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

Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International, Inc., I would like to welcome you all to the conference call regarding the interim results announcement of 2026. [Foreign Language] Now may I introduce the management of the company today. [Foreign Language] Executive Director and President of the company, Mr. Liu Ancang.

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[Foreign Language] Independent Director of the company, Mr. [indiscernible].

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[Foreign Language] The Chief Accountant and Board Secretary of the company, Mr. Wen Minggang.

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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 and President of the company, Mr. Liu will review the business performance for the interim results of 2026, followed by the Q&A session. [Foreign Language] May we have the honor to invite Mr. Liu to review the business performances and Mr. Liu Guoyue to conduct the English interpretation.

[Foreign Language]

[Interpreted] Ladies and gentlemen, good afternoon. Welcome to the 26th Interim Results Conference of Huaneng Power International. We already announced the operating results for the first half of 2026 yesterday. And now I'd like to give a brief introduction.

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[Interpreted] Solid leadership of the Board, the company struck a balance between tangible development outcomes as well as securing production. Our business both at home and abroad maintained stable while witnessing steady progress in scientific innovations. We also accelerated our pace towards business transformation, which has paved the way for fulfilling our annual development goals.

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[Interpreted] Calculating China's accounting principles, in the first half of this year, the company has realized a consolidated operating revenue of CNY 106.9 billion, decreased by 4.58% year-on-year. The net profit attributable to the company's shareholders scaled CNY 6.59 billion, decreasing by 28.89% year and the EPS is now at CNY 0.35.

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[Interpreted] In terms of power production, we actively promoted the low-carbon green energy transformation. The overall installed capacity of the company's photovoltaic wind farm has a consistent growth, while the on-grid power saw a year-on-year decrease while the capacity of renewables is growing rapidly nationwide and taking the share of coal-fired units in the energy mix.

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[Interpreted] In H1, the company's domestic on-grid power sales decreased by 2.97% at CNY 199.78 billion kilowatt hour and the average tariff was CNY 463.02 per megawatt hour, decreasing by 4.59%.

[Foreign Language]

[Interpreted] In terms of coal supply, we swiftly adjusted our coal purchase plan based on a solid research of coal market dynamics and the estimation of electricity consumption. The company has made multiple efforts in controlling the fuel costs, including strengthening operation of high-quality long-term contracts and updating our strategies and making spot market deals. Besides, we also replaced the proportion of coal from price surge to overseas market and optimize our dynamic control in coal inventory.

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[Interpreted] The standard coal price of H1 decreasing by 2.8% year-on-year at CNY 891.02 per can.

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[Interpreted] The company always hold its strategy of low carbon transformation in the first half of this year is taking every effort propelling the construction of infrastructure.

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[Interpreted] We've added 2.55 gigawatts of renewable capacity out of 3.04 gigawatts in total this year by the end of June. All this newly installed capacity are with competitiveness, both in their quality and market bidding capabilities, plus 490 megawatts newly installed gas-fired units, the total installed capacity under control now scaled 159 gigawatts. Low carbon clean energy takes more than 42% in the chart.

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[Interpreted] In terms of business overseas, we swiftly optimized our market bidding strategy based on the solid research of both Singapore electricity market and fuel market, pursuing the best performance at the current conditions.

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[Interpreted] In the first half of this year, Tuas Power has realized an earnings before interest and taxes of CNY 745 million. Sahiwal plant in Pakistan keeps a stable operation as well, earning CNY 451 million.

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[Interpreted] During the rest of this year, putting efficiency and quality first, we will push forward our costs and optimizing both power generation and asset portfolio, cementing the very foundation of energy security. In terms of the power generation, the company will level our analyzation and demand supply relation [indiscernible] market strategy will shift our power generation curve for better efficiency at peak hours.

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[Interpreted] In terms of coal consumption, we will partly focus on the dynamics of coal market, safeguarding a stable supply while controlling the cost via multiple channels, improving the fulfillment of mid and long-term contracts, optimizing schedule and heat value while purchasing our domestic and international spot markets and via better inventory management as well.

[Foreign Language]

[Interpreted] Setting on the starting point of the 15th 5-year plan amid the complex market horizon and new requirements, Huaneng Power International will reinforce strategic leadership to ensure better development quality and efficiency. We will secure the achievement of the full year target while stepping up development of new programs, delivering an excellent [indiscernible] the next 5-year plan.

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[Interpreted] And now my colleagues and I are willing to take your questions.

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

[Foreign Language]

[Interpreted] I have 2 questions. My first question goes to the Tuas Power in Singapore. And I wanted to ask what is the tariff mechanism in Singapore? And also in the second quarter of the year, what is the year-on-year change of the tariff and the power generation output of Tuas Power? And going to the third quarter and what -- how does the company optimize the performance based on this revenue in second quarter? And the second question goes to -- I raised the question in the conference call of the first quarter performance conference. And we wanted that based on the market-based transactions of thermal power generators, what is the profitability change quarter-on-quarter in the second quarter? And my first question goes to the PV sectors of the cooperation. How does the company view the profitability of the PV sector in the second quarter, we have seen a quarter-on-quarter increase? And what is the expectation going forward?

[Foreign Language]

[Interpreted] In the first quarter -- in the first half of this year, Tuas Power has accomplished [ 5.32 billion ] kilowatt hours in power generation output, which was 49 million kilowatt hour increase. And we have an earnings before interest and taxes increase of CNY 618 million.

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[Interpreted] The first reason that triggered this year-on-year decrease is about the exchange rate. We have a 6.3% year-on-year decrease in exchange rate from the Singapore to RMB and which has affected our profit about CNY 90 million.

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[Interpreted] The second I want to argue is about the carbon dioxide tax in the Singaporean market. The Singaporean administration has raised the tax rate from CNY 25 to RMB 45, which has triggered about CNY 24 million increase in terms of the expenditures on the carbon dioxide tax.

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[Interpreted] And the third reason is the margin have shown a year-on-year decrease as well, which is about CNY 22 [indiscernible].

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[Interpreted] And as you mentioned about the price mechanism in Singapore's electricity market, now the Tuas Power has a contract, 20% of the electricity contract was signed with the government and authorities, which has a comparatively stable profitability. And another proportion, about 70%, which is a retail contract with a longer term and that is -- has a margin that connected with the -- with the long-term contract of gas and the financial tools as well, and that is also comparatively low compared with the spot market. And we also have 10% of the entire power generation out on the market, which was settled on the spot market, and that is fully public, which is with many competitions on the spot market and the price was tightly connected with the gas price. And on the other hand, the gas price of Singaporean electricity market is connected with the GDM index in the International Oil Index. In the first half of '26, the spot market price has raised from CNY 181 per megawatt hour to CNY 240 per megawatt hour. But -- although the spot market price of electricity has shown a year-on-year increase, but the gas prices increased simultaneously. So the margin of Singaporean electricity market, especially the Tuas Power has been decreased year-on-year.

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[Interpreted] As I mentioned that the majority of our contracts of electricity was settled by the retail contracts and the price was locked. In the year 2025, the contracts fulfilled was largely signed between the year of 2023 and 2024. At that time, the price of electricity on the spot market was comparatively high. But last year, -- so that triggers the better profitability and the better tariff in the Singaporean Tuas Power last year. But this year, as the contracts with higher profit margin has been expired, and the newly signed contracts on the spot market is based on the downward trend of the spot market tariff. So that also triggers the decrease of our margin and that also triggered the year-on-year decrease in the first part of the year for the Tuas Power in Singapore.

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[Interpreted] Since the beginning of this year, [indiscernible] contract with higher margin and implement new strategies on the market to even more contracts to higher profitability [indiscernible] foundation for a better profitability in the second half of this year and going forward.

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[Interpreted] In the first half of this year, the [indiscernible] has generated about 152.9 million kilowatt hour [indiscernible] 158 million kilowatt hour and takes about 84%.

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[Interpreted] Bidding in the spot market for the coal units can improve its profitability. In the first half of this year, the coal partnering company has realized a tariff about CNY 387 per megawatt hour on the market, and that is about CNY 24 per megawatt hour increase compared with the medium long-term contract price's.

[Foreign Language]

I'd like to answer the quarter-on-quarter increase in terms of the profitability of the PV sectors of the company. In the second quarter, the PV sectors of the company has realized the earnings of CNY 989 million, which is an increase of about CNY 756 million, which is a large increase. And that is because of the power generation, the power output of the PV sector of the company has shown a quarter-on-quarter increase in the second quarter, and that is because that during the recent years, under the guidelines of low carbon emission strategy initiatives of the country, we have a larger installed capacity of PV sectors. And the second question -- the second reason is about the seasonal reason because of the utilization in the second quarter is comparatively high.

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[Interpreted] And the second reason is about the increase of the on-grid power sales. The PV sector have scaled about 7.65 million kilowatt hours on-grid power sales, which is a 40% increase equivalent to 2.19 million kilowatt hours.

[Foreign Language] The next question comes [indiscernible] of Citibank.

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[Interpreted] I have 3 questions. My first question goes to the on-grid power sales of the thermal power plant saw a 4.6% decrease in the on-grid power tariff of thermal power generation, which is at about CNY 463 per megawatt hour. And I want to know the tariff broken down by different energy types, including the thermal power generators, wind power and PV sectors. And what about this year-on-year change? And what about the expectation of the company towards the tariff in the second half of this year? And my second question goes to the unit cost of the company. And we have saw unit cost rebounded compared with the first quarter of the year in the second quarter of the year. And I believe that is mainly because of the geopolitical contradictions in the Middle East areas. And what does the company's expectation towards the unit cost and its trend in the coming next half of this year? And my third question is the company has set a goal for newly installed capacity in the year of 2026 at 7.7 gigawatts in total. And we have accomplished already in the first half of this year at 3 gigawatts. And what does the company view in the coming next half of this year? And does the company will change the full year goal of the newly in capacity?

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I like to answer your question about on-grid power tariff. In the first half of the year of 2026, we have realized coal-fired unit on grid power tariff of CNY 445.26 per megawatt hour, which has shown a year-on-year decrease of CNY 26.21 per megawatt hour, equivalent to 5.56%. In terms of the gas-fired unit, the tariff was CNY 792.57 per megawatt hour, increasing by CNY 49.86 per megawatt hour equivalent to 6.7% increase. In terms of wind turbine, we have an average tariff of CNY 462.67 per megawatt hour, which has decreased by CNY 16.9 per megawatt hour, equivalent to 3.4% decrease.

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[Interpreted] In terms of the PV farms, we have an average tariff of CNY 370.44 per megawatt hour, decreasing by CNY 20.83 per megawatt hour equivalent to 5.32%. In terms of [indiscernible] Power, the average tariff was CNY 361.4 per megawatt hour, increasing by CNY 2.77 per megawatt hour. The percentage is about 0.77%. The biomass sector of the company has scaled CNY 718.38 per megawatt hour and decreasing by CNY 6.63 per megawatt hour equivalent to 0.91%.

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[Interpreted] I'd like to answer your question about the coal market going forward to the second half of this year. And we believe that the coal supply in the second quarter -- second half of this year will be tightened as well and the supply will be flagged as well. On the demand side, the domestic [indiscernible] was constrained as the company -- as the country is delivering a security inspection. And on the spot market, the price is comparatively higher recently. The suppliers of the long-term contract are not willing to fulfill their contract as well. In terms of the international market, as the Indonesia has delivered its quota for the coal export and the Middle East contradictions between the Iran and U.S. So it also increased the risk on the international spot market of coal.

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[Interpreted] This year, in the supply side, the average temperature is comparatively high comparing with the same period of other years and the tightened supply of logistic market as well as the security inspection in Shanxi province and other reasons, we believe that the inventory is lower than the average of previous years. And going to the second half of this year, we believe that if the inventory is better than our prediction, so the coal price on the spot market will be better than our expectation. But if the inventory is comparatively tightened, we believe that that will support the comparatively higher price of the coal on the spot market.

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[Interpreted] We haven't adjusted our installment plan on the renewables for the full year. And by the end of Q1, we have more than 10 gigawatts of entire installed capacity under construction, and that is able to support to fulfill the full year goal.

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

[Foreign Language]

[Interpreted] My first question goes to the Tuas Power in Singapore for the company. As we mentioned that the profitability of the Tuas Power has been decreased because of the contracts with higher profit margin have been expired. And I wanted to know that how many contracts is still in fulfillment with higher profit margin? And my second question goes to the tax rate in the second part of the year. For one of the reasons that why the company's tax rate quarter-on-quarter increase? And what about the expectations with the tax rate of the company? And what about the company's plan to return the perpetual bond? And the third question goes to the [indiscernible] of the company. I wonder that the [indiscernible] of the company in the second quarter and in the first quarter, respectively? And what is the quarter-on-quarter change?

[Foreign Language]

[Interpreted] In terms of Tuas Power, the profit margin has been decreased mainly because of the contracts with higher profitability and profit margin has been expired. And we have a 70% of the contract in Singapore market is signed for the retail customers, and that is including the customers in industries and in business. And those contracts are signing based on rolling -- based on a rollover signing basis. And in the first half of this year, for Tuas Power, the average profit margin has shown a year-on-year decrease at CNY 22 for Singapore current.

[Foreign Language]

[Interpreted] But since the beginning of this year in the first half, the gas price worldwide has saw a year-on-year increase and the supply was tightened. And that also supports the higher price in the spot market of electricity in Singaporean market, which is conducive for us to sign new contracts and the fulfillment of new contracts that increase and expand our profit margin.

[Foreign Language]

[Interpreted] I'd like to answer a question towards the tax rate of the company. In the first half of the year of 2026, the average tax rate of the company is 18.6%. In the first half of '26, that number was 16.63%, and that is within the regular range of the tax rate of the company. And that is mainly because of the following 2 reasons. The first is that we have a different policy in terms of different plants in terms of this tax preferential policies. And the second is because the [indiscernible] of the company.

[Foreign Language]

[Interpreted] In terms of the standard coal price of the company in the first half of 2026, the average of the company scaled about CNY 891.02 per ton, which has a year-on-year decrease of CNY 26.03 per ton equivalent to 2.84%. In terms of the coal-fired units specifically, the coal-fired units has a standard coal price of CNY 832.67 per ton, decreasing by CNY 16.33 per ton, which equivalent to 1.92%. The gas-fired units by CNY 2,057.19 per ton, decreasing by CNY 96.96 per ton equivalent to 4.5% decrease. In terms of the biomass sectors, the company has a price of CNY 839.58 per ton, decreasing by CNY 53.44 per ton, which equivalent to 5.98% decrease.

[Foreign Language]

[Interpreted] In terms of the perpetual bond payout plan, by the end of the first half of '26, we have a RMB 73.47 billion of perpetual bond in the company, which has a decrease of RMB 4 billion. And that is because we have rescheduled our issuance plan. We anticipated that by the end of the year of 2026, the scale of our perpetual bonds will keep stable.

[Foreign Language]

[Interpreted] I'd like to ask about the unit cost. Do we have a quarterly anticipation calculation of unit cost?

[Foreign Language]

[Interpreted] In the second quarter alone, we have an average unit fuel cost of CNY 281.03 per megawatt hour, which has quarter-on-quarter increase of CNY 35.7 per megawatt hour equivalent to 14.56%. In terms of coal-fired units, it has an average unit fuel cost of CNY 269.92 per megawatt hour, which is a quarterly increase of CNY 36.03 per megawatt hour, increasing by 15.4%. In terms of gas-fired units, we have a unit fuel cost of CNY 443.82 per megawatt hour, a quarterly increase of CNY 68.41 per megawatt hour equivalent to 18.22%. In terms of the biomass sector, we scaled a unit fuel cost on average of CNY 372.32 per megawatt hour, a quarterly increase of CNY 89.6 per megawatt hour equivalent to 31.69%.

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

[Foreign Language]

[Interpreted] I do have 3 questions. My first question goes to the electricity long-term contract signed. How many electricity long-term contracts signed in of the coal-fired units of the company? And how many long-term contracts were signed yearly? And as you mentioned that we have 84% of mid- and long-term coverage ratio and how many are signed yearly? And if we have a -- and what about the yearly contract coverage ratio by province, especially in [indiscernible] province and Jiangsu province? And my second question also goes to the Tuas Power and about the tariff mechanism of Tuas Power in Singapore. And what is the signing cycle for the long-term contract to the final users or end users in Singapore electricity market? And does the contract signed between the company and the end users was fixed by its profit margin or fixed tariff? And my third question goes to the net profit broken down by different energy types in the second quarter of the year.

[Foreign Language]

[Interpreted] In terms of the Tuas Power electricity selling contracts, we do not -- as the contracts were signed with those end users, so we do not have a fixed cycle of signing those contracts. But the signing price of the long-term contract has a mechanism that the price is highly connected with the electricity average price on the spot market. And we also use the gas long-term contract and financial tools to lock our profit margins as well. So in the year that the price on the Singapore electricity spot market is comparatively low, the gas fire -- the gas long-term contract is not that effective. So just in the -- only in the year that the spot market tariff is comparatively higher and just like the year of 2022 and year 2023, and that will ensure a higher profitability of the company.

[Foreign Language]

[Interpreted] And in terms of the long-term contract, medium and long-term contract with electricity for the coal-fired unit, we have signed a long-term contract about 128 billion kilowatt hour and the yearly contract about 58%.