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Is First Gen an Overlooked Power Play That Deserves a Re-Rating?

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  • Resolving gas supply issues ensures longevity
  • A pioneer in renewable energy should be future proof
  • Undemanding valuation could lead to re-rating

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First Gen’s revenue breakdown 2020

Price and volume turned bearish

  • Throughout the past year, the share price fluctuated around PHP30
    • Recently, the 50DMA has fallen below the 200DMA, suggesting a bearish signal
  • Volume RSI has fallen below the 50%-line; hence, not providing a support for a turnaround

Resolving gas supply issues ensures longevity

  • Natural gas is widely accepted as the transition fuel for the mid-term future
    • FGEN derives 58% of its revenue from gas
  • The main problem is that the country’s only gas field Malampaya is about to deplete over the next 3 years
    • Hence, the market raised huge concerns about the longevity and profitability of FGEN’s business to compensate for the lack of gas supply

FGEN substitutes domestic gas with imported LNG

  • FGEN currently constructs the country’s first liquefied natural gas (LNG) terminal with a capacity of 5.2m metric tons
    • The terminal allows to store imported LNG and turn it back to gaseous form to generate energy
  • So far, the construction progress is on track and the terminal could start operations by late 2022 already
    • By resolving the supply issue, FGEN dispels any doubts about its longevity

A pioneer in renewable energy should be future proof

  • For now, the Philippine gov’t still has a high tolerance for coal-fueled energy generation
    • Cheap coal is likely to remain the dominant fuel source in the near term
  • However, the gov’t rewards the usage of renewable sources through long-term contracts with favorable prices
    • Philippine energy companies are required to start green transition soon

Largest independent renewable power producer

  • It makes up 20% of the country’s total renewable energy capacity
    • The company runs indigenous renewable sources like geothermal, wind, and solar
  • Its early shift towards renewable energy gives the company a timing advantage
    • Therefore, I expect a stable and strong gross margin over the next few years

Undemanding valuation could lead to re-rating

  • The stock currently trades more than one standard deviation below its historical average on PB
  • FGEN regularly has beaten analysts’ forecasts in the past
    • With the LNG terminal, FGEN does not only solve supply issues, but might also sell excess LNG, creating additional revenue

Interest of institutional investor could provide support

  • In 2020, the US-based investment company KKR acquired a 12.6% stake in FGEN
  • In October 2021, KKR announced to acquire another 7.3% stake for PHP33 per share, which is a 20% premium to market price
    • I consider the follow-on investment of KKR as a positive signal that the share price could provide further upside

FVMR Scorecard – First Gen

  • A stock’s attractiveness relative to stocks in that country or region
  • Attractiveness is based on four elements
    • Fundamentals, Valuation, Momentum, and Risk (FVMR)
  • Scale from 1 (Best) to 10 (Worst)

Analysts see strong upside

  • Almost all analysts have a BUY recommendation, with only 1 analyst staying on HOLD
  • Consensus expects solid revenue growth for the future given the growing demand for energy
    • Also, margins are expected to stay stable at a high level, meaning that analysts are positive about the LNG substitution

Get financial statements and assumptions in the full report

P&L – First Gen

  • FGEN has delivered remarkably stable profits and there is no reason to assume differently in the future
    • Long-term take-off agreements ensure stable margins

Balance sheet – First Gen

  • Currently, there are no concrete expansion plans in place
    • I believe that FGEN might add a few smaller renewable energy projects over time but does not undergo aggressive acquisitions
  • Its strong cash flow generation allows FGEN to reduce its debt over time and fund CAPEX internally

Ratios – First Gen

  • FGEN paid out stable and growing dividends
    • The small payout ratio of less than 15% still delivers a dividend yield of around 3%, which is above Philippine average
    • There is potential to pay out more  and it could turn into a dividend play over the next few years
  • Strong margins translate into stable return on assets

Long-term share price performance potential

Free cash flow – First Gen

  • FGEN cash flows on a consistent basis and the market might not have appreciated that fact yet

Value estimate – First Gen

  • My short-term outlook is roughly in line with consensus
  • I am bit more optimistic on the long-term future and believe the company to maintain a great ROIC of 10-12% over time

World Class Benchmarking Scorecard – First Gen

  • Identifies a company’s competitive position relative to global peers
  • Combined, composite rank of profitability and growth, called “Profitable Growth”
  • Scale from 1 (Best) to 10 (Worst)

Key risk is delay in resolving gas supply

  • Delay in building the LNG terminal could disrupt its gas production
  • Unexpected outages of production (e.g., weather conditions, transmission constraints)
  • High dependency on Meralco, which makes up 50% of its revenue


  • FGEN to remain a cash flow machine as supply problem seems to be resolved
  • Early shift to green energy fives it a timing advantage in a coal-dominant country
  • Valuation is cheap; institutional interest could unlock upside

Download the full report as a PDF

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