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

[Interpreted] Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International, Inc., I would like to welcome you all to the conference call regarding third quarter results announcement of 2025. Now may I introduce the management of the company today. The Chairman of the company, Mr. Wang Kui.

[Foreign Language]

[Interpreted] Independent Director of the company, Ms. Zhang Liying.

[Foreign Language]

[Interpreted] The Vice President, General Counsel and Chief Compliance Officer of the company, Mr. Qin Haifeng.

[Foreign Language]

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

[Foreign Language]

[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 reveal the business performance for the third quarter results of 2025, followed by the Q&A session. May we have the honor to invite Mr. Wang to review the business performance and Ms. [indiscernible] to conduct the English interpretation.

[Interpreted] Ladies and gentlemen, good afternoon. Welcome to the third quarter results conference call of Huaneng Power International. Yesterday, the company has released the third quarter results. Please let me give a brief introduction. In the third quarter, under the leadership of the Board of Directors, the company centered on annual targets, identified and responded to the changes, overcame difficulties and push forward operations, transition, innovation and overseas management, achieved a record high operating performance and laid a solid foundation for high-quality accomplishment of annual tasks. Under the Chinese accounting standard, the company achieved a consolidated operating revenue of CNY 172.975 billion, decreasing by 6.19%. Net profit attributable to company's shareholder was CNY 14.841 billion, increasing by 42.52%. The earnings per share was CNY 0.81. In terms of the power generation, the company pushed forward the green transition with the installed capacity of wind and solar increasing, the renewable power generation increased year-on-year. However, affected by oversupply and market share being taken by the renewables, coal generation decreased year-on-year. In the first 3 quarter, the company's domestic on-grid power sales was 331.451 billion kilowatt hour, decreasing by 2.87%. The average tariff was CNY 478.71 per megawatt hour, decreasing by 3.5%. In terms of coal supply, the company seized opportunities, 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 of the first 3 quarter was CNY 892.34 per ton, a year-on-year decrease of 11.01%. In terms of the development, the company continued the low-carbon transition, focusing on quantity and quality, track the implementation of policies, carry out regional policy research to optimize investment strategies. In the first 3 quarters, the company added 10.3 gigawatts of units, including 6.83 gigawatts of renewables and 3.46 gigawatts of gas units. By the end of September, the company installed capacity reached 155 gigawatts. Wind and solar capacity reached 44.66 gigawatts. Low carbon clean energy accounts for 40.15% of total capacity. In terms of overseas operations, Tuas Power researched the Singapore power market, ensured stable supply of fuel, optimized the strategies and management. The profit before tax of the first 3 quarters was CNY 1.754 billion. The performance of Sahiwal Power plant in Pakistan remained stable. The profit before tax was CNY 697 million. In the first quarter, the company will focus on annual development goals, research the policies and market environment, adhere to the constraint of target yields, build high-quality projects and steadily push forward the green and low-carbon development. The company will track changes in the coal market, optimize the procurement structure, prepare for the next year's contract signing and control the fuel cost. The company will research the trends of generation and tariffs, actively respond to policy and market challenges, work on the signing of power purchasing agreements, coordinate volume and price and increase profitable generation. The company will strengthen fund management, maintain a stable financing structure, funding for energy security and green transition. Facing a complex market environment, the company will prioritize high-quality and steady growth, improve operating efficiency, ensure the successful conclusion of 14th Five-Year plan. The company will study, implement and carry out the spirit of the Fourth Plenary Session focused on dual carbon goals and energy security policies, systematically plan the strategies for the 15th Five-Year period and lay a solid foundation for further high-quality transformation and development. Now my colleague and I would like to answer your questions. Thank you.

[Foreign Language] [Operator Instructions] Thank you, Mr. Wang. Here we come to the Q&A session. [Operator Instructions] The first question comes from [indiscernible] of Citi Bank.

[Interpreted] I have three questions. First, in the third quarter, the company have achieved a sound profitability and mainly due to the unit fuel cost decrease. Could you talk about the reason? Is there any one-off items such as the increasing of spot market purchase and overseas purchase? And in the first quarter and 2026, what will be the company's unit fuel cost outlook? Will that have a further decrease? Second, as the government have recently announced the plan in the 15th Five-Year period, what will be the company's target of the 15th Five-Year period? And what will be the company's investment focus in the future? Third, as we see from the news that we have a value-added tax refund for renewables, what is the profit impact to the company? And in the fourth quarter, will the company have any assets impairment taken in wind and solar project?

[Interpreted] In the third quarter, the company's unit fuel costs have decreased because the company has sticked into the strategies to consume in the peak season and purchase in the off-season. The company have purchased both from the spot market and the overseas market and tried to find the bottom spot of the coal prices and control the company's coal cost. So in the first quarter, we will begin the peak season for coal market. The company has already purchased the coal from the market to help stabilizing the coal price. In 2026, according to the supply and demand situation and -- the company will have our coal purchasing strategy in the light of the Document 136. As the renewable capacity installation will be stable in the future, we think the place -- the power generation taken by the renewable will be stabilized. And as 2026 is the beginning year of the 15th Five years period, we think the government will try to stabilize the macroeconomy and the economy will have a recovery. In the environment that the government has strengthened the inspection of oversupply and environment, we think the coal price will hit bottom and rebound in the future. For now the company is under the working of editing the 15th Five years plan. The company's plan will be in accordance with the government and the industry plan. The company will insist on the transition in green and low-carbon development. The company will continue our investment in renewable. And the company -- we think in the next period, we will still have a high-speed growth in renewables. The company will strive for a high-quality development. In terms of our coal development, the company will have some replacement projects to our old and outdated units, and we will focus on the areas that have high consumption of power. With all this measure taken to optimize our power generation structure and our generation structure for coal sector.

[Interpreted] And about your questions about the refund of VAT tax, as we know from the authorities, there will be change for the value-added tax for renewables. For onshore wind, the refund -- 50% refund of VAT will be canceled in November 1. And for offshore wind, the VAT refund will be canceled in 2027. There will be limited impact to the company, and we see the numbers from our operating in renewables recently, the input VAT is higher than the output VAT. I can give you the number in 2024, only CNY 1 billion to CNY 2 billion -- only CNY 100 million to CNY 200 million of VAT, and we don't have any VAT related to our offshore wind. In the future, the company will track the policy change and keep to invest in the high-quality renewable projects to decrease the cost and the company will try to increase the efficiency to tackle with this policy change.

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

[Interpreted] I have three questions. First, could you give us the market-based tariff in the third quarter and the year-on-year changes as well as the quarter-on-quarter changes in market-based tariff? And could you give us some information about the signing of power purchase contract in 2026. Second, could you give us the profit breakdown to different energy sectors in the third quarter alone? Third, we can see from the company's results that the second quarter to the third quarter, the company's solar performance was leading the industry. So could you talk about why we have a leading performance of solar?

[Interpreted] The average tariff for our wind project was 460 per megawatt hour, decreasing by 14% year-on-year and 2% quarter-on-quarter. Tariff for solar was CNY 394 per megawatt hour, decreasing by 9% year-on-year and increased by 2% quarter-on-quarter. In the first 9 months, the tariff for wind was CNY 474 per megawatt hour, decreasing by 8.3%. In the first 9 months, the tariff for solar was CNY 392 per megawatt hour, decreasing by 8.8%. According to the government's requirement from 2026 in the areas such as [indiscernible] that have a faster growth rate -- faster transition for the coal power, the capacity payment will be around -- will be increased to no less than 70% of our fixed cost. And for other areas, this number will raise to 50%. After the capacity payment was raised, we have a better recovery capability of our fixed cost. The competitive pressure will be released in terms of the trading. So the monthly and annually based long-term contract purchase will still be 80% to 90% to our total market-based tariff. Other will be complemented by the spot market. Currently, the signing of 2026 contract haven't begun yet. We estimated that it will begin by the end of November. For now, the cost of primary energy was relatively low. However, it will rebound in the long run and the local government still required a tariff cut. It is estimated that in 2026, the range of the contract tariff will change based on the capacity tariff. However, we think the capacity tariff plus the power tariff will have a slight decrease comparing to 2024.

[Interpreted] Please let me give you the numbers of net profit breakdown to different energy sectors in the first 9 months. For the coal sector, CNY 10.819 billion, increasing by CNY 5.765 billion or 114.05%. Gas sector CNY 625 million, increasing by CNY 26 million or 4.43%. Wind sector CNY 4.043 billion, decreasing by CNY 566 million or 12.27%. Solar sector CNY 3.074 billion, increasing by CNY 831 million or 37.6%. For the Hydro sector, in the first 9 months, the net profit was CNY 76 million, decreasing by CNY 28 million or 26.87%. For biomass sector, the net profit was negative CNY 19 million, increasing by CNY 434 million or 95.85%. The company has achieved a great profit for our solar sectors. The unit profit for the solar was CNY 179.52 per megawatt hour. It has CNY 8.73 per megawatt hour, it's increase quarter-on-quarter or 5.11% increase. A lot of reasons can explain that. First, the utilization hour in the third quarter for solar sector was 355 hours. It increased by 17 hours or 5.03%. And from the -- in terms of the tariff, the tariff for our solar sector in the third quarter was CNY 394.23 per megawatt hour. It has CNY 8.83 per megawatt hour increase quarter-on-quarter. It increased by 2.29%. The company has strengthened the operation management of our solar sector. In the third quarter, the cost and expense in the solar sector have decreased. The unit cost was CNY 181.39 per megawatt hour, decreasing by CNY 4.31 per megawatt hour quarter-on-quarter or 2.33% -- 2.32%. After the implementation of the Document 136, the competition in the solar sector will be more fierce. The company will have more prudent investment in our solar projects and have a more strict selection to control the cost and the company will strengthen our research and try to have power generation that with profit. The other way is to control the construction cost. The company also will strengthen the cooperation between the different types of energy and give full play to our management capability and enhance the competitiveness of solar sector.

[Interpreted] What is the company's view on the capacity payment because we heard that in Gansu, they originally bought up the 330 coverage for the capacity. However, it should multiply a factor. So what is your view about this capacity payment and to the factor?

[Interpreted] About the capacity payment of company. So in accordance with the renewable capacity that's being included in the market, there will be a full coverage in the capacity payment. And this is also mentioned in Document in the province like Gansu and Huaneng. About you mentioned the supply-demand factor impact. So as -- in our calculation, the supply and demand factor was calculated in the peak season of the whole year. So this factor multiplied is not a discount. So for the company, the major factor that impact our capacity tariff is our capability of peak season, our utilization in the peak season.

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

[Interpreted] I have three questions. First, could you give us the tariff breakdown to power tariff and capacity tariff? And what is the year-on-year changes? Second, about the company's power generation. The company's coal power generation have decreased and is worse than the industry average. So could you give us the reason? Is that because of the maintenance or is the -- reasonable factor? And third, could you give us the ancillary services income in the third quarter?

[Interpreted] The company's power generation was -- in the first quarter was 350.9 billion kilowatt hour, decrease by 2.93%. The coal power generation was 299.12 billion kilowatt hour, decreasing by 6.28%. Wind power generation was 30.276 billion kilowatt hour, increasing by 9.95%. Solar power generation was 20.687 billion kilowatt hour, increasing by 48.59%. The company's thermal generation have decreased because of the following reasons. First, in terms of the structure, the renewable installation have rapid growth that have taken the shares of the thermal generation. Second, in terms of the market shares, the company's thermal unit market shares have decreased. Third, in terms of the strategies, the company have decreased the power generation to increase the profit in some spot market area. The company's average tariff in the first 9 months was CNY 478.71 per megawatt hour, decreasing by 3.54% year-on-year. The average tariff for coal sector was CNY 465.87 per megawatt hour, decreasing by CNY 15.1 per megawatt hour. Gas sector, CNY 713.4 per megawatt hour, increasing by CNY 1.73 per megawatt hour. Wind sector, CNY 474.07 per megawatt hour, decreasing by CNY 44.96 per megawatt hour. Solar sector, CNY 392.46 per megawatt hour, decreasing by CNY 37.34 per megawatt hour. The reason for the company's tariff decrease are as follows: first, the supply and demand balance was in a loose state in the third quarter; second, the long-term contract tariffs have decreased; and third, there is a lot of renewable projects that being put into operation that without that feed-in tariff for the company. So above the -- above factors can explain the average tariff decrease for the company. In terms of the on-grid power sales, the coal sectors on-grid power sales was 258.358 billion kilowatt hour, decreasing by 7.1%. Gas sector 22.031 billion kilowatt hour, increasing by 4.23%. Wind 29.219, increasing by 8.9%. Solar 20.51 billion kilowatt hour, increasing by 47.73%. Hydro 0.078 billion kilowatt hour, decreasing by 4.26%. Biomass is 0.055 billion kilowatt hour, increasing by 17.4%. For the capacity tariff in the first 9 months, the capacity payment in total was CNY 7.181 billion. It was CNY 27.85 per megawatt hour, and it increased by CNY 3.26 per megawatt hour. And the main reason for the increase because our power generation have decreased. And about the company's ancillary services income in the first 9 months, the ancillary services income from peak and the frequency regulations, the total income was CNY 1.251 billion, decreasing by CNY 600 million. And the ancillary service income for the thermal sector was CNY 1.568 billion, and the ancillary services expense for the renewable sector was negative CNY 314 million. The ancillary services income have decreased because in some areas, it turned swift into a spot market, and there will no longer be an ancillary services market.