Does SGP Really Need Maharlika?

When Maharlika Investment Corporation (MIC) decided not to proceed with its proposed investment in Synergy Grid & Development Phils. Inc. (SGP), it raised an interesting question about the financial strength of the company that indirectly controls the country’s electricity transmission network.

Does SGP really need Maharlika’s money?

Based on its latest financial statements, SGP has substantial earnings, a growing equity base and an established ability to raise financing. It has also continued to distribute dividends to shareholders despite the uncertainty surrounding the proposed investment.

However, a closer examination reveals that much of its recent earnings growth came from regulatory adjustments rather than ordinary transmission revenue.

What happened to the Maharlika investment?

In January 2025, SGP announced a proposed transaction that would allow MIC to acquire approximately 20 percent of the company through convertible preferred shares.

The proposed investment would have entitled MIC to elect two of SGP’s nine directors.

SGP indirectly controls National Grid Corporation of the Philippines (NGCP), the private concessionaire responsible for operating the national electricity transmission system.

The proposed transaction remained subject to due diligence, definitive agreements and regulatory approvals.

SGP also disclosed the transaction in its 2025 audited financial statements.

Under Note 17 on equity, the company acknowledged that MIC would subscribe to convertible preferred shares representing approximately 20 percent of its equity.

However, the financial statements did not disclose the final subscription price, conversion terms or preferred dividend rights.

The disclosure simply stated that there had been no further developments regarding the transaction.

On October 30, 2026, SGP announced that MIC had decided not to proceed with the investment for the time being because of its current strategic direction.

The company said the decision would not affect its capital structure, financial position or operations.

The statement suggests that management does not consider Maharlika’s investment essential to the company’s immediate financial requirements.

But do the financial statements support that assessment?

SGP’s profits have increased dramatically

SGP reported net income attributable to shareholders of ₱20.16 billion in 2025, compared with ₱7.88 billion in 2024. This represented an increase of approximately 156 percent.

Earnings per share consequently increased from ₱1.50 to ₱3.83. The strong performance continued during the first six months of 2026.

SGP reported net income attributable to shareholders of ₱23.69 billion, compared with ₱9.72 billion during the same period last year.

Earnings per share increased from ₱1.85 to ₱4.50. These results suggest that SGP has substantial earning capacity even without Maharlika’s proposed capital infusion. However, the composition of those earnings deserves closer examination.

How much of SGP’s earnings is sustainable?

SGP’s revenue is closely linked to the regulatory framework governing NGCP’s transmission business.

Under this framework, the Energy Regulatory Commission determines the revenues that NGCP may recover from electricity consumers.

When actual collections differ from the amounts allowed under the regulatory framework, adjustments may arise.

In 2025, SGP recognized approximately ₱25.57 billion in regulatory true-up revenue. The adjustments contributed substantially to the company’s reported earnings growth. The effect became even more pronounced during the first half of 2026.

Transmission services revenue increased by approximately 6 percent, from ₱38.84 billion to ₱41.17 billion. However, SGP also recognized ₱31.50 billion in regulatory true-up revenue.

As a result, reported operating revenue increased from ₱39.61 billion to ₱73.43 billion, equivalent to growth of approximately 85 percent. The regulatory adjustment accounted for approximately 93 percent of the increase in reported operating revenue.

Regulatory adjustments represent amounts recognized under the applicable regulatory framework. They are not necessarily extraordinary gains without economic value.

However, their recognition does not automatically mean that the company has already collected the corresponding cash. The regulatory recoveries also relate to different periods.

NGCP’s fourth regulatory period covered 2016 to 2022, while its fifth regulatory period covers 2023 to 2027.

The approved recovery of under-collected revenues from the fourth regulatory period is expected to extend over approximately seven years from August 2025. This means that some of the regulatory revenue recognized in SGP’s financial statements will be collected over several years.

For investors, we need to know how much of these revenues will translate into cash and how they will affect the company’s future profitability.

SGP has substantial assets, but debt continues to increase

As of June 30, 2026, SGP reported consolidated assets of ₱637.77 billion, compared with ₱576.28 billion at the end of 2025.

Total consolidated equity increased from ₱204.98 billion to ₱250.52 billion. Of this amount, ₱145.30 billion was attributable to SGP shareholders.

However, the company’s interest-bearing loans also increased from ₱249.60 billion at the end of 2025 to ₱272.94 billion in June 2026. This represented an increase of ₱23.34 billion in six months.

Cash and cash equivalents amounted to approximately ₱8.99 billion. The substantial debt reflects the capital-intensive nature of the transmission business.

NGCP must continually invest in transmission lines, substations and other infrastructure to maintain and expand the national grid.

In 2025, SGP’s consolidated group spent approximately ₱53.49 billion on capital expenditures and additions to property and equipment. These expenditures exceeded operating cash flow of approximately ₱40.22 billion.

The difference meant that the company required additional financing to support its investment program. This explains why debt continued to increase despite the improvement in reported earnings.

Nevertheless, SGP’s ability to raise financing and maintain its operations suggests that Maharlika’s investment was not indispensable to its existing business.

Can SGP sustain its dividends?

SGP has also continued to distribute cash dividends to shareholders. The company declared dividends of ₱0.3474 per share in September and November 2025, followed by another ₱0.3474 per share in March and June 2026.

At this rate, four distributions would amount to ₱1.3896 per share.

Based on SGP’s October 29 market price of ₱25.50, this would represent an annualized dividend yield of approximately 5.45 percent.

However, the annualized yield assumes that the company will continue to declare four distributions at the same rate. Future dividends are not guaranteed.

The dividend payments also depend on the amount of cash received by the listed company from NGCP and its intermediate holding companies.

Although SGP consolidates NGCP’s financial statements, its effective economic interest in NGCP through its subsidiaries is approximately 40.2 percent.

Is SGP creating value for shareholders?

SGP’s reported profitability improved considerably in 2025.

Based on its net income attributable to shareholders of ₱20.16 billion and average shareholders’ equity of approximately ₱115.26 billion, the company generated a return on equity of approximately 17.49 percent.

This compares with an estimated ROE of 7.6 percent in 2024. However, profitability alone does not necessarily mean that a company creates shareholder value.

A company must earn more than the minimum return investors require to compensate them for the risks of owning its shares.

To estimate SGP’s required return, we can use the Capital Asset Pricing Model.

The model combines the risk-free interest rate with an equity risk premium adjusted for the company’s beta.

SGP has a beta of 0.53, which suggests that its share price has historically been less sensitive to broad market movements than the overall stock market.

Using the Philippine 10-year government bond yield of approximately 8.17 percent as of October 29, 2026, and an assumed Philippine equity risk premium of 6.69 percent, SGP’s required return can be estimated at approximately 11.72 percent.

In 2024, SGP generated an ROE of approximately 7.6 percent, below its estimated required return of 11.72 percent. Its value-added ROE was therefore negative by approximately 4.1 percentage points.

This means that although SGP was profitable, it did not earn enough to compensate shareholders for their required return.

However, in 2025, SGP’s ROE increased to approximately 17.49 percent. Its value-added ROE consequently became positive at approximately 5.77 percentage points.

Based on reported earnings, SGP generated returns above its estimated cost of equity.

How much is SGP really worth?

At its October 29 closing price of ₱25.50, SGP had a market capitalization of approximately ₱134.28 billion.

Based on its latest trailing earnings of approximately ₱34.13 billion attributable to shareholders, the stock traded at only 3.9 times earnings, which is roughly half the market average of 9 times.

As of June 2026, SGP reported equity attributable to shareholders of ₱145.30 billion. Dividing this amount by its approximately 5.266 billion outstanding shares produces a book value of ₱27.59 per share.

At ₱25.50, SGP traded at approximately 0.92 times book value. In other words, the market valued the company at about 8 percent below its book value per share.

To estimate the company’s intrinsic value, we can compare its sustainable return on equity with the return required by shareholders.

Using the estimated required return of 11.72 percent, a company that consistently earns the same return on equity would theoretically be worth approximately its book value under a simplified residual income model.

For SGP, this would imply a value of approximately ₱27.59 per share.

However, if the company can sustainably earn a 14 percent ROE, its value-added ROE would become positive at 2.28 percentage points.

The implied price-to-book ratio would increase to approximately 1.19 times, equivalent to an estimated value of ₱32.96 per share.

This would represent potential upside of approximately 29 percent.

If SGP could sustain its actual 2025 ROE of 17.49 percent next year, the simplified model would indicate a value of approximately ₱41.17 per share.

What return is the market expecting?

We can also reverse the valuation model to estimate the sustainable return on equity implied by SGP’s current market price.

At ₱25.50, SGP trades at approximately 0.92 times its book value of ₱27.59.

Multiplying this price-to-book ratio by the estimated required return of 11.72 percent produces an implied sustainable ROE of approximately 10.83 percent.

This means that, under the simplified valuation model, SGP’s market price is consistent with a long-term return on equity of approximately 10.83 percent.

That is significantly below its reported 2025 ROE of 17.49 percent, but above its approximately 7.6 percent ROE in 2024.

The implication is that the market is not fully capitalizing SGP’s recent reported profitability.