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6165金沙发电股份有限公司

Investor Relations

Investors Q&A in teleconference for announcement of results of 1st quarter 2016

Question: Hello, management. I am from Citibank. I have three questions. The first one is concerned with the electricity price. How much was the average on-grid price of your company in the 1st quarter of this year and what changes are there compared with last year on year-on-year basis? What was the benchmark electricity price of thermal power in the 1st quarter and what changes are there compared with last year?

The second question, what was the proportion of sales of direct-supplied power to total sales in the 1st quarter of this year? At what discount does your company sell the grid purchase price and benchmark electricity price of direct-supplied power?

My third question is about utilization hours. I notice that the utilization hours of your company in the 1st quarter fell much more than the national average level. In addition to the geographical location the company's power plant, are there any special reasons?

Answer: The average on-grid price in the 1st quarter was RMB383.43/MWh, and it was RMB420.73/MWh in the corresponding period of last year, a year-on-year decrease of RMB37.3/MWh. And this is the average electricity price.

The average electricity price of thermal power was RMB386.13/MWh in the 1st quarter, and RMB424.39/MWh in the corresponding period of last year, a decrease of RMB38.26/MWh on year-on-year basis.

Answer: With regard to your third question, low power generation in the 1st quarter is mainly influenced by regional structure. The proportion of the company's heating units in local regions is low, for example, the proportion of heating unit capacity in Beijing-Tianjin-Tangshan power grid is relatively low.

As the commissioning of Unit 2 in Fuzhou has been basically completed, and then two units will be put into production, the "catch-up" situation of power generation will get better. Moreover, Fujian has heavy rainfalls this year, thus occupying the development space of thermal power.

With the end of the season of heat supply, the company's power generation shows an apparent catch-up tendency. There should be no problem about fulfilling the power generation plan.

Answer: I would like to add that the difference in our heating units in Beijing-Tianjin-Tangshan area is great. The proportion of heating unit capacity in Beijing-Tianjin-Tangshan power grid reaches 40% averagely, while our proportion is only more than 20%.

Half of thermal power units of the company are located in Beijing-Tianjin-Tangshan area. Due to the power supply demand in winters, the power generation volume of heating units is large and that of other units is small. Therefore, the influence of geographical location is not small in the least.

Answer: The total direct-supplied power settled in the 1st quarter was 2.069 billion kWh, accounting for approximately 5.7% of the gross power generation of 35.9 billion kWh in the 1st quarter. The price of direct-supplied power is cut by RMB 0.07 or 0.08/kWh averagely.

Question: Compared with the percentage of decline in local electricity price, what is the rough percentage of decline?

Answer: Roughly 20%.

Question: A few days ago, National Energy Administration issued a notice about coal-fired units undertaking the quota of non-hydro renewable energy power generation. What is your opinion on this notice? If this notice turns into a regulation, what measures will you take to meet the requirement on the percentage of 15%? Will your company achieve it by building new units or by purchasing the Green Certificate?

Besides, the subject of assessment will be the Group company or the listed company?

Answer: After this document is released, our company has studies its content conscientiously. We believe it conforms to the company's overall strategic development in the "Twelfth Five-year Plan" period. The company has been vigorously developing the renewable energy, which was planned in the "Twelfth Five-year Plan" period.

However, so far the proportion of installed capacity of non-hydro renewable energy has not met the requirements in related policies introduced by the State. According the requirement of issued documents, the average level should reach 9% by 2020. In the exposure draft issued a few days ago, reaching 15% is required. Currently, based on the level of power generation, we haven't met the requirements, whether 9% or 15%.

Our next work will focus on increase of the proportion of non-hydro renewable energy of our company, especially the onshore wind power. We will vigorously develop the wind field featuring low wind speed and large blades, advance a batch of offshore wind power on grid in southeastern coastal areas with all strength and increase the proportion of installed capacity of non-hydro renewable energy units.

Question: Are the existing renewable energy reserves sufficient to fulfill our most goals in due course?

Answer: The company's non-hydro renewable energy reserves during the "Thirtieth-Five Year Plan" period fail to meet the standard of transaction.

Question: If the company will purchase Green Certificate, has any rough accounting been conducted to calculate the possible expenditure?

Answer: According to the current work progress, the quota system is required to be fully implemented in 2017. At this stage we are checking the carbon emission target of all thermal power enterprises. After this, we can come to a conclusion.

Question: I am an analyst from Credit Suisse. I would like to ask your management some questions about direct-supplied power. I find that the proportion of direct-supplied power of listed company is small. Is this due to provincial arrangement? How much do you think the proportion can be increased according to the national trend and electricity reform scheme?

With regard to the electricity price, as there is a 20% discount now, will this discount be higher when the proportion of direct-supplied power become large and all power plants compete with low price for high pressure? I would like to know what electricity price the company can accept from the aspect of some power plants? Is it sufficient as long as the balance of cash flow is achieved or will the problem be considered only under the condition of definite profits since the direct-supplied power can’t be sold at a loss in future?

Answer: Indeed, the proportion of direct-supplied power for large consumers of the company is not large compared with other companies in the same trade, which is influenced by the region where the company is located. Each province promotes the level of direct-supplied power for large consumers with various efforts, so the proportions of different companies within the same region can be compared, while they are incomparable in different regions.

With regard to the price reduction range of direct-supplied power, we follow the principles below. Firstly, profits must be made in reduction of electricity price for large consumers. If no profit can be made, the company may not participate in the price reduction. Secondly, the promotion policies of each province are phased step by step.

The range of price reduction has reflected the competition among power generation companies and the competition is likely to become increasingly fierce in future. However, at present reason is exhibited. The reason is reflected in the price as the range of price reduction is not large and it is showed by the quantity which guarantees that each company can obtain the proportion of capacity on their power grid.

Question: We know that the reason is built on the basis of making profits. The profit you mentioned is cash earning or book profit? Is depreciation considered?

Answer: It also depends on region and varies from region to region. In the regions where completion is fierce, the profit may be marginal profit. We will endeavor to generate the electricity and make profits. In the regions where completion is not fierce, total cost may be considered.

Question: I have three questions. First, is there any schedule about the coal chemical business restructuring? How much were the net profits of Duolun Company, Keqi Company, Fuxin Company, Hulunbuir Fertilizer Company, Xilinhot Mining Company and Xilinhot Lignite Comprehensive Development Company that will strip assets respectively in the 1st quarter? And how much were they in the same period of last year?

The second question is about Ningde Nuclear Power Project. How much was the income from investment of Ningde Nuclear Power Project in the 1st quarter? We have noticed that the investment in on-grid electricity of Ningde Nuclear Power Project was 4.1 billion kWh in the 1st quarter, and it reached 5.2 billion kWh in the 4th quarter, a decrease of 1.1 billion kWh over the previous period. Does it mean that disuse of nuclear occurred in Ningde Nuclear Power Project? Will the future profit hours fall further? The announcement shows that Unit 4 began grid-connected power generation on March 29. Does it mean it began to make contribution to income and performance from March 29?

Third question, how much was the fuel unit cost per kWh in the 1st quarter of this year and 4th quarter of last year? How much is the fuel unit cost per quarter?

Another question, the net profit of minority shareholder was negative RMB200 million in the 1st quarter of this year which witnessed a year-on-year sharp fall. What reason is behind it?

Answer: We have signed a reconstructing framework agreement with Datang Group. According to the agreement, the assets within the scope of coal chemical business restructuring will be audited and assessed; afterwards, the reconstructing scheme will be developed and transfer agreement will be studied with Datang Group or the newly constructed platform company.

Datang Group has always paid attention to and actively supported the coal chemical business restructuring, so we believe new progress will be made within the year.

Answer: The coal chemical-related entities sustained loss of profit of RMB200 million in the 1st quarter. The profit of Duolun Company was basically flat. Keqi Company suffered increase in loss as its loads were not put into operation fully. As a result, it had a deficit of RMB240 million. Due to drop in price, Hulunbuir Fertilizer Project suffered another loss of RMB20 million.

The fuel unit cost of thermal power units, with gas units included, was RMB126.49/t in the 1st quarter, a decrease of RMB34.67/t on year-on-year basis. If gas units are not included, the fuel unit cost was RMB103.97/t in the 1st quarter, a decrease of RMB43.51/t on year-on-year basis.

The share proportion of minority shareholder in non-power generation segment is relatively high, and the loss in this segment increased by RMB200 million on year-on-year basis, which is the reason why the net profit of minority shareholder was negative.

Question: Is it due to our low equity in power generation segment?

Answer: Our proportion of shares in power generation segment is high and hence can help us to make profits. Our proportion of shares in entities suffering losses is lower, but the share proportion of minority shareholder in these entities is high.

Question: For the six companies that intend to strip assets in coal chemical business restructuring, how much were their net profits in the 1st quarter of this year? Could you tell us the specific amount?

Answer: The accumulative profits of energy and chemical segment including Keqi Company, Hulunbuir Fertilizer Company and Xilinhot Mining Company totals negative RMB1.2 billion, a decrease of RMB300 million on year-on-year basis. The profits of enterprises in non-power generation segment, such as Baoli Coal Mine, Renewable Resources and Jiangsu Shipping, are basically the same with that of last year.

Question: The drop in profits of this year mainly incurred in coal chemical segment. Does the pre-tax profits of coal generation segment increase or decrease?

Answer: In the 1st quarter, the profits of coal generation segment decreased by nearly RMB400 million compared with that of last year, as RMB2.31 billon was gained in this year while RMB2.7 billion was gained last year.

Question: Could you tell us the income from investment of Ningde Nuclear Power Project in the 1st quarter? We have noticed that the on-grid electricity of Ningde Nuclear Power Project was 4.1 billion kWh in the 1st quarter, and it reached 5.2 billion kWh in the 4th quarter, a decrease of 1 billion kWh over the previous period. Does it mean that disuse of nuclear occurred in Ningde Nuclear Power Project? Will the future profit hours fall further?

We also know that the announcement made by CGN (China General Nuclear Power Group) shows Unit 4 of Ningde Nuclear Power Project began grid-connected power generation on March 29. Does it mean it begun to make contribution and performance from March 29?

Answer: The income from investment of Ningde Nuclear Power Project increases by nearly RMB60 million on year-on-year basis, and this is our recognition of income from investment.

Question: How much is it now?

Answer: It should be RMB240 million, and this is income from investment.

Answer: The on-grid electricity of Ningde Nuclear Power Project in the 1st quarter was approximately 4.1 billion kWh and specifically 4.141 billion kWh. Because the 1st quarter covers the Spring Festival, the total electricity consumption fell around the Spring Festival, especially Fujian power gird. To meet the requirements of the power grid, Ningde Nuclear Power Project has put three units into commercial operation, and some units have been subjected to load shedding and shutdown for standby application, thereby making negative effects on power generation volume.

Answer: This is not directly related with disuse of nuclear you mentioned just now. It is caused by decline in overall demand for electricity as all utilization ratios are falling.

Answer: This year Fujian also experienced special circumstances. Under the influence of El Nino and anti El Nino, there were heavy rainfalls from the second half of last year till the first half of this year. Consequently, the utilization hours of Fujian were affected and profit hours of thermal power units decreased dramatically, so nuclear power was affected to certain degree. Therefore, we do not intend to disuse nuclear power, and it was caused by large amount of hydroelectric power.

Answer: In the above-mentioned rainy season, both its long duration and great intensity of rain affected the thermal power generation and nuclear power generation in Fujian. Besides, Unit 4 of Ningde Nuclear Power Project began grid-connected power generation on 23:00, March 29. However, grid connection is not commercial operation. Unit 4 will be subjected to a series of tests after grid connection to verify its safety functions. Official commercial operation is scheduled for second half of this year.

Question: How much was the fuel unit cost per kWh in the 4th quarter of last year?

My second question is about direct-supplied power. Since it was discounted by RMB0.076 in the 1st quarter and around RMB0.03 last year, and the discount of this year has been greatly increased, will the future direct-supplied power be discounted future? What is your prospect for power consumption and discount of direct-supplied power?

Answer: As mentioned before, the direct-supplied power was discounted by RMB0.076. Actually, the electricity quantity settled in the last quarter is 2 billion kWh and so far the total electricity quantity under the contract for direct power supply has reached 9.1 billion kWh. Because the transaction of direct-supplied power was not balanced in the 1st quarter, the electricity price is discounted by RMB0.0218 actually based on the 9.1 billion kWh under the contract. However, the quantity under the contract of the 1st quarter does not mean that all power has been supplied. With more balanced advance of related work, this quantity may increase further, and the price will be discounted more greatly compared with the RMB0.03 of last year.

Question: Does the 9.1 billion kWh you mentioned cover the whole year?

Answer: No, it is the electricity quantity of the 1st quarter for which the contract has been signed. We will sign other contracts in the 2nd quarter. But the electricity quantity under the contract of the 1st quarter will not necessarily be generated in the 1st quarter, and may be supplied later.

The fuel unit cost in the 4th quarter of last year was RMB140.26/mwh with gas units included, and was RMB107.08/mwh with gas units excluded. It differs because the power of gas units were mainly generated in the 1st and 4th quarters. The unit cost without gas units decreases by RMB3.11 over the previous period.

Question: The asset injection of parent company was planned to be launched before October, 2015. Since this date has expired, is there an updated asset injection schedule?

Answer: Last year, our company issued an accruement, stating that due to the scheduling of coal chemical business restructuring, the asset injection by substantial shareholders would be postponed till October, 2018. Recently, the company has signed a framework agreement with Datang Group on coal chemical business restructuring. We believe Datang Group will launch the asset injection plan after the coal chemical business restructuring scheme is finalized.

Question: As we know, at the end of March, electricity transaction centers had been established in Beijing, Guangzhou, Qinghai, Ningxia, Tianjin and other cities. Does your company plan to use such platform?

Recently, there is an upward trend in the price of coal. How do you think of the effects of rise in price of coal on electricity price, operating cost and the company's profitability? Because we have noticed that the comprehensive gross profit rate in the 1st quarter seems to be around 23.5%, lower than the 30% of the last year.

Answer: With regard to the electricity sales companies and transaction centers, after the release of document on power grid, No. 9 document and the following six supplementary documents, the corresponding transaction centers were established in some provinces across the country. Some electricity sales companies were also set up in some regions as transaction centers will definitely bring about the intervention of electricity sales companies. However, no electricity has been transacted throughout the country. A company in Chongqing may take actions earliest, but the progress is made slowly.

First of all, our company pays great attention to this problem, and has put more efforts in studying the policies since last year, and followed the instruction of related polices and detailed rules and regulations. Secondly, great efforts have been made to address this problem in an actively, reliably and cautiously manner at a company level, because after all electricity sales companies may produce great influences on the market and have complex relationship with many aspects, especially with the grid power. Currently, we are at the policy research and preparation stage in terms of this problem.

Answer: From the end of last year to January and February of this year, the price of coal rose slightly. At present, the rise is slight and will maintain stable in later period. For the later trend of coal price, from the aspect of the overall environment where the State endeavors to address overcapacity and deleverage, the possibility of slight rise of coal price may exist. But there may be no room for drop in price. Therefore, viewed from the years' trend, the price of coal will basically maintain the level at the beginning of this year and is expected not to fluctuate wildly.

The company's profitability of the 1st quarter is mainly affected by the low staged power generation volume. With regard to the staged power generation volume, Datang International has its own characteristics and some particularities compared with other companies. But we believe the profitability will get into normal condition in the subsequent months and in the next half year. The electricity price of last year that was decreased by RMB0.03 influences our profitability of this year most. In the annual result presentation last time, we also mentioned that the approximate decrease may involve RMB3 billion. The fall of coal price also affects us greatly, because the coal price of last year is RMB380, and may decrease by over 10% by the end of this year, which is favorable to us.

Question: Could you explain the particularities compared with other companies? What are the particularities?

Answer: First, in Beijing-Tangshan area, the heating unit capacity accounts for nearly 50% of that of half of thermal power units. Therefore, we have no advantage in the proportion of heating units in Beijing-Tangshan area. As a result, we have less volume of power generation in the heating season, especially in January and February. Second, periodic climate changes often occur in individual areas. For example, the rainfalls in Fujian also have resulted in low power generation volume of thermal power units.

Question: I would like to ask a question about the installed capacity planning. Given that the State is strictly controlling the installed capacity of coal unit, your company also plans to add non-hydro renewable energy units. So I want to know the installed capacity planning of wind energy units for the next three years till 2018, the corresponding capital expenditure of each year and something about the wind segment. This is my first question.

Second, what is the approximate average interest cost estimated by the company in the 1st quarter? To what level does the company expect to fall until the 4th quarter of this year?

My third question is concerned with the respective guidance on annual total output of Duolun Company and Keqi Company.

Answer: Our capital cost of the 1st quarter averages 4.6%. We issued super short-term financing bonds twice in the 1st quarter at an average interest rate of 2.9%. If the national interest rate does not fall further, we will strive to reduce the capital cost by about 0.2% by adjusting the debt structure.

As for the output of Duolun and Keqi companies, they failed to complete the planned output satisfactorily, which, however, may be attributed to some objective factors. The annual output of Duolun Company should be 300000 tons and Keqi Company should strive to fulfill the goal of 1 billion standard cubic meters.

Question: Could you tell us something about the installed capacity planning and capital expenditure?

Answer: We are working on preparation of the "Thirteenth Five-year" strategic developing plan which may be issued at the end of the year. After the issuance, the specific figures will be published as soon as possible. The current company strategy follows the basic development thought of "Twelfth Five-year Plan", while we will make some adjustment in the "Thirteenth Five-year Plan" period by following up the newly published policies and documents, especially the documents concerning the non-hydro renewable energy that are intensively issued recently. So we will quicken our pace on development and construction of non-hydro renewable energy in the

Question: Is the installed capacity planning of this year 1600 MW for thermal power units? How much is the capital expenditure of this year for 100 to 200 MW wind power and photovoltaic power units? Is there guidance on divided segment?

Answer: We plan to make an investment of about RMB20 billion. Currently, the completion rate of investment was 10% in the 1st quarter. In the matter of investment, Datang adheres to the principle of strict control over investment. Moreover, the completion rate of investment in some projects is low and construction is inadvisable in severe cold area in winter, otherwise, project quality may be affected. Many projects were not constructed in winter, so we do not put too much money.

Question: Is there guidance on divided segment?

Answer: As of the end of 1st quarter, in the annual capital expenditure plan, the capital expenditure of coal units is RMB6.4 billion, that of gas units is RMB300 million, that of hydropower units is RMB7.4 billion, that of wind power and photovoltaic power units is RMB1.8 billion and others is RMB2 to 3 billion.

Answer: I would like to add another question. At the beginning of the teleconference, someone asked about the 15% related to non-hydro renewable energy. If this percentage is adopted and used as an indicator for assessing Datang's power generation, will it affect the plan of thermal power asset injection?

Answer: Thank you for your question, and it will arouse our thinking. In fact, we are thinking about it. Thermal power asset injection is an important matter for us in the future period of time. We also think that there must be some problem for a simple thermal power group in surviving on market. Therefore, in development of "Thirteenth Five-year Plan", we also do a lot of work on arrangement and planning of new energy development in addition to consideration of thermal power asset injection. With the injection of thermal power assets, our unit structure will be affected. Since the planning is arranged, we will particularly consider this question. So I can’t answer this question adequately for the time being.

Editor:支春明    Source:6165金沙证券与资本运营部

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