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

[Interpreted] 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 interim results announcement of 2025. [Interpreted] Now may I introduce the management of the company today. [Interpreted], The Chairman of the company, Mr. Kui Wang.

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

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

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[Interpreted] The Vice President of the company, Mr. Mr. .[ Du Canxun ]

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[Interpreted]. The Chief Accountant of the company, Mr. Wen Minggang.

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[Interpreted]. People in charge of the related departments are also joining us in this meeting. First of all, the Chairman of the Company Mr. Wang will review the business performance for the interim results of 2025 followed by Q&A session. May we have the honor to invite Mr. Wang to review the business performance and Ms. [ Locheiri ] to conduct the English interpretation. Welcome, Mr. Wang.

[Interpreted] Ladies and gentlemen, good afternoon. Welcome to the interim results conference call of Huaneng Power International. Yesterday, the company has released the interim result. Please let me give a brief introduction. In the first half of the year, under the leadership of the Board of Directors, the company centered on annual target, seized the market opportunity, push forward operations, transition, innovation and overseas management achieving breakthroughs in green development and operating performance. Under the Chinese accounting standard, the company achieved a consolidated operating revenue of CNY 112.032 billion, decreasing by 5.7%. Net profit attributable to the company's shareholders was CNY 9.262 billion, increasing by 24.26% and the earnings per share was CNY 0.5. In terms of the power generation, in the first half of the year, the company's domestic on-grid power sales was 205.68 billion kilowatt hour, decreasing by 2.57% with a decline narrowing quarter-on-quarter. In the increasingly competitive power market, the company analyzed the market trend, balanced volume and price with efficiency first to formulate trading strategies and enhance the flexible capability to secure capacity and ancillary services payment. The average tariff was CNY 485.27 per megawatt hour from the safeguarding the core of operations. In terms of the coal supply, the company seized the opportunity, optimized procurement strategy, improved the quality of contracted coal, purchased low-cost spot market coal and optimized inventory structure, achieving significant results in cost control. The standard coal price in the first half of the year was CNY 917 per ton, a year-on-year decrease of 9.23%. In terms of development, the company continued the green transition, seized the policy window for the renewable marketization and pushed forward the construction on the premise of safety, compliance, quality and cost effectiveness. In the first half of the year, the company added 7.99 gigawatts of unit including 6.26 gigawatts of renewable. The company's installed capacity reached 153 gigawatts. The renewable capacity reached 44.09 gigawatts, the low carbon clean energy accounts for 39.12% of total capacity. In terms of overseas operations, Tuas Power interpreted the policy and the research. The power and fuel market actively responded to the market changes. The profit remained at a relatively high level. In the first half of the year, the profit before tax of Tuas was CNY 1.363 billion. The performance of Sahiwal power plant in the Pakistan remained stable. The profit before tax was CNY 436 million. In the second half of the year, the company will follow national strategic plan, focused on quality and efficiency and optimize its development direction, layout and structure. The company will adapt to the marketization of renewables, conduct policy and market research, dynamically optimized marketing strategy and improve generation efficiency. The company will track the changes in the coal market, optimize the procurement structure and take multiple measures to control coal cost. The company will strengthen sound management, maintain a stable financing structure funding for energy security and green transition. The company will prioritize high-quality and steady growth, enhance risk control, new development and value-creation capability and strive to achieve steady progress in operating performance and high-quality completion of annual goals. Now my colleague and I would like to answer your questions.

[Foreign Language] [Operator Instructions] The first question comes from the [ Oceanta ] of Citi Bank.

[Interpreted] Yes. So I have three questions. First. In the second quarter, we can see the unit fuel cost decrease was greater than the unit fuel cost decrease in the first quarter. Could you talk about the reason for that? And could you give us the unit fuel cost guidance in the following quarters? Second, about the company's renewable development, the company has added 4.3 gigawatts of solar units and 1.9 gigawatts of wind units. So could you talk about the company's outlook for the renewable addition, in 2025, what percentage will be the wind power and what is the proportion for the solar power? And could you give us the guidance for the CapEx in the year of 2025. Third question is about the company's cash flow. We can see from the -- we can see from the report that free cash flow have increased by CNY 30.7 billion. So under this circumstance what will be the dividend payout ratio of the company? Will the company raise the payout ratio?

[Interpreted]. The unit fuel cost in the second quarter was CNY 269.42 per megawatt hour comparing to the first quarter's CNY 272.68 per megawatt hour, has quarter-on-quarter decrease of CNY 3.26 per megawatt hour. The reason of the company's cost decrease is the company has seized opportunity in the market, coordinated the purchase of the contracted coal and spot market coal and pushed forward the cost decrease of the fuel. As your question about our operating free cash flow, it has increased by CNY 30.7 billion. This was mainly due to the fuel cost decrease for our thermal sector. The profit of the thermal sector have increased significantly. The company has insisted on sharing our performance results with our shareholders. Considering the company's operation demand and the government policies, the company have raised our dividend payout ratio. In the year of 2024, the company has paid CNY 0.27 per share of dividend. The total dividend payment amounted to CNY 4.24 billion. It has increased by CNY 1.1 billion, and the payout ratio increased from 57.14% to 58.78%. In the future, the company will insist on a sustainable dividend payout policy and considering our development guidance, our operating results, the CapEx and the willingness of our shareholders to continue to research the dividend payout policy and implement the government policy and to insist a stable dividend payout. About your question of renewable guidance, now the company have 19.13 gigawatts of units under construction, including 11.36 gigawatts of renewable. The wind amounted to 5.72 gigawatts, solar amounted to 5.64 gigawatt. The company will insist our whole year guidance at the beginning of the year, which is 10 gigawatts of renewable addition, including 4.2 gigawatts of wind and 5.8 gigawatts of solar.

The next question comes from Yalin Li of Huatai Securities.

[Interpreted] I have 3 questions. First, in the second quarter, the company's unit profit as for our wind and solar sector was around CNY 160 to CNY 170 per megawatt hour. And that our expectation and especially for our solar sector. So could you give us the utilization hour of wind and solar sector in the first quarter and second quarter and the year-on-year changes? And could you give us the tariff of those 2 sectors in first and second quarter? Second, could you give us the tariff of our coal sector in the second quarter and the capacity payment of the coal sector and what was the year-on-year change? And could you talk about the standard coal price of the company as well as the coal consumption rate?Third, in Gansu province, it has introduced capacity payment policy to CNY 330 per kilowatt. However, we think the final compensation will be lower than that level, how does the company review this problem? And what was the company's perspective that is that policy will be taken in other provinces?

[Interpreted] The utilization hour of wind in the second quarter was 539 hours in the first quarter, 594 hours. The utilization hour of solar in the second quarter 338 hours, first quarter 245 hours. The average tariff of wind in the second quarter was CNY 470.0 per megawatt hour, solar CNY 385.3 per megawatt hour. The average tariff for wind in the first quarter was CNY 487.97 per megawatt hour, decreasing by CNY 17.88 quarter-on-quarter. The average tariff for solar was CNY 400.16 per megawatt hour, decreasing by CNY 14.76 quarter-on-quarter. Utilization hour of our coal sector in the first quarter, 964 hours, second quarter, 875 hours. First half of the year, 1,839 hours, decreasing by 141 hours. The average tariff of our coal sector in the first quarter, CNY 467 per megawatt hour. Second quarter, CNY 476 per megawatt, with our first half of year CNY 471 per megawatt hour. The standard coal price in the first quarter for the coal sector, CNY 164 per tonne. Second quarter CNY 809 per tonne. And in the first half of the year, CNY 848.99 per tonne. So coal consumption rate in the first half of the year was [ CNY 295.9 ]. First, about the company's coal utilization hour. We can see it's a positive policy signal that coal-fired units will become adjust flexible power resources, the utilization hours decrease have proved this point of view. Second, as you just said, the coverage ratio of our capacity payment in Gansu province won't be reached the 100% level. However, the company is having research to have some operational renovation of our units. With this update, we will increase our compensation level. About the future steps of this policy, we can see the 100% recovery ratio of capacity payments only happens in the areas that have spot market. For the areas do not have a spot market, the current case will be followed. That is by the end of 2026, the coverage ratio will be 50% of the fixed cost.

The next question comes from Lili Guo of Tianfeng Securities.

[Interpreted] I have 3 questions. First, about our coal procurement. What is the coal procurement structure in the first half of the year? What is the proportion for our long-term contract coal and spot market purchase? Second, about our tariffs, could you give us the market-based tariffs break down to different energy types and what is the company's capacity tariff for our coal units? And what's the year-on-year change? My third question is, could you please give us the net profit breakdown to different energy types?

[Interpreted] In the first half year, the company has purchased 42.9 million tonnes of coal, including 15.63 million tonnes of coal from spot market and 28.61 million tonnes of coal from overseas market. The long-term contracted coal accounted for 49.24% of total purchase. Spot market coal accounts for 17.94% and imported coal accounts for 32.83%. The company's market-based tariff in the first half of the year was CNY 435.09 per megawatt hour. It accounts for 84.64% of our total power sales. The market-based tariff for coal-fired units was CNY 430.29 per megawatt hour, 100% of our power sales are market-based. And gas unit 597.88 per megawatt hour, 18.9% of our power sales are market-based. The average market-based tariff for wind was CNY 495.36 per megawatt hour, 45.5% from the market sales. And for solar, CNY 383.77 per megawatt hour, the proportion was 35.2%.The capacity payment in the first half of the year was CNY 4.87 billion, and it was CNY 30.79 per megawatt hour. It has CNY 2.17 per megawatt hour increase comparing to the same period last year. That was mainly because the coal power generation have decreased this year and the proportion of capacity payments increased.

[Interpreted] The net profit was down to different energy types, the coal-fired power, CNY 5.989 billion, Gas Power, CNY 527 million wind CNY 3.433 billion, solar CNY 1.858 billion; Hydro, CNY 13 million, Biomass CNY 3 million.

The next question comes from [indiscernible] Securites.

[Interpreted] I have 3 questions. First about the company's tariffs. In the second quarter, the power generation for coal sector have decreased. However, the tariffs remain stable. Does that because our market-based tariffs have increased? Will the company have less power generation when the tariff was low in spot market and have more power generation when the tariffs are high? Could you talk about the differences between this trading strategy in different provinces? Second, we can see from our interim report that we have rates issuance planning of Qingdao power plant? And could you talk about the approval process of this REITs? And does that mean that the thermal power can be a stable asset in the future? And could you talk about our estimation of the cash flow as well as the profit? Third question is about our minority interest. The minority interest has decreased in the second quarter. Could you give us the reason?

[Interpreted] In the first half year, the company have made up our trading strategy that we coordinate between the volume and the price. There are 2 factors on that. So first, in the spot market area, because this year, the renewable addition was significantly increased in the first half of the year. There's an oversupply of power in the market. So the spot market price, we can see a longer time period that we have a negative tariff. So for our coal units, we have incentive to increase our generation when the price is high and decrease our generation with the price is low. And second, in the areas that we only have long-term -- mid- to long-term contract power sales. The company's power generation remains stable. The contract we signed remains stable. So confining all the 2 factors, although our power generation have decreased, our tariffs remained stable in the second quarter.