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 Third Quarter Results Announcement of 2023. [Foreign Language] Now may I introduce the management of the company today. [Foreign Language] The General Manager and 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] Independent Director of the company, Mr. Xu Meng Zhou. [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 General Manager and Chief Accountant of the company, Mr. Huang will review the business performance for the third quarter results of 2023, followed by Q&A section. [Foreign Language] May we have the honor to invite Mr. Huang to review the business performance, and Ms. Keyu Zhao will conduct the English interpretation.

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[Interpreted] Ladies and gentlemen, good afternoon. Welcome to the third quarter results conference call of Huaneng Power International. Yesterday, the company has released the operating results. Please let me give a brief introduction.

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[Interpreted] In the third quarter, the company analyzes changes in power coal -- capital markets push forward tasks of operating transition and development. The operating result improved significantly. Under the Chinese accounting standards, the company achieved a consolidated operating revenue of CNY 191.322 billion in the first 3 quarter, increasing by 4.01%. Net profit attributable to the company's shareholders was CNY 12.56 billion, increasing by CNY 16.5 billion. The earnings per share was CNY 0.66.

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[Interpreted] In terms of power generation facing relatively short duration of high temperatures and increased hydro output, the company researched the power market and ensured healthy operations. Ensuring peak supply and system regulation, the company's thermal power generation increased. The growth in renewable capacity also contributed to the increase in renewable generation. In the first 3 quarters, the company's domestic on-grid power sales was [ 337.38 ] billion kilowatt hours, increasing by 5.38%. The average utilization hour was 2,870 hours. The average tariff was CNY 509.66 per megawatt hour, increasing by 0.62%. All the indicators remain about the same level and have a slight increase.

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[Interpreted] In terms of coal supply, the company monitors the market changes for fuel contracted coal with high quality, ceased opportunities of imported coal and optimize inventory structure to control the fuel cost. The unit fuel cost of the first 3 quarter was CNY 332.52 per megawatt hour, a year-on-year decrease of 12.18%.

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[Interpreted] In terms of development, focusing on the government's requirements of a new power system, the company is pushing forward clean energy development. In the first 3 quarters, the company added 5.57 gigawatts of units, including 1,016 megawatts of wind power, 3,409 megawatts of solar power, 495 megawatts of gas-fired power and 650 megawatts of coal-fired power. By the end of September, the company's installed capacity reached 131.511 gigawatts. Wind and solar capacity reached 24.17 gigawatts. Low carbon clean energy accounts for 28.85% of total capacity.

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[Interpreted] In terms of overseas operations, Tuas closely monitor changes in power and fuel market optimized competition strategy and ceased the market opportunity, raised the marginal contribution. The company have achieved a better operating performance. The profit had increased continuously. In the first -- [ third quarter ], the profit before tax was CNY 3.64 billion, increasing by CNY 2.48 billion. The projects in Pakistan has maintained a stable operation.

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[Interpreted] In the first quarter, the company will continue the clean energy development and accelerate the transition, track the coal market, optimize the supply structure, prepare for the next year's contract signing and control fuel costs, conduct market research, respond to the market changes, ensure power supply and stabilize the tariff and strive for profitable power generation, expand financing channels with green financing policies to reduce cost and improve efficiency. Facing complicated 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] Thank you, Mr. Huang. Here, we come to the Q&A session. [Operator Instructions] The first question comes from Citibank of Pierre Lau.

[Interpreted] I have three questions. First, about the company's unit fuel costs. As in the first [ three ] quarter, the company unit fuel costs have dropped, could you please talk about the outlook of the unit fuel costs in the first quarter and in the year 2024? Second, as the company's unit fuel costs have dropped this year, could you give us an outlook about the company's on-grid tariff of the market-based power sales? Third question is about renewable energy development. As the PV module price have dropped less than CNY 1 per watt, what would be the company's investment hurdle rate about the solar project?

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[Interpreted] First, please let me answer your question about the fuel procurement. In 2023, the supply of the coal domestically maintained at high level and the export coal have increased. As for the demand side, the demand of the domestic consumption was less than expected. So the supply and demand structure have improved in this year.

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[Interpreted] [ Plus ], the government still have the policy about the long-term contracted coal with the -- with both help with the market and the policy, the supply and demand structure have eased up.

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[Interpreted] In the first 8 months, the average price of the North Port was about CNY 976 per ton. It has CNY 247 per ton decrease comparing to the same period last year.

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[Interpreted] However, after the third quarter, as there are some incidents in the coal mines, the safety inspection have become more and more and the production of the coal mine has decreased.

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[Interpreted] The coal price has bounced in the off-season. And as in September, the 5,500 kcal coal in the North Port reached CNY 980 per ton.

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[Interpreted] And in the fourth quarter, as from the supply side, the safety inspection continues and the supply from the overseas market was limited, plus there is some interference from the overseas market.

[Foreign Language] [Interpreted] From the demand side, as the macroeconomy is continuing to recover and the non-electricity industry have high consumption, such as the chemical industry, and with the heating supply coming away, the consumption will maintain high. So that will be a support for the coal price. [Foreign Language]

[Interpreted] However, considering the inventory was at high level, compounding all these factors above, we think in the fourth quarter, the coal price will maintain strong and stable.

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[Interpreted] About the contract signing in 2024, the company had begun the contract signing preparation in September. It's 1 months or 2 months earlier than we used to do.

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[Interpreted] However, the specific details will be in line with the government release document. We are still waiting for the issue of this document. So the company will continue with the government support to sign the contracts, as early as possible and strive for a better-quality contract sign of our long-term goal.

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[Interpreted] About the market-based power contract sign, the process will begin in November and will end in January next year.

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[Interpreted] However, the provincial detailed policies of about contract signing haven't been released, considering there might be the capacity payment policy coming out, the company will keep track on the signing of our contracted power.

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[Interpreted] The company will [ help us ] with our subsidiaries about a certain rule that the tariffs won't be less than the market average, and the market share won't be less than what we guide.

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[Interpreted] About company's return rate of solar projects, as the PV module price has decreased, the company's recent project, the return rate was around 5.2% to 13%, and it varies in different projects.

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[Interpreted] The company's investment hurdle rate was 6%, and the actual return rate was different in different provinces. Most of our projects can achieve this goal that most of our project return rate is higher than 6% other than some exceptionals only a very few projects.

[Foreign Language] The next question comes from Yalin Li of HuaTai Securities.

[Interpreted] I have 3 questions. First, as the company have transferred the Sichuan Hydropower in the third quarter, so could you talk about the company's investment gains from this transfer? And what is the net profit attributable to the shareholders, what was the impact? And about the company's investment gain from previous year -- previous months, what will be the method of accounting to deal with this part of gains? Second, about the company's wind projects, as in the third quarter, the profit of wind is less than our expected. Could you talk about the reason for that? Third, could you please give us the net profit and profit attributable to shareholders, as well as the net asset and net equity of different energy resources in the third quarter?

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[Interpreted] First, please let me answer your question about investment gain of [ Sichuan Hydropower ]. The sale of the Sichuan Hydropower have the profit before tax of CNY 2.1 billion impact to our profit before tax.

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[Interpreted] About the profit attributable to our shareholders because the company have a combined loss, so we don't have to pay tax in this process. So it has the same impact to our profit attributable to shareholders.

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[Interpreted] And the company have recorded investment gains in -- about [indiscernible] hydropower in the first 6 months, and the gain or loss of this will be addressed later.

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[Interpreted] About your question of the profit decrease in our renewable sector, the utilization of wind have decreased 21 hours in the third quarter comparing to the same period last year. The utilization hour of solar have decreased 30 hours.

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[Interpreted] As more and more the projects that without the feed-in tariff was put into operation, the tariff of market -- the market-based tariff of wind and solar have decreased.

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[Interpreted] It has affected the compound tariff of the renewable energy. And for our wind sector, the average tariffs have decreased by 8.3% in the third quarter.

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[Interpreted] Because the company's power plants may have different energy sources, so it's only a reference for you. And profit attributable to equity holders breakdowns as follow. The -- for Coal-fired sector, it was CNY 2.19 billion for gas-fired, it was CNY 250 million, for wind sector, it was CNY 4 billion, for solar sector, it was CNY 1.47 billion, hydro sector, CNY 30 million and is breakeven for biomass sector.

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[Interpreted] And for the net equity breakdowns different energy resources. For fired sector, it was CNY 72 billion, for gas sector, it was CNY 12 billion, wind sector, CNY 50 billion; solar sector, CNY 18.8 billion, hydro sector, CNY 1.3 billion, and for biomass sector, it was -- sorry, CNY 900 million.

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[Interpreted] As for the investment gain, we have already recorded about the Sichuan Hydropower. Does that -- do you mean that the -- in the investment gain in the first 6 months will be adjusted in the fourth quarter.

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[Interpreted] In the first 6 months because the transaction hasn't happened, so we have recorded the investment gain of Sichuan Hydropower.

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[Interpreted] And as the transaction completed in September, the company has already addressed the investment gain in the third quarter, it was about CNY 100 million.

[Foreign Language] The next question comes from GF Securities, Tao Huang.

[Interpreted] I have three questions. First about company's cash flow. As the company cash flow have improved in the third quarter, was that because the renewable subsidiaries, as the government have released CNY 8.6 billion subsidiary -- subsidies in the first half of the year, what was the company collection of renewable subsidies? And second question is about the company ancillary service payment. So in the third -- in the first third -- 3 quarters, what is the amount of ancillary service fee that we received. And by what proportion is the capacity payment? Third, about the company's Singapore sector. As the price of the power have increased to SGD 245.2 per kilowatt hour, and it was 30% higher than the average price in the third quarter. Does that mean that company's performance will be higher than the third quarter?

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[Interpreted] About the company cash flow changes in the third quarter, yes, because the company's operating cash flow -- inflow was CNY 19.9 billion in the third quarter. It has CNY 7.6 billion increase compared to the second quarter, which is CNY 12.3 billion.

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[Interpreted] Combining all the [ results ] from EBITDA to the investment gain from the [ Sichuan Hydropower ], actually, the operating cash flow haven't had changed from the second quarter to the third quarter. It has about CNY 1 billion increase.

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[Interpreted] The reasons as follows: first, the renewable subsidies, we have [ clapped ] CNY 1.2 billion in the third quarter.

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[Interpreted] Second quarter, we have relatively less collection of the subsidies. The main reason about the changes in operating cash flow is because of the inventory. In the second quarter, the inventory has increased, so the operating cash flow has decreased accordingly. The number was about CNY 4 billion.

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[Interpreted] So in the third quarter, because the consumption of the coal, and it leads to a decrease in our procurement of fuel. And comparing to the second quarter, actually, it has CNY 7 billion change.

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[Interpreted] And the power collection -- power collective fees in the third quarter also have increased in the third quarter. So combining all the factors, our operating cash flow have increased in the third quarter.

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[Interpreted] About the company's ancillary service payment in the third quarter, in total, the ancillary service revenue was CNY 1.892 billion. The fee from the peak adjustment was about CNY 1.51 billion, and the fee from the [ frequency ] adjustment was about CNY 381 million.

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[Interpreted] About the capacity payment in the first three quarter from our gas sector, it was about CNY 913 million. And from our coal sector, actually, the capacity payment was calculated in our on-grid tariff in Shandong province.

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[Interpreted] About the [ company's ] Tuas performance in the first three quarter. First, please then give you some numbers. The profit before tax of Tuas in the first quarter was CNY 966 million. In the second quarter, it was CNY 1.924 billion. In the third quarter, it was CNY 751 million.

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[Interpreted] In the third quarter, the Tuas revenue was about CNY 751 million and it's maintained at a high level. The profit have increased by CNY 333 million.

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[Interpreted] However, in the third quarter, as the power consumption demand has decreased in Singapore market with about 2.67% and the capacity have increased in the Singapore market. And also, the government have introduced the tariff cap in the market. The tariff in the wholesale market has decreased. It has influence about the company's profit before tax, and it has decreased in the third quarter comparing to the second quarter, about CNY 1.173 billion. That's mainly due to the marginal contribution have decreased.