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

[Interpreted] And in Singaporean electricity market, we formally signed the agreement of electricity with higher marginal contribution, but those agreements has already been expired by the end of this quarter. And the newly signed agreement on the spot market of Singaporeans market is based on the pressure of the decrease of the spot market price, and that has also threatened our profitability in Tuas Power.

[Foreign Language]

[Interpreted] In terms of the carbon tax in Singapore's market, formally, the Singaporean government has allocated the carbon dioxide tax for CNY 25 per month. And this year, it has increased to CNY 45, which is a quarter-on-quarter and year-on-year increase. And that has also threatened the profitability of Tuas Power by CNY 40 million.

[Foreign Language]

[Interpreted] And since the end of February, the contradiction between Iran and U.S. has also triggered the increase of the coal market worldwide. But the agreement of gas in Tuas Power that was signed is also based on a long-term contract. So that does not have a marginal -- does not have a larger impact towards our Tuas profitability.

[Foreign Language]

[Interpreted] As the Singaporean government towards this situation also introduced some regulations and articles to safeguarding the backup of LNG and also the policies towards the pricing cap. So we estimated that the Singaporean electricity market will become stable in the future. And if the contradiction in the Middle East areas could be end soon, we estimated that in the year of 2026, the power generation and profitability of Tuas Power will keep stable as well.

[Foreign Language]

[Interpreted] In terms of the loss -- in terms of the power plants that have a loss in the first part of the year, we calculate it based on the equity that we hold in the company. In the first quarter in 2026, we have 10 power plants of wind power generation have a loss and 111 plants of PV sectors have a loss.

[Foreign Language]

[Interpreted] Well, I want to further ask that what -- how many plants we have in PV and wind power generations, respectively?

[Foreign Language]

[Interpreted] The company boasts 122 wind power turbines and among those 8.2% of those plants have made a loss. For PV sector, we have 383 power plants of photovoltaic and 28% have made a loss.

[Foreign Language] The next question comes from Song Yingying of China Merchants Securities.

[Foreign Language]

[Interpreted] I have 2 questions. And in the first quarter, we have seen that our financial expense saw a decrease. And what is the expectation towards the full year financial expense? And we have any extra spaces for improve our financial space -- financial expense? And my second question goes to the tax refund for VAT of the inland wind power generators. Does that have an estimated profitability impact?

[Foreign Language]

[Interpreted] In the first quarter of 2026, the company has seized the advantages and opportunities on the financial market and to use the market-based tools and optimized strategies to optimize our financial costs in this quarter.

[Foreign Language]

[Interpreted] And in terms -- in order to meet the needs for the future development and sustainability of development, we have used the mid- and long term -- we have optimized our structure of financial by mid- and long-term debentures and to optimizing our financial expenses.

[Foreign Language]

[Interpreted] In the first quarter of the year of 2026, the consolidated balance -- on the consolidated balance sheet, we have a financial expense of CNY 1.73 billion, which has saw a CNY 10 million decrease equivalent to 0.04%. And going forward, we will seize the atmosphere and -- we'll seize the opportunities and the atmosphere for both the financial market domestically and across the world to save the opportunities of the policy changing and actively optimizing our financial expense.

[Foreign Language]

[Interpreted] By the end of the first quarter, the comprehensive rate of interest-bearing debt of the company was 2.36%, which saw an 8 basis point decrease compared with the beginning of the year 2026.

[Foreign Language]

[Interpreted] In terms of the value-added tax refund in the October of 2026, the Head of Custom, the Ministry of Finance and Taxation Administration of China has introduced this policy. We have ended the tax refund for VAT of inland wind power plant since the November of last year. And for the offshore power generators, we still have the 50% of tax refund for VAT credit carryforward until the end of 2027.

[Foreign Language]

[Interpreted] This policy change does have some impact towards the company's profitability, but it does not have the major impact to our profitability. And in the year of 2025, the company's inland wind power turbine has entered the catalog, which has a VAT refund of CNY 137 million.

[Foreign Language]

[Interpreted] And in the first quarter of 2026, the offshore power turbine has a VAT refund of CNY 18 million.

[Foreign Language]

[Interpreted] Going forward, we encourage our plants of offshore power turbine to use -- fully use this kind of policy.

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

[Foreign Language]

[Interpreted] I have 3 questions. And first, in some provinces, especially in Northern China provinces, we have introduced a higher recovery ratio of the capacity-based subsidy. And does that because the optimization of demand and supply relation and in which provinces, this change is bigger and higher. And the second question is in the first quarter of the year, we have write-off CNY 13.1 billion of the perpetual bond of the company. And what is the pace in the future? And my third question is in the coal-fired unit, what is the market -- what is the profit generated by the coal-fired unit in the market-based electricity?

[Foreign Language]

[Interpreted] Well, in terms of the capacity-based subsidy and according to the -- in the previous year, the country has announced the document of 1501. This year, it further introduced the 114 document. It aims to improve the capacity-based subsidy recovery ratio to 50% at the country level. And according to the document #1501 that introduced in the year of 2024, in some areas and provinces which the utilization hour is comparatively low, it has a standard of CNY 165 per megawatt hour per year. And in some northern areas in China, the standard was CNY 100 per megawatt per year. And going forward to the year of 2016, the target -- the policy is targeting us to improve the recovery ratio for those provinces that have a capacity-based subsidy recovery ratio of CNY 100 per megawatt hour per year and all those provinces should receive CNY 165 per megawatt per year. And except for Hainan province and all the provinces in China has raised the standard of recovery ratio to CNY 165.

[Foreign Language]

[Interpreted] According to the policy of the document #114, we are introducing a new mechanism for the capacity-based subsidy recovery. And for those areas, the capacity-based subsidy is higher, and it also boasts a loser supply. And the loser supply means that in that area, but the utilization of our coal-fired units will decrease in a faster -- at a faster pace. So it is also impacted by the renewable installed capacity and coal-fired install capacity as well and the capacity-based subsidy is connecting tightly with the utilization of coal-fired units of the company.

[Foreign Language]

[Interpreted] And for the further introduction of the policy of capacity-based subsidy, you can look up for the document that introduced by Liaoning government and Gansu province government. And in Liaoning province, the capacity-based subsidy in this year will be CNY 370 per megawatt hour per year. In Gansu province, the number will be CNY 330. And the -- that is all beyond the limitation and requirement according to the document #1501. So that is also connected tightly with ancillary services and the power generation to the electricity market by the coal-fired unit.

[Foreign Language]

[Interpreted] And by the end of this quarter, the equity-based financing has decreased by CNY 12.3 billion, and that is because that we rescheduled the issuance of the perpetual bonds, and we will deliver further schedule for the issuance.

[Foreign Language]

[Interpreted] In terms of the market-based tariff increase. And in the first quarter of the year, our daily clearance price on the spot market has increased by CNY 15 per megawatt hour compared with the already signed long-term contract for electricity.

[Foreign Language]

[Interpreted] And does the CNY 15 per megawatt hour increase of the profitability from the market of electricity have the consistency or stability?

[Foreign Language]

[Interpreted] And it's also based on the coverage for the mid- and long-term contract. We optimizing our mid- and long-term assignment based on the curve of supply and demand. And delivering better storage of the mid- and long-term contract.

[Foreign Language]

[Interpreted] Towards those coal-fired units that could deliver an ancillary services, we will -- we have a lower price at the spot market in the -- when the output was low, and we also have a higher price on the spot market when the output is high. So we also have the confidence and capability to maintain the comparatively low price just like at the beginning of this year.

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

[Foreign Language]

[Interpreted] I have 3 questions. The first question is about the coal procurement structure of the company. And what proportion of the company's long-term contracted coal and those coal from the spot market as well as those from the overseas market and its year-on-year change? And the second question is, we have a larger capital expenditure plan on the wind power sector. And what is the IRR threshold for the company's wind power generators and photovoltaic projects? And how does the company expect the investment and installation from the year of '26 to the year of '28 in terms of PV sectors and the wind sectors? And the third question is: we know that the company has both a compute center in [ Xiong'an ] as well as in Shanghai. And does that become the company's consolidated balance sheet? Or what about its profitability anticipation?

[Foreign Language]

[Interpreted] In the year of 2026, we have a coal consumption of -- we have an anticipated coal consumption of 181 million tons and the long-term coal contract has signed 100 million tons. The coverage ratio is 80%. And we cannot give you an actual or real proportion for the spot market coal and those coals from the international market as the market dynamics is changing continuously. And in general, the proportion of the company's long-term contracted coal will be keeps similar compared with the year of 2025, which is around 80%. But as the international market horizon is changing gradually, we believe that the import proportion of the coal will be saw a year-on-year decrease and those from the spot market will saw a year-on-year increase.

[Foreign Language]

[Interpreted] And about your second question, in the first quarter of the year, our installed capacity -- newly installed capacity of wind is larger than the newly installed capacity of photovoltaic that is inverse compared with the trend of year 2025. By the end of March, we have a project under construction and those in wind power generation was 7.2 gigawatts in total and the photovoltaic 4.3 gigawatts in total. And in general, we estimated that the threshold has never been changed, but the profitability is changing because of that electricity spot market was already introduced. And now we are spotlighting the investment in wind power generators.

[Foreign Language]

[Interpreted] We still keep the IRR threshold for renewable projects by 6%, and that hasn't been changed.

[Foreign Language]

[Interpreted] And going forward to the 15th 5-year plan period, we still spotlighting the installed capacity growth of renewable power generation. During the 15th 5-year plan, we still highlighting the 2 carbon goals, and we insist that the main direction of developing the renewable energy and to optimizing the company's energy mix. But the outline of the 15th 5-year plan of the company is still based on the country's goal for development and other relevant conditions.

[Foreign Language]

[Interpreted] As for the 2 specific projects, we do not have any further information to deliver as they are still in the early stage of research and development, and we'll timely deliver the further information when it was ready for disclosure.

[Foreign Language] Here comes the last question. The last question comes from Wu Jie of Haitong Securities.

[Foreign Language]

[Interpreted] I have 4 questions. The company has said that the coal-fired units of the company has a net profit of CNY 3.6 billion. Is that right? And my second question is for the coal-fired units, the coal price by the end of the first half of April, what is the change compared with the price right now and the price of the first quarter of the year. As the market horizon has been changed and long-term coal has already been changed as well. My third question is: in the period -- in last year, according to the company's annual results, we have a wind power plants has a tariff of negative CNY 40 per megawatt hour. What is the reason that triggering this negative tariff? And the fourth question is the management has mentioned that we have a CNY 15 per megawatt hour decrease comparing with the long-term contract, and that's from the market-based tariff? That's all.

[Foreign Language]

[Interpreted] You are right. The net profit to the coal-fired unit of the company in the first quarter of the year is RMB 3.6 billion.

[Foreign Language]

[Interpreted] In Shanxi province, in the fourth quarter of last year, we've written off some renewable subsidies and that triggered the negative tariff.

[Foreign Language]

[Interpreted] Well, in terms of supply, as the country has delivered the inspection of the security for production, the relevant administration has also introduced the relevant regulations to curb the production capabilities of the mines. And in the domestic market, we have a limitation of supply growth and plus in the overseas market, the price of coal market is comparatively high. And some restrictions have also added the uncertainty, including the regulations introduced by the government of Indonesia. So we believe that the tight supply will continue.

[Foreign Language]

[Interpreted] In terms of the demand, April was a flat season and the hydropower and the renewable sectors will deliver the better power output. So the daily consumption by the power generators will see a decrease. But the international market, the gas price has been seen a dramatically increase, and we believe that the tightened demand will still keep for a little while. And in Hainan province, high temperature triggered by the El Nino effect has also delivered the better -- the higher demand of coal. And that is also delivered the increase of the coal price of the market.

[Foreign Language]

[Interpreted] We believe the supply and demand curve is still tightening. And in March, the company's standard coal price for coal purchase was CNY 862 per ton, which is an increase of CNY 10 per ton. And by the first half of April, we have seen another CNY 50 per ton increase, and that is also significant.

[Foreign Language]

[Interpreted] To your question about the increase in tariff of the market-based tariff towards the overall tariff, we have a benchmark of annually signed long-term contracts as well as the monthly contract, weekly contracts as well as the daily clearance. So we were holding different kind of settlements and the improvement of CNY 15 per megawatt hour is the clearance price on the spot market comparing with the mid- and long-term contract price.

[Foreign Language]

[Interpreted] Besides those electric market-based tariff, we still have revenue from the ancillary services as well as the operation fee on the spot market, and that has also narrowed the overall divide between those 2 tariffs.

[Foreign Language]

[Interpreted] For the company's coal=fired units, the net profit, you have said is RMB 3.667 billion, and the equity-based profit is RMB 2.57 billion and the percentage of the equity-based profit has been a year-on-year increase. What is the reason?

[Foreign Language]

[Interpreted] The equity-based profit of the coal-fired units have saw a RMB 145 million increase compared with the same period last year, scaling RMB 2.56 billion. And that percentage of net profit is because the minority -- the fraction of minority interest divided by the profit of different power plants, and we have no assurance of new REIT program.

[Foreign Language] Finally, Mr. Liu would like to give us a summary.

[Foreign Language]

[Interpreted] Thanks for joining us today in this conference call. We appreciate your long-term support to Huaneng Power International. This marks the end of today's conference. For any further inquiries, please feel free to contact the IR team. Goodbye.

[Foreign Language] Thanks again for your attention of the conference call regarding the first quarter results announcement of 2026. We are looking forward to meeting with all of you in our next results announcement. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]