First Gen Corporation (FGEN.PS) is letting go of about 60% of its gas assets. On June 2, Filipino billionaire Enrique Razon signed a term sheet with First Gen for his infrastructure conglomerate Prime Infra to open a P50 billion tab for the acquisition.
First Gen of the Lopez family will retain a 40% stake in the gas business which lists four operating power plants: the 1,000-megawatt (MW) Santa Rita; 500-MW San Lorenzo; 450-MW San Gabriel, and 97-MW Avion plants. These plants all harness the power drawn from the Malampaya gas field operated by another Razon company, Prime Energy Resources Development B.V. The acquisition also covers the proposed 1,200-MW Santa Maria power plant and an interim offshore liquefied natural gas (LNG) terminal. The transaction still has to wait for the execution of definitive agreements and the completion of closing requirements.
Some sectors see the sale as the waning stranglehold of the Lopez family in the lucrative power business. Questions about the family’s bottomline are also being posed.
Does the family aim to generate cash, streamline operations, and potentially increase business value? Generally speaking, selling assets can provide immediate cash flow which is particularly helpful during times of financial strain. It also helps a company reduce its outstanding debt, thereby improving its financial stability.
What we gathered so far is that First Gen is reportedly seeking to boost its focus on renewable energy, using the proceeds from the sale to finance its renewable energy portfolio, while retaining minority stake in the gas business, ensuring continuity and stability of operations. It will also reportedly use the funds from the sale to invest in renewable energy projects.
While initially interpreted by market observers as a sign of confidence and validation from a savvy buyer, our in-depth investigation into the Lopez family’s group of publicly traded companies raises fundamental concerns.
I will not simply delve into whether the Lopez companies are “profitable” in an accounting sense. Are they earning a return that justifies the risk? Are they creating or destroying value? And, most importantly, are investors paying too much?
The Lopez empire, despite reporting billions in net income, is failing the single most important financial test: it is destroying shareholder value across the board.
Understanding Return on Equity (ROE)
In simple terms, ROE measures how efficiently a company uses investors’ money to generate profit. If you give a business ₱100, and it earns ₱12.40, that’s a 12.4% ROE. In the Philippines today, 12.4% is the required ROE — the “cost of equity” — reflecting the risk of investing in the market. Any ROE below this means investors are not being adequately compensated for the risk they are taking.
Let’s be clear: even if a company still reports profits, the problem arises when those profits fall below the cost of equity. Such companies are better off returning cash to shareholders than reinvesting. Otherwise, they destroy value with every peso retained.
Here’s a snapshot of the Lopez Group’s major listed companies for the trailing twelve months of business ending March 2025:
Even the highest ROE in the group — Rockwell’s 11.52% — falls short of the 12.4% cost of equity. In the case of ABS-CBN, the -277% ROE is not just alarming, it is existentially threatening. This is a company that is hemorrhaging cash, deeply unprofitable, and structurally impaired.
Despite surface-level earnings, the entire publicly traded Lopez portfolio is failing to produce sufficient returns to justify their valuations.
Overvaluation
At first glance, the Lopez Group’s publicly traded companies may appear to offer stability and future potential. However, doing the math — rooted in widely accepted methods like the Discounted Cash Flow (DCF) and earnings-based approaches — tells a very different story.
We revisited the numbers with the benefit of analyst-projected 2030 earnings, applying current and modest price-to-earnings (P/E) multiples and discounting the estimated future share prices back to today using appropriate equity discount rates which consider the company’s size, volatility, profitability, and country risk factors. The results are deeply alarming: relative to its economic fundamentals, each Lopez company remains significantly overvalued.
Let us break it down by company:
1. Lopez Holdings Corporation (LPZ)
- 2030 Projected Net Income: ₱11.63 billion
- P/E Ratio Applied: 1.92x
- Implied 2030 Market Cap: ₱22.33 billion
- Per Share Value (2030): ₱6.04
- Discount Rate: 19.21% annually
- Fair Value Today: ₱2.51
- Current Market Price: ₱3.70 (as of June 5, 2025)
- Overvaluation: Current market price is 47% above intrinsic value
Despite growing earnings in the future, LPZ’s extremely low terminal P/E multiple reflects the market’s discounted view of its role as a holding company with layered ownership. When discounted at an appropriate rate, today’s price far exceeds what investors should be willing to pay.
2. First Philippine Holdings Corporation (FPH)
- 2030 Projected Net Income: ₱24.00 billion
- P/E Ratio Applied: 1.99x
- Implied 2030 Market Cap: ₱47.75 billion
- Per Share Value (2030): ₱104.17
- Discount Rate: 17.48% annually
- Fair Value Today: ₱46.54
- Current Market Price: ₱65.10 (as of June 5, 2025)
- Overvaluation: Current market price is 40% above intrinsic value
Despite being the core operating arm with exposure to energy and infrastructure, FPH is failing to meet its cost of equity and is currently trading at a steep premium relative to its future earnings power. Investors are essentially betting on a turnaround that is not supported by current return metrics.
3. First Gen Corporation (FGEN)
- 2030 Projected Net Income: US$368.2 million
- P/E Ratio Applied: 4.73x
- Implied 2030 Market Cap: US$1.74 billion
- Per Share Value (2030): US$0.48
- Discount Rate: 15.12% annually
- Fair Value Today: US$0.24
- Fair Value in PHP (at 55.62 USD/PHP): ₱13.35
- Current Market Price: ₱18.64 (as of June 5, 2025)
- Overvaluation: Current market price is 40% above intrinsic value
Ironically, the company at the center of the Prime Infra transaction — FGEN — is also grossly overvalued. The gas business is just one part of FGEN, and the market seems to be attributing the transaction premium to the entire company, ignoring underperforming assets and legacy issues.
4. Rockwell Land Corporation (ROCK)
- 2030 Projected Net Income: ₱7.15 billion
- P/E Ratio Applied: 3.27x
- Implied 2030 Market Cap: ₱23.25 billion
- Per Share Value (2030): ₱3.82
- Discount Rate: 19.21% annually
- Fair Value Today: ₱1.59
- Current Market Price: ₱2.00 (as of June 5, 2025)
- Overvaluation: Current market price is 26% above intrinsic value
While Rockwell Land’s ROE is closest to the required cost of equity, its future earnings still fail to justify its current valuation. The company’s dependence on the cyclical and high-capex real estate sector makes its projected earnings particularly sensitive to macroeconomic shifts.
5. ABS-CBN Holdings (ABSP)
- 2030 Projected Net Income: ₱3.57 million
- P/E Ratio Applied: 14.77x
- Implied 2030 Market Cap: ₱52.75 million
- Per Share Value (2030): ₱0.78
- Discount Rate: 12.01% annually
- Fair Value Today: ₱0.44
- Current Market Price: ₱4.20 (as of June 5, 2025)
- Overvaluation: Current market price is ~855% above intrinsic value
ABS is not just overvalued; it is wildly mispriced. With persistent losses and a shattered business model, its fair value based on generous future assumptions is less than half a peso per share. The current market price is nearly nine times what the company is worth based on best-case forecasts. This is a speculative bubble disguised as a media turnaround story.
These are not isolated pricing errors — they form a pattern of structural overvaluation across the Lopez family’s entire publicly listed ecosystem. Despite billions in projected earnings by 2030, when adjusted for time and risk, none of these businesses justify their current valuations. Investors betting on price momentum or legacy prestige are doing so at the cost of reason.
The lesson here is simple: profits are not enough. What matters is how much capital you need to generate them; how long you must wait, and what return you’re earning in the meantime. On every front — efficiency, value creation, and risk-adjusted return — the Lopez businesses are falling short.
This isn’t a buying opportunity. It’s a warning.
What does the Prime Infra deal really mean?
On the surface, Prime Infra’s ₱50 billion investment may appear to validate the strategic importance of First Gen’s natural gas assets. But ask yourself: Why is Enrique Razon, one of the savviest capital allocators in the country, buying only the gas subsidiaries and not the parent company itself?
The answer is simple: he wants the good assets, without the baggage.
By carving out a controlling stake in a specific vertical, Razon gets operational control, cash flow, and strategic flexibility — without being exposed to the rest of the First Gen business, or the broader inefficiencies of the Lopez conglomerate.
This deal is not a vote of confidence in the Lopez empire. It is an exit ramp for them.
Financial drift
The Lopez family is one of the Philippines’ most storied business dynasties. But nostalgia is not a strategy. Across their listed businesses, a troubling pattern emerges:
- Low capital efficiency. Despite control of large asset bases, returns consistently fall below the hurdle rate.
- Bloated valuations. Share prices have decoupled from economic reality.
- Strategic missteps. ABS-CBN’s fall from broadcast dominance is a cautionary tale in poor regulatory navigation and media myopia.
- Hidden cross-holdings. Complexity in ownership structures — such as LPZ owning large stakes in FPH, which owns FGEN and ROCK — confuses investors and masks true value destruction.
We find that the Lopez Group’s listed companies are not only underperforming the market — they are systematically destroying value. The P50 billion Prime Infra deal is not a triumph, but a tell. It is a signal that smarter capital is cherry-picking the viable assets and leaving the rest behind.
Investors in Lopez Holdings (LPZ), First Philippine Holdings (FPH), First Gen (FGEN), Rockwell Land (ROCK), and especially ABS-CBN (ABS and ABSP) should ask themselves hard questions. These questions should not be just about whether these companies are profitable, but whether they are worthy of continued capital.
Because in the end, when companies consistently fail to earn their cost of capital, one truth remains: the market will eventually correct the mispricing. And when it does, those feeding the illusion will be the ones left holding the bag. – Rappler.com