First Gen Corp. is asking investors to look past the earnings drop and see a cleaner, more renewables-heavy company emerging from the sale of most of its gas business. The problem is that the transition is already consuming cash.
The Lopez-led power producer reported a 15.7% decline in consolidated net income to ₱5.45 billion in the first quarter, while net income attributable to parent shareholders fell 23.8% to ₱3.63 billion. Recurring net income attributable to the parent dropped 24.7% to ₱3.38 billion, underscoring that the decline was not merely an accounting quirk.
On the surface, the quarter had plenty for bulls to like. Revenue from electricity sales rose 32.2% to ₱15.34 billion, driven by stronger geothermal, wind and solar output under Energy Development Corp., as well as a strong quarter from the Pantabangan-Masiway hydro complex. EBITDA climbed to ₱7.64 billion from ₱6.45 billion a year earlier.
But underneath that growth, investors got a reminder that First Gen’s strategic repositioning is not free.
Costs rose faster than sales. Cost of electricity sales jumped 46.5% to ₱7.86 billion, while general and administrative expenses rose 45.7% to ₱2.57 billion. That left operating income up only 9.6%, far below the pace of revenue growth.
The result: margin compression was noticeable. First Gen is selling more power, but each peso of revenue is being squeezed by heavier drilling, workover activity, transmission and distribution costs, depreciation from newly completed projects, higher staff costs after the gas sale, and added costs from Pi Energy.
The bigger concern may be cash. First Gen’s free cash flow turned sharply negative at-₱9.61 billion, compared with the positive free cash flow of ₱1.15 billion a year earlier. Net cash from operations fell to ₱5.32 billion from ₱11.11 billion, while investing cash outflow widened to ₱15.25 billion, partly due to the company’s investment in associates.
Cash and cash equivalents fell 43.8% to ₱32.31 billion from ₱57.51 billion at end-2025, as First Gen used funds for future stock subscriptions tied to acquisitions and growth projects, as well as loan prepayments at the parent and FRLC.
That matters for shareholders because First Gen declared no dividends during the first quarter of 2026, after paying regular common dividends of ₱0.40 per share twice in 2025. If free cash flow remains negative, the company may have less room to maintain generous cash returns while funding its growth pipeline.
That could ripple up the Lopez holding-company chain. First Philippine Holdings owns 67.84% of First Gen’s common shares and 100% of its voting preferred shares, while Lopez Holdings owns 55.66% of FPH; Lopez Inc. is identified as First Gen’s ultimate parent. A tighter dividend stance at First Gen would mean less cash upstreamed to FPH, and ultimately less financial flexibility for Lopez Holdings and Lopez Inc.
First Gen’s quarter was also complicated by the new shape of the company after the sale of a 60% stake in its gas business to Prime Infra, effective November 2025. The gas business now appears as an equity-method investment rather than a consolidated operation. First Gen recognized ₱1.45 billion in equity earnings from the gas business in the first quarter, down 60.9% from the prior-year contribution of ₱3.72 billion from discontinued operations.
That decline is structural, not cyclical. First Gen now keeps only 40% of the gas economics, meaning the former gas cash-flow engine will be less visible — and less directly available — to the listed parent.
The company’s remaining platforms were mixed.
EDC was the standout. Its electricity revenues rose 33.6% to ₱14.76 billion, helped by higher WESM and contract prices, higher sales volume, insurance proceeds and the start of commercial operations of battery energy storage systems. EDC’s net income rose 23.5% to ₱3.66 billion.
FG Hydro also delivered. Pantabangan-Masiway revenue climbed 34.6% to ₱1.26 billion, helped by higher starting water elevation, higher generation of 190.7 GWh versus 152.2 GWh, more sales to WESM and PSAs, and greater reserve-market capacity. Net income rose 44.6% to ₱809.7 million.
But FRLC, the operator of Casecnan, was a clear drag. Revenue fell 35.9% to ₱344.5 million as generation dropped to 50.7 GWh from 105.2 GWh because of lower water inflows. FRLC swung to a ₱280.3 million net loss from ₱241.8 million profit a year earlier, hit by weaker operating income, interest expense before loan prepayment and a debt issuance cost write-off.
The company’s liquidity ratios also weakened. The current ratio slipped to 1.99x from 2.52x, while the quick ratio fell to 1.17x from 1.65x. While those figures do not point to immediate distress, the direction is less comfortable for a company entering a heavier capital-spending phase.
And that capital phase is significant. First Gen, through FG Aqua Power, acquired a 33% stake in Prime Infra’s pumped-storage hydro portfolio, which includes the 1,400-MW Pakil project in Laguna and the 600-MW Wawa project in Rizal. It paid ₱16.5 billion upfront and still has a remaining ₱45.38 billion subscription payable through 2029.
That bet could be strategically powerful. Pumped storage is likely to become more valuable as the Philippine grid absorbs more intermittent solar and wind capacity. But for now, it represents a large cash claim before the assets generate earnings.
First Gen is also still exposed to merchant-price volatility. The company said uncontracted capacity could significantly affect financial performance if spot prices turn unfavorable, with WESM prices driven by supply-demand conditions, outages, weather, transmission constraints, and fuel prices. Its installed capacity was 63% contracted as of March 31, 2026, up from 57% at end-2025, but still leaving meaningful exposure to market swings.
For investors, the first-quarter report tells two stories at once.
The optimistic version is that First Gen is becoming a cleaner, more strategically relevant power company: less gas-heavy, more exposed to geothermal, hydro, batteries, solar, energy solutions and eventually pumped storage. EDC is performing well, FG Hydro had a strong quarter, and interest-bearing debt-to-equity improved to 0.44x from 0.52x.
The cautious version is that the pivot is expensive. Parent earnings are lower, cash flow has turned negative, liquidity has weakened, Casecnan is underperforming, and the company has taken on a large pumped-storage commitment just as dividends may need to compete with capital allocation priorities.
First Gen’s shares may therefore be valued less as a near-term dividend story and more as a long-duration infrastructure transition play. That may appeal to investors willing to wait for storage and renewable assets to mature. But for income-focused holders — and for the Lopez entities relying on upstreamed cash — the first quarter carried a clear message: the green pivot may require patience, and possibly a leaner dividend stream.
We’ve been blogging for free. If you enjoy our content, consider supporting us!
Disclaimer: This is for informational purposes and is not investment advice. Figures are taken from company disclosures and exchange data; valuation ratios include the author’s calculations based on cited inputs.
Comments
Post a Comment