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

[Interpreted] Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International incorporate I would like to welcome you all to the conference call regarding third quarter results announcement of 2024. [Interpreted] Now may I introduce the management of the company today. [Interpreted] The Executive Director and President of the company, Mr. Lixin Huang.

[Foreign Language]

[Interpreted] The Independent Director of the company, Mr. Qiang He.

[Foreign Language]

[Interpreted] The Vice President and Board Secretary of the company, Mr. Huang Chaoquan.

[Interpreted] The Vice President of the company, Mr. Qin Haifeng.

[Foreign Language]

[Interpreted] The Chief Accountant of the company, Mr. Zhu Daqing

[Foreign Language]

[Interpreted] People in charge of the related departments are also joining us in this meeting. [Interpreted] First of all, the Executive Director and the President of the company, Mr. Huang will review the business performance for the third quarter results of 2024, followed by Q&A section. [Interpreted] May we have the honor to invite Mr. Kui Wang to review the business performance, and Ms. [indiscernible] will conduct the English interpretation.

[Interpreted] Ladies and gentlemen, good afternoon. Welcome to the third quarter results conference call of Huaneng Power International. [Interpreted] Yesterday, the company has released the operating results, please let me give you a brief introduction. In the third quarter, the company analyzed changes in power, coal and capital markets push forward the task and operation transition and development, achieving good operating results under the Chinese accounting standard, the company achieved a consolidated operating revenue of JPY 184.396 billion in the first 3 quarter decreasing by 3.62%. Net profit attributable to the company's shareholders was CNY 10.41 billion. The net profit attributable to the parent after deducting nonrecurring profit and losses was CNY 10.028 billion, increasing by CNY 633 million or 6.73%. The earnings per share was JPY 0.53. [Interpreted] In terms of power generation, facing increasing demand and electricity -- for electricity and tight supply during certain periods in some regions, the company researched the power market and ensure the thermal power supply, resulting in a slight year-on-year increase in thermal power generation in the third quarter. The growth in renewable capacity also contributed to the increase in generation. In the first third quarter, the company's domestic on-grid power sales was 341.24 billion kilowatt hours, increasing by 1.14%. The average tariff was CNY 496.27 per megawatt hour, decreasing by 2.63%. [Interpreted] In terms of coal supply, the company ceased opportunity utilize contracted coal to ensure the supply and control costs, optimize imported coal, adjusted the supply structure and enhanced refined management. The unified cost of the first three quarter was CNY 303.47 per megawatt hour, a year-on-year decrease of 8.74%. [Interpreted] In terms of the development, the company continuously pay attention and actively respond to the policies of energy transition, insisting on quality and profitability, the company is pushing forward clean energy development in a steady pace. In the first 3 quarters, the company added 5278.6 megawatts of units, including 1,467.5 megawatts of wind power, 3,753.1 megawatts of solar power, 58 megawatts of gas-fired power. By the end of September, the company's installed capacity reached 140 gigawatts, wind and solar capacity reached 33.748-gigawatts, low carbon clean energy accounts for 33.8% of total capacity. [Interpreted] In terms of overseas operation in the context of 24 power supply in Singapore and the year-on-year decline in wholesale and retail tariffs. In the first 3 quarter, the profit before tax of Tuas Power was CNY 2.247 billion, decreasing by CNY 1.394 billion. Tuas power researched the power and fuel market, actively responded to the market changes, continue to refine management and strive for appropriate gross profit. The performance of Sahiwal power plant in Pakistan reached a record high. The profit before tax was CNY 670 million, increasing by CNY 241 million. [Interpreted] In the first quarter, the company will continue the clean energy development and push forward the transition in a steady pace with market policies, track the coal market, optimize the supply structure, prepare for the next year's contract signing and control the fuel cost, conduct market research and work on the signing of power purchasing agreements, optimize trading strategies, stabilize the tariff and improve efficiency, expand financing channels with green financial policies to reduce cost. 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. [Interpreted] Now my colleague and I would like to answer your questions. Thank you.

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

[Interpreted] My first question is about the -- could you please provide the third quarter's thermal wind, solar average tariff and what is the year-on-year change? And could you talk about the unit fuel cost as the -- in the last 2 quarters, the company have continuous rising unit fuel cost. What will be the company's unit fuel cost guidance for the fourth quarter and for the year 2025? Third, could you please give us the profit to different energy sectors breakdown?

[Interpreted] Firstly, let me give you the average tariff breakdown to different energy sources. In the third quarter 2024, the average tariff for coal sector was CNY 480.98 per megawatt hour; gas, CNY 711.67 per megawatt hour; wind, CNY 519.03 per megawatt hour; solar, CNY 430.2; Hydro, CNY 360.86; and biomass, 749. For those numbers for the third quarter last year, for coal, it was CNY 492.46; gas, CN 722.76; wind, 538.25; solar, 471.06; Hydro, 364.98; and biomass 751. [Interpreted] Please let me answer your question about the guidance for the coal price in 2025. We think the supply and demand will be improved in 2025 and the average coal price will continue to decrease on the basis of this year. [Interpreted] First, on the supply side, as the government attached great importance to the energy safety, we think in terms of supply, the supply will be stable and have increased in next year. [Interpreted] As the -- for the overseas market, we think it will continue this year's trend. However, in 2025, we have already have a large imported coal around 500 million tonnes. So we think the supply will be high, however, with limited increase. [Interpreted] As for the transportation capability have improved for the transportation, we think there will be a relaxed transportation next year. [Interpreted] All those 3 factors, we think the supply for the 2025 will have a slight increase comparing to this year. [Interpreted] From the demand side, as the government have released certain policies around the -- promote the economy and stabilize the growth. We think that will help with the macroeconomy next year. [Interpreted] However the capacity of renewables continue to grow in next year, we believe the part generation from renewable will continue to increase, and that will dampen the power generation for thermal power. [Interpreted] So we believe in 2025, the consumption of coal will stay stable comparing to 2024. [Interpreted] Considering all this factor, it is estimated that the supply and demand situation will be improved in 2025. However, there still might be some tightness in some period of time and in some regions. We think the average price will continue to fall on the basis of this year, however, with limited amount. [Interpreted] Please let me answer your questions about the forecast for the fourth quarter this year. [Interpreted] As there will be a normalized safety inspection in the fourth quarter -- and in some -- in some major mines, they will try to follow up their annual target. We think the production for the coal in the first quarter will have a slight increase. [Interpreted] Because we have price premium comparing to the domestic market, we think the imported coal will remain at a high level in the first quarter. [Interpreted] From the demand side, although there are certain policies that [indiscernible] by the government, but we think the implementation may take time. [Interpreted] The macroeconomy may still face some pressure. However, with the coal consumption increase, we think the residential use of the coal will continue to increase. [Interpreted] In the first quarter, the consumption for coal is high. However, it has limited increasing amount and the inventory at high level I think there is not a great chance that the coal price will continue to rise. [Interpreted] Because the first quarter is the peak season for coal. So there won't be a great drop for the coal price. And in the fourth quarter, it is estimated that the coal price will fluctuate in a certain range and the average price will have slight increase comparing to the third quarter. [Interpreted] However, the rest amount will be limited.

[Interpreted] First, please let me give you the unit fuel cost in third quarter this year and last year. The thermal unit fuel cost for the third quarter this year is CNY 303.47 per kilowatt hour. And for the last -- third quarter last year, it was CNY 332.52. [Interpreted] Please let me give you the profit to different energy resources. For the coal sector, it was CNY 6.568 billion, Gas sector, CNY 856 million, wind CNY 5.2 billion, solar CNY 2.43 billion, Hydro, CNY 119 million. And for the Biomass, it was negative CNY 453 million. [Interpreted] As for your question about the company's asset impairment, the company will always there for the asset impairment and being authentic and reliable and to apply the certain accounting standards. As always, the company will continue our consistency and fairness and to evaluate the impairment side. [Interpreted] With the help of the professional agency, we have run test for the impairment side. [Interpreted] By the end of the third quarter, according to the company's subsidiaries, operation and management situation as well as the government policy, the company has evaluated the impairment side with the help of our evaluator [indiscernible]. And we have evaluated 2 power plants, including the thermal power engineering and the Biomass [indiscernible] [Interpreted] With the help of our auditor, we have assets impairment in the third quarter for Jiangjin power plant. The asset impairment was about CNY 727 million for the non and biomass, the impairment was about CNY 409 million. [Interpreted] In the following quarter, the company will continue to follow the requirement from the accounting standard and continue to track the impairment considering the changes in the situation. [Interpreted] The company will stay consistently in applying the accounting standard and our accounting principle, whether there will be asset impairment, we were based on the operating status and the government policies.

[Interpreted] The next question comes from Yan of Kate.

[Interpreted] I have 3 questions. First, as in the third quarter, we have entered the summer peak, the income from ancillary services have decreased. So could you please provide us the ancillary services income for each quarter in the first 3 quarters? Second, could you give us the standard coal price for our coal units in the third quarter alone? And could you please give us the coal consumption rate and also the year-on-year change? Third, could you clarify that the profit you gave before, is that profit before tax or it's a net profit? Could you please give us the net profit breakdown?

[Interpreted] Please, let me give you the number of income from our ancillary services for our coal sector. In the first quarter, the income was CNY 1.143 billion, second quarter CNY 823 million, third quarter CNY 447 million. [Interpreted] The number I gave you before is the profit before tax. So as follows are the profit breakdown as the profit for the equity base. [Interpreted] The profit to the equity holders for the company at the coal sector CNY 3.53 billion, gas CNY 245 million, wind CNY 4.1 billion, solar CNY 2.025 billion, Hydro CNY 100 million, Biomass negative CNY 444 million. [Interpreted] And the unit fuel cost for our coal sector in the third quarter this year, it was CNY 293.06 for the last year, it was CNY 323.89 million. [Interpreted] The standard coal price for the third quarter was CNY 1009.52 per ton, decreasing by 4.1% year-on-year. [Interpreted] The net profit breakdown to different energy sources are as follows: for the coal sector CNY 5.054 billion, Gas CNY 598 million, Wind CNY 4.609 billion, solar CNY 2.243 billion, Hydro CNY 104 million, Biomass negative CNY 415 million. [Interpreted] For the coal consumption rate for our coal sector in the first quarter, it was 303.33 per gram.

[Interpreted] The next question comes from [indiscernible]. [Interpreted] the next question comes from Sandy Secretaries Santee. [Foreign Language] The next question comes from Morgan Stanley of [indiscernible]

[Interpreted] I have 2 questions. First, what is the company's CapEx for the first 3 quarters? And does it have reached the company? And what will be the company's forecast for the CapEx for whole year 2024? And what will be the company's CapEx that spent on the renewable projects? Second quarter about the company's signing of the next year's power purchasing agreement. What will be the signing situation? And what will be the price range for the next year? And my third question is also about the asset impairment. What will be the company's asset impairment in the fourth quarter? And could you give us the year-on-year change comparing to last year?

[Interpreted] So please let me give you the CapEx spend this year in the first 3 quarter. [Interpreted] The company capital expenditure in the first third quarter was around CNY 33 billion, and the renewable expenditure was about CNY 21.8 billion. [Interpreted] Please let me answer your questions about the company's renewable additions. In the first 9 months, the company have had 5.22 gigawatts of renewable capacity, and we still hold our 10 gigawatts annual tech target and it is unchanged. And as in the fourth quarter, the company will insist on the high-quality development principle and to find projects that can met our investment hurdle rate, even set a higher requirement for our resource and to make sure all our projects can meet the company's need. [Interpreted] and let me answer the questions about the signing of our power purchase agreement in the year 2025 as the government haven't released any guidance or documents for the next year's signing, the company only have begun this work. And our strategy is that the power we signed should not be less than the capacity share of the region and the tariff rate signed should not be less than the average tariff of the market. [Interpreted] However, the tariff for the next year signing is very hard to say. We can judge that on the basis of the following factors, first the coal price might decrease next year and the proportion of the renewable participating in the market might be increased and we faced the downward pressure for the tariff. And we think it's very hard to forecast the tariff level. Because we also to consider the utilization error as well as the capacity tariffs. So it's a comprehensive result. [Interpreted] About the company's asset impairment, the company didn't have any plan or guidance about asset impairment and whether there will be following asset impairments will be based on the policies as well as our unit conditions. So there won't be any guidance.

[Interpreted] The next question comes from [indiscernible].