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

[Foreign Language] Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International, I would like to welcome you all to the conference call regarding the first quarterly results announcement of 2024. [Foreign Language] Now may I introduce the management of the company today. [Foreign Language] Executive Director, President and Chief Accountant, Mr. Huang Lixin. [Foreign Language]

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[Foreign Language] Independent Director of the company, Ms. Dang Ying. [Foreign Language]

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[Foreign Language] Vice President, Mr. Qin Haifeng. [Foreign Language]

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[Foreign Language] Vice President and Board Secretary, Mr. Huang Chaoquan. [Foreign Language]

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[Foreign Language] Vice President, Mr. Du Canxun. [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, Executive Director, President and Chief Accountant, Mr. Huang will review the business performance for the first quarterly results of 2024 followed by the Q&A session. [Foreign Language] May we have the honor to invite Mr. Huang to review the business performance, and Ms. [indiscernible] to conduct the English interpretation. Please [Foreign Language]

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

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In the first quarter, the company continued to enhance operating quality and efficiency and seized the market opportunities. The company achieved a significant year-on-year improvement in operating results and reached a record high, which laid a solid foundation to complete the company's tasks and operations and development. Under the Chinese accounting standard, the company achieved a consolidated operating revenue of CNY 65.367 billion, increasing by 0.15%. Net profit attributable to company's shareholder was CNY 4.596 billion, increasing by CNY 2.346 billion or 104.25%. The earnings per share was CNY 0.25, increasing by CNY 0.15.

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In terms of production, the company reached the -- researched to the power market and maintained the growth in power generation. Coal-fired units operated at higher capacity in heating season, while renewable installed capacity continued to increase, resulting in growth in power generation. The company's domestic on-grade power sales was 113 billion kilowatt hours, increasing by 5.63%. The average utilization hour was 908 hours, decreasing by 11 hours in accelerated reform power market influenced by factors such as relaxed supply and demand balance and declining coal prices. The average tariff was CNY 497.97 per megawatt hour, decreasing by 3.99% year-on-year and 1.58% quarter-on-quarter.

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In terms of coal supply, the company seized the opportunity of declining market prices, strengthened the high-quality performance of long-term contracted coal, seized the favorable opportunity of spot procurement and continued to optimize the supply structure. The unit fuel cost of the first quarter was CNY 297.08 per megawatt hour, a year-on-year decrease of 12.63% and a quarter-on-quarter decrease of 3.41%.

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In terms of development, the company has continued actively responded to the relevant policy and national -- of national energy transition adhered to low-carbon transition strategy and steadily pushed forward the development and construction of renewable energy projects. In the first quarter, the company added 1.6 gigawatts of units, including 869 megawatts of wind power, 737 megawatts of solar power. The company installed capacity reached 137.12 gigawatts. Wind and solar capacity reached 30.21 megawatts -- gigawatts. Low carbon clean energy capacity increased to 32%.

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In terms of overseas operation, Tuas Power moved in line with policy trends, optimized market competition strategy and continuously strengthened cost control to achieve better operating results. The profit before tax was CNY 806 million in the first quarter. The Sahiwal power plant in Pakistan remained a stable operation, realizing a profit of CNY 155 million.

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In the second quarter and last half of the year, the company will focus on quality and profitability, continued market research, coordinated safe production, green transition and efficiency improvement, moving forward the tasks of operation and development. The company will continue the clean energy development and accelerate the transition, improve the quality of long-term contracted coal, seize the market opportunity of spot market and optimize the supply and inventory structure and further reduce the fuel cost. Research power market trends take measures to cope with the impact of curtailment and decreasing tariffs, strengthen the fine management, enhance competitiveness and strive for profitable power generation, explore innovation financing and use green financial policies to secure funding and reduce cost. The company will maintain stability while seeking progress and enhance our operating performance and continue a high-quality development.

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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. [Foreign Language] [Operator Instructions] [Foreign Language] The first question comes from [indiscernible] of Citibank.

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I have 3 questions. First, the company has announced the average tariff was CNY 498 per megawatt hour. The unit fuel cost was CNY 297 per megawatt hour. So what would be the company's whole year guidance for the average tariff and unit fuel cost in 2024? Second, in the first quarter, the company's capacity growth for solar projects have exceeded the profit growth for solar. So could you explain the reason for that? My third question is, in the beginning of the month, there are some rumors that the renewable energy 95% consumption rate will be released. And what will be the impact to the company?

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In the first quarter, the tariff has decreased by 4% year-on-year and the tariff was affected by the following factors. First, the power consumption rate nationwide have increased. The hydro output having -- was better than last year. The renewable energy have participated in the market and the renewable capacity have grown. The coal price has declined and the competition in the power market has been intensified. And the two-tiered pricing scheme has been implemented in the power market. All those factors have reflected in the market and the power generation have increased while the tariffs have decreased. In the whole year 2024, the company estimated that our average tariff will decrease to CNY 492 per megawatt hour.

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The company has announced unit fuel cost to combine the coal unit -- coal-fired units and gas-fired units. And for our coal sector in the first 3 months, the unit fuel cost was CNY 288 per megawatt hour, decreasing by 13% year-on-year. For the standard coal price tax excluded, our coal sector had CNY 978 per ton standard coal price, decreasing also by 13%. The company won't have detailed guidance for the whole year's unit fuel cost. Please make your judgment based on the market coal price trend as well as the company's coal supply structure.

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In terms of the solar sector's profit increase, we can see the profit of solar sector have increased by 7% year-on-year, while the power generation for solar sector have increased by 74% and capacity have raised by 98% year-on-year. So the growth in the power generation have lower than the growth in the solar capacity. And that was mainly because the utilization hour has decreased. Utilization hour in the first quarter was 240 hours. The figure last year was 270 hours. And this year, the curtailment rate for solar power have increased. This year's number was 7.7%, while it had a 4.6 percentage points increase comparing to last year. And the tariff in the first quarter was CNY 434.6 per megawatt hour, decreasing by 9.5% year-on-year.

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The company have noticed all these issues and the company have taken effective measures to tackle with this problem.

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In terms of the company's renewable energy development in the future, the company's renewable capacity target was in line with the government pace and scale of the long-term plan. And the company made a prudent decision when investing in the renewable energy. At the beginning of 2022, the company has announced its 45 years plan and the company have always keep a close attention to the government policy changes. Currently, because of the policy changes, we are facing some consumption pressure in the renewable energy sector. The company will continue to keep a close track on the changes and take measures.

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The company will evaluate our 45 years plan later this year. And from our initial evaluation, we can see that our goal as the low carbon clean energy will reach 45%. Our total capacity is going to be achieved by the end of the 45 year. And in the future, the company will continue to move in line with the government policy of carbon peak and carbon neutrality and make profit and efficiency, our first priority and continue to push forward the development of renewable energy.

[Foreign Language] Now question comes from Yalin Li of Huatai Securities.

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I have 3 questions. First, could you talk about the company's coal consumption rate in the first quarter? And what is the company's ongoing tariff for our coal sectors in the first quarter? And what is the tariff breakdown to the on-grade base tariff and capacity tariffs? And what is the year-on-year change? Second, in the first quarter, the company's gas-fired units sound profitability. So could you talk about what is the reason for that? Is that because of the tariff changes? Or is that because the cost changes? Third, in the first quarter, what is the company's ancillary services payment? And is there any impact from the capacity payments to our ancillary services receivables?

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Please let me answer your question about the company's coal consumption rate. So in the first quarter, the thermal coal consumption rate was 279.68 gram per kilowatt hour and the number for the coal-fired sector was 287.55 gram per kilowatt hour. It basically remained stable comparing to last year and only have a slight increase. Here are the reasons for that. First, the thermal power or especially the coal-fired power have deeply participated in the peak adjustment and the flexibility services that help to -- that helped with the security and stability of the power system in new power system. However, the coal consumption rate have increased. And the second reason is in the first quarter, the company have a heat supply operation smoothly and about the same level as last year.

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In terms of our tariff for our coal sector, the average tariff was CNY 447 per megawatt hour, decreasing by 4% year-on-year. The market base ongoing tariff was CNY 444 per megawatt hour. It has a 12.5% tariff hike comparing to the benchmark and the capacity payment was CNY 2.16 billion that was exclude the power plants in Hunan and Beijing. And for the unit tariff payment, it was CNY 23.42 per megawatt hour. So plus the capacity tariff, the average tariff for the coal sector have 18.41% increase comparing to the benchmark.

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In terms of our profitability in coal-fired sector, both is mainly due to the tariff and the unit fuel cost. The average tariff for our coal-fired sector was CNY 760 per megawatt hour. It has a CNY 9 per megawatt hour increase. And the unit fuel cost of our gas-fired sector was CNY 412 per megawatt hour. It has a CNY 13 per megawatt hour decrease.

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The main reason for the fuel efficiency increase is because the -- some of our units have renovation of the flue gas waste heat utilization. And another reason is the heat value have increased for some of our units. So the marginal contribution have increased to CNY 260 per megawatt hour. It has a 9% increase.

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In terms of ancillary services in the first quarter, the company had received CNY 867 million of ancillary services provided. And it has CNY 74.53 million increase. And for the peak load adjustment, the company's revenue was about CNY 814 million, including coal CNY 1.074 billion, and the wind sector have a cost of CNY 245 million, solar sector have a cost of CNY 19 million. And for frequency adjustment, the company had an income of CNY 53 million.

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

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I have 2 questions. First about the company's unit profit. As we compare the number in this quarter to the third quarter last year, you can see the CNY 978 per megawatt unit fuel cost was maintained the same. However, in the third quarter, we have -- in the first quarter, we have a lower tariff. So in the first quarter, we have CNY 50 per megawatt hour unit profit comparing to the third quarter last year. So could you tell us the reason for that? And my second question is about the company's income tax. The company's income tax was about 17%. And it was lower than the last year. My personal perspective is that, that was because of the deferral tax. So could you talk about what is the company's guidance for the income tax this year?

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So first, let me answer your questions about the comparison between the first quarter of 2024 and the third quarter 2023. So as the coal sectors standard coal price in this quarter was CNY 978, it was about the same level to the third quarter last year. However, the marginal contribution in the first quarter of 2024 was CNY 134 per megawatt hour, while in the third quarter, it was CNY 116 per megawatt hour. So the marginal contribution was different, and we can further break it the profit to our power sales. So in the first quarter, it was CNY 30 per megawatt hour. In the third quarter, it was CNY 26 per megawatt hour. Another reason is the difference between the unit fuel cost and the coal consumption rate. So we can see because of the quarterly differences, the coal consumption rate was different in those 2 quarters.

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So about the guidance for our income tax, first, our policy in the tax haven't changed for now. The reasons are as follows: First, the profit and losses structure have changed for the company; and second, because of the -- some projects that made the -- made losses have a term possible this year. So there is some accounting arrangements in the deferral tax. So because of the accounting method, there can be some difference between this quarter to other quarters. So as for our sectors breakdown, for wind sectors, the profit was quite stable. The solar sector, as I just said, the profit increase has been lower than the capacity increase. And because the capacity was relatively low in our whole structural mix, the profit hasn't had any impact to the tax. As to our gas sector and the coal sector, there is a 25% tax, income tax. And in the first quarter, there is no great difference in our deferred tax arrangements. However, in the second quarter and the third quarter, there might be some difference in the arrangement in the deferred tax assets. So as I said, first, the policy hasn't changed, only the structural structure have changed. Second, some accounting arrangements and deferral tax may impact.

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So the heat supply revenue has been included in our gas sector's profit. I'll give you the following numbers.

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The marginal contribution from our heat supply services, this -- for the first quarter this year, it was negative CNY 180 million. In the first quarter last year, it was negative CNY 560 million. So the efficiency of the heat supply have improved.

[Foreign Language] The next question comes from [indiscernible].

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I have 2 questions. First, what was the average tariff for our wind sector in the first quarter? And what was the market-based tariffs? And what was the discount comparing to the approved tariff? And could you also talk about the discounting -- discount situation of our renewable tariff? Second, could you please give us the breakdown of our net -- our equity and our net profit attributable to shareholders to different energy sources?

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The average tariff of our wind sector was CNY 521 per megawatt hour, decreasing by 4.9%. The average tariff of our solar project was CNY 434.6 per megawatt hour, decreasing by 9.6%.

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The market-based wind power sales account for 33.8% of our total wind power sales. It has a 6.1% increase year-on-year. And the market-based tariff for wind sector was CNY 441.3 per megawatt hour. It has CNY 43.4 per megawatt hour decrease.