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

[Foreign Language] Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International, Incorporated, I would like to welcome you all to the conference call regarding the annual results announcement of 2022. [Foreign Language] Now, may I introduce the management of the company today. [Foreign Language] The Chairman of the company, Mr. Zhao Keyu. [Foreign Language]

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[Foreign Language] The Independent Director of the company, [ Meng Zhou ] [Foreign Language]

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[Foreign Language] The Chief Accountant of the company, Mr. Huang Lixin. [Foreign Language]

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[Foreign Language] The Vice President and Board Secretary to the company, Mr. Huang Chaoquan. [Foreign Language]

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[Foreign Language] The Chief Economist of the company, Mr. Fu Qiyang. [Foreign Language]

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

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[Interpreted] Ladies and gentlemen, good afternoon. Welcome to the annual results conference call of Huaneng Power International.

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[Interpreted] Just today, the company's Board of Directors have released the annual report of 2022. Please let me give a brief introduction.

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[Interpreted] In 2022, facing the tight energy supply and high coal prices, the company responded to the market changes, coordinated operation and transition and achieved results in power generation, green transition and overseas operation. The company actively performed the responsibility of providing sufficient, reliable and environmentally friendly energy for the society. Under the Chinese Accounting Standard, the company achieved a consolidated operating revenue of CNY 246.725 billion, increasing by 20.31%. Because coal prices remained high, the company's net loss attributable to equity holder was CNY 7.387 billion. The earnings per share was negative CNY 0.61 and the IFRS, the company's net loss attributable to equity holder was CNY 8.026 billion, and the earnings per share was negative CNY 0.65.

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[Interpreted] In terms of power generation, in 2022, the company's domestic on-grid power sales was 425.186 billion kilowatt hour, decreasing by 1.44%. The average tariff was CNY 509.92 per megawatt hour, increasing by 18.04%, and the market-based power sold accounted for 88.4%, increased 27 percentage points. The average utilization hours were 3,785 hours, a decrease of 273 hours year-on-year.

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[Interpreted] In terms of coal supply, in 2022, the company purchased 192 million tons of local, of which long-term contract coal accounted for 56.89%. Due to tight supply in domestic and oversea coal markets, coal prices remained at high level. The company's supply structure was affected by our power plants location and the fuel cost increased throughout the year. Unit fuel costs rose to CNY 372.56 per megawatt hour, a year-on-year increase of 17.73%.

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[Interpreted] In terms of development, in 2022, the company pushed forward clean energy project approval and construction and accelerated the transition. The company added 8.61 gigawatts of units due to rising prices of PV module, extreme weather and labor shortage, the company added 6.03 gigawatts of new energy, including 3.09 gigawatts of wind and 2.94 gigawatts of solar power. By the end of 2022, the company's installed capacity reached 127 gigawatts. Low carbon clean energy accounted for 26.07%.

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[Interpreted] In terms of overseas operations, Tuas Power overcame the disadvantage of soaring fuel prices and tight supply of natural gas, maintain 50 operation, optimized competition strategy and explore retail markets. The profit has increased significantly. In 2022, the profit before tax was CNY 1.878 billion, increasing by CNY 1.714 billion.

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[Interpreted] Since the company's net profit attributable to shareholders was negative, considering the investment needs and increased debt ratio in 2022, the Board of Directors recommends that no dividend be distributed. The resolution will be submitted to Annual General Meeting for approval.

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[Interpreted] In 2023, the company will seek progress while maintaining stability, actively respond to changes in power, coal and capital markets, improve efficiency and quality, continue green transition and strive for high-quality development.

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[Interpreted] In terms of construction, under the concept of green development, the company will develop clean energy, optimize the structure of thermal power and accelerate the transition. In terms of power production, focused on safe production, energy conservation, environmental governance and heat supply, respond to market demand through technological transformation and less thermal power play a supporting role in the power system. In terms of marketing, in system profitability, coordinating volume and price, stabilized long-term agreement revenue while increased bond market revenue, explore power sales market and optimize trading strategy in carbon market. In terms of fuel, coordinated between energy supply and cost control, increased the coverage and honor rate of medium- and long-term co-contract, optimize the supply structure and control fuel costs. In terms of finance, seize the opportunity of growing financial policy, expand financing channels and strive to reduce financial costs while ensuring capital security.

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

[Foreign Language] [Operator Instructions] The first question comes from Huang Xiujie of Guosen Securities.

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[Interpreted] I have 3 questions. First, could you please provide us with the honor rate of the long-term coal contract in January and February, which, in line with the government regulated CNY 770 per tonne? And second, about the company's CapEx, the wind project CapEx has decreased and solar CapEx has increased. And could you please tell us about the company's renewable energy construction plan for the year of 2023? And the third question is, could you please answer why the solar tariffs have decreased for the company?

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[Interpreted] This year, the company's seaborne coal's honor rate have improved. And for the seaborne long-term contract coal honor rate reached to 90%.

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[Interpreted] About the company's construction of renewable energy, in first quarter, we achieved some results. In the beginning of the year, the company has set renewable energy CapEx about our new energy. For the wind power, the company has 3.3 gigawatts that's put into construction, and we planned 1.4 gigawatts that will be put into our operation. And for solar power, 5.6 gigawatts are now under construction and 6.7 gigawatts will be put into operation. However, the renewable energy construction will be affected by the material supply and the PV module price.

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[Interpreted] There are 2 main reasons for the tariff equities for our solar power. First, the solar power that's been put into operation in 2022 are all without feeding tariffs. Second, in provinces like Shandong, Shanxi, Shantou the solar power has participated in the spot market, and they have to bid for the tariffs.

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[Interpreted] For the proportion of the solar power that participated in the spot market is different between the provinces. In Gansu, all solar power should be participate in the spot market except for the distributed form and in province like Shandong, solar power can voluntarily participate in the market, about 10% of the volume participated and settled in the spot market.

[Foreign Language] The next question comes from Xiang Li of Citic Securities.

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[Interpreted] I have 2 questions. First, could you please provide us the profit attributable to equity holders break down to different energy sources? Second, about the renewable energy subsidy, how much have company collected last year? And under the subsidy investigation, how can company evaluate the risk of disqualified from the subsidy? And what will be the company's respond? Will the company have an asset impairment for those projects?

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[Interpreted] For the profit attributable to equity holders only for your reference, for the co-sector, it was negative CNY 13 billion. For gas sector, it was CNY 150 million.

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[Interpreted] For the wind sector, it was CNY 5.5 billion. And for the solar sector, it was CNY 900 million.

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[Interpreted] For the hydro sector, it was CNY 20 million and for the biomass sector, it was negative CNY 20 million.

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[Interpreted] The company has received CNY 9.5 billion of subsidies from renewable energy.

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[Interpreted] Whether there will be impairment in renewable energy would decided by the future policy of the government.

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[Interpreted] How much of the company's capacity that has been approved by the government of qualified of renewable energy subsidy?

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[Interpreted] Now the subsidy investigation has been ongoing and the government hasn't released any lease -- further lease. So please wait when the company will release our data accordingly.

[Foreign Language] The next question comes from Weijia Wang, Huatai Securities.

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[Interpreted] I have 3 questions. First, could you please talk about the reform undertaking about the state-owned enterprises, which will be the company's target concerning the ROE and other factors? And second, about the company's target of coal power construction, which will be this year's coal power that put into operation. And third, about the company has just announced the 90% honor rate. Could you please tell us what would be the coverage rate of the long-term contract co? And what is the difference between the signed price of CNY 770 and the actual purchasing price of the company?

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[Interpreted] About the new targets that were released by the government, the company have our own target that to increase rate and maintain stable for other rates.

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[Interpreted] Our approach is to increase our profit and increase our operating cash flow.

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[Interpreted] The approach of raising our profit can be taken by 2 measures. First is to lower our cost of fuel according to the document 303, and the company will maintain our tariff hike also according to the government authority.

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[Interpreted] Our other direction is to continue our green transition to increase our proportion of renewable energy. This year, the company's solar and wind projects have gained more than CNY 7.3 billion.

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[Interpreted] Considering the tariff hike and control of the coal cost and with the subsidy collectible of renewable energy, the company cash inflow have reached CNY 32.5 billion.

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[Interpreted] The company will continue to strive for profit in those aspects and strive for increased cash inflow.

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[Interpreted] About the company's construction plan for the thermal power, last year, the company had put 2.05 gigawatts of thermal power into operation. The company has planned for 1.4 gigawatts thermal power in Liaoning and Shandong. The company also adds Shidongkou in Shanghai, 1 unit of thermal power. And by the end of last year, the company also put 495 megawatts of gas power into operation. And for this year, the company has another unit in Shanghai which is aimed to put into operation in June or in July. And also, the company has sent gas-fired units in province in Hunan, and the company had -- didn't have any construction plan for this year's coal-fired units, but have 4 gas-fired units with a total capacity of 3.56 gigawatts.

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[Interpreted] The 90% coverage rate in the July 1 to March 17 is only for our annual co-contract. And for seaborne coal, it applies different pricing mechanism. And about our coverage rate, about 83% of coal, we have signed to our annual coal demand.

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[Interpreted] About last year's long-term contract situation, the company has signed 46% of our total demand and honor rate was 66%. It was lower than the government's regulated 80% because following reasons: first, because of the coal market was in a tight supply, and there is a great difference between long-term contract coal and for market coal. And for some coal mine, especially for the private coal mine, they have a very low honor rate. And second, it's because the policy was introduced late that year. So it took longer time for us to sign those contracts.

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[Interpreted] The 90% coverage rate is for the 4 major key mines of seaborne coal.

[Foreign Language] The next question comes from [indiscernible] of Shanghai [ Simple ] Investment.

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[Interpreted] My question is about the carbon market. So the government has just released the quota for the power companies. And will the company able to sell those quota if the emission is less than the baseline and what is the impact for the company's profit? And what is the company's carbon baseline?

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[Interpreted] The carbon quotas are allocated to the company based on a benchmark. If the company's emission is lower than the benchmark then the company has surplus of quota. If the emission is higher than the benchmark then the company have to buy from the carbon market.

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