signed 1,500 million tons of long-term contract coal and 91% was under the government regulated price range.

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[interpreted] My other questions are, could you please provide the breakdown for the net profit and net profit attributed to equity holders in the third quarter for different energy sources? And does the company feels like the PV module price have dropped in the first quarter?

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[interpreted] The following numbers are only for your reference. In the third quarter, first, let me introduce the net profit breakdown. The net profit for coal sector was negative CNY 2.05 billion. For gas sector, it was CNY 10 million. And for the wind sector, it was 8.2 -- was CNY 820 million. And for the solar sector, it was CNY 480 million. And for the hydro sector, it was CNY 20 million. And for the biomass sector, it was negative CNY 40 million. For the wind sector, it was CNY 920 million.

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[interpreted] The net profit attributable to equity holders is as follows. First, for the gas sector, it was negative CNY 1.83 billion. For the gas sector, it was CNY 19 million.

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[interpreted] For the wind sector, it was CNY 880 million, and for the solar sector was CNY 420 million.

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[interpreted] For the solar -- for the hydro sector, it was CNY 19 million. And for the biomass sector, it was negative CNY 33 million.

[Foreign Language] The next question comes from Huang Xiujie of Guosen Securities.

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[interpreted] I have 2 questions. First about the solar power. What is the reason for the company's solar power profit increase in the third quarter? And second question is about the coal. What is the percentage of the company's imported coal and what was the price? And what is the substitutional effect of imported coal to the domestic coal?

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[interpreted] The following reasons attributable to the solar profit increase. First, the power generation. In the third quarter, the power generation for the solar sector was 1.8 billion kilowatt hours. And in the second quarter, it was 1.64 billion kilowatt hours.

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[interpreted] And the average tariff in the first quarter was CNY 545 per megawatt hour. For the third quarter, it was CNY 534 per megawatt hour.

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[interpreted] The company has purchased imported coal of 30.39 million tons, decreasing by 32.45%. And the coal price was CNY 867.41 per ton, increasing by 40.6%.

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[interpreted] The company expected in the short term, will still need the imported coal affected by the domestic production and transportation. The company will continue to purchase from overseas market.

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[interpreted] In the following year, the company still faced great risks from the imported coal, but the company will optimize our purchasing strategy to resist the risk from the supply -- from the price and the company will make full use of emergency contracts to be substitutional for the imported coal.

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[interpreted] 2 questions. First about the renewable energy. What is the market based renewable energy proportion? And what's the price spread between the tariff to benchmark tariffs? And second question is, what's the price spread between the imported coal and domestic coal?

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[interpreted] In the first 9 months 2022, the market-based volume for renewable energy was 6.42 billion kilowatt hour. It accounts for 22.6% to total renewable energy generation, and it has a 7.5% increase year-on-year.

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[interpreted] The average tariff for market-based wind -- of wind power was CNY 470.15 per megawatt hour, decreasing by CNY 29 per megawatt hour compared to the benchmark. And for the solar power, the market-based tariff was CNY 499.6 per megawatt hour, decreased CNY 40 per megawatts hour comparing to the benchmark. And the price spread has been narrowed down.

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[interpreted] There are differences of price change for different heat values of coal. For the coal with high heat value, it was affected by the European market. And with the coal from Indonesia with medium to low heat value, they were benchmarked against Chinese domestic coal.

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[interpreted] If we compare the Indonesia coal to the spot market coal price, we can see a CNY 200 to CNY 300 per ton lower than the domestic coal price.

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[interpreted] About the PV module price, we have experienced a price rise in the third quarter. The market price for PV module reached CNY 2 per watt, but the company cost was CNY 1.85 per watt in the third quarter. And in the fourth quarter, our cost may reach CNY 1.9 per watt, but there might be a decreasing trend under the government policy.

[Foreign Language] [interpreted] The next question comes from [indiscernible] and Securities.

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[interpreted] I have 3 questions. First, what is the company's situation about renewable energy subsidy collection in the third quarter? And second, what is the company's thermal power capacity plan in the future? And third, what is the company's capacity with flexibility retrofit and what would be the company's guidance on the flexibility retrofit?

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[interpreted] About the renewable subsidy collection situation, in the first 3 quarter, the company's outstanding subsidy was CNY 13.9 billion. In this term, we have had CNY 5.5 billion subsidy, but collected CNY 8.8 billion subsidy and with a settlement of CNY 10.4 billion subsidy.

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