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Asia-Pacific

Power transactions and trends | Q2 2017

Technology and new energy deals play a bigger role

The Asia-Pacific power and utilities (P&U) sector recorded Q2’s highest regional deal value — US$13.5b — as well as the highest average deal size — US$384m.

More than half of the region’s transactions were in renewable energy, highlighting the growing interest in these assets due to strong policy support and their ability to deliver certainty of returns through long-term contracts or Power Purchase Agreements (PPAs).

As renewables become a bigger part of the energy mix, ensuring the reliability of electricity supply becomes more important. There is an increasing focus in the region, particularly Australia, on investment in gas-fired generation and battery technology aimed at balancing the frequency and voltage stability of the grid. Questions are being raised around the future of peaking power, a concept Matt Rennie discusses in more detail here.

EY - Infographic

Q2 2017 transactional highlights

  • Increased deals in renewables, as 20 deals contributed US$2b – a rise in both volume and value.
  • Largest deal in T&D - the acquisition of a 50.4% stake in Endeavour Energy for US$5.6b by a consortium led by Macquarie Infrastructure Group.
  • Emerging “other” utilities segment, with investors acquiring US$4.7b of these assets.
  • M&A in fossil fuel generation assets driven by developing countries, particularly China, the Philippines and Indonesia.

Asia-Pacific deal value and volume, by segment (Q2 2015–Q2 2017)

(asset and corporate-level deals)

EY - Asia-Pacific deal value and volume, by segment

Source: EY analysis based on Mergermarket data.

Asia-Pacific investment flows inbound and outbound by location (Q2 2017)

EY - Asia-Pacific investment flows inbound and outbound by country  (Q2 2017)

* Note: percentages may not add up to 100% due to rounding.

Top five Asia-Pacific deals (Q2 2017)

All deal values indicated are disclosed enterprise values comprising equity and debt components.

EY - Top 5 Asia-Pacific deals - Q2 2017

Source: EY analysis based on Mergermarket data.

Valuations snapshot

Overall, the Asia-Pacific P&U sector traded at a two-year forward EV/EBITDA (enterprise value by earnings before interest, tax, depreciation and amortization) average of 8.5x, in line with Q1 and slightly above the long-term average of 8.3x. The two-year forward pricing-to-earnings (P/E) multiples increased 6.1% to 12.9x from Q1, driven by positive sentiment around the value of renewable energy assets.

  • T&D assets traded at a two-year forward EV/EBITDA of 9.6x, compared to a long-term average of 9.2x. Two-year forward P/E values increased from 16.7x in Q1 to 17.3x in Q2, a 20% premium compared to the long-term average of 14x.
  • Renewable energy assets traded at a two-year forward EV/EBITDA average of 8.4x, compared to a long-term average of 7x, a premium of 20%. The P/E ratio increased 13% compared to long-term averages, trading at a two-year forward P/E multiple of 12.4x.
  • Integrated utilities traded at a two-year forward EV/EBITDA average of 8.3x in Q2 (up from 8.1x in Q1), a slight discount to the long-term average of 8.6x. The two-year forward P/E average increased 6.1% to 12.2x and is now trading at a 6% premium to the long-term average of 6x. There were no deals in the Asia-Pacific segment in the first half of 2017.
  • IPP assets traded at a two-year forward EV/EBITDA ratio of 7.8x, compared to a long-term average of 8.2x. The two-year forward P/E ratio dropped 10.2% to 7.7x, trading at a 13% discount to the long-term average of 8.9x.

 

Average EV/EBITDA trading multiples for select utilities

(On FY2 consensus earnings-per-share (EPS) estimates, 2010–Q2 2017)

EY - Average EV-EBITDA trading multiples for select utilities

Note: The valuations analysis only contains pure-play publicly listed companies in each relevant market segment.

Sources: Bloomberg and EY analysis.

Average P/E trading multiples for select utilities

(On FY2 consensus earnings-per-share (EPS) estimates, 2011–Q2 2017)

EY - Average P-E trading multiples for select utilities

Note: The valuations analysis only contains pure-play publicly listed companies in each relevant market segment.

Sources: Bloomberg and EY analysis.

M&A capital outlook and investment hotspots

  • Increased investment ensuring reliability in Australia, including plans by Tesla and Neoen to build 100 MW/129 MWH of battery storage capacity.
  • Coal generation loses its appeal in China as the government scraps plans to develop new capacity.
  • India emerges as an attractive investment destination, boosted by government support and ambitious plans for new solar capacity.
  • Continued interest in renewables across the region, with significant solar and wind projects announced in Vietnam, Australia and China.

EY Global Transaction Advisory Services (TAS)
P&U contacts

Matt Rennie
Global TAS P&U Leader
Brisbane, Australia
+61 7 3011 3239
matthew.rennie@au.ey.com

Nick Cardno
Oceania TAS P&U Leader
Sydney, Australia
+61 2 9248 4817
nick.cardno@au.ey.com

Gilles Pascual
ASEAN TAS P&U Leader
Singapore
+65 6309 6208
gilles.pascual@sg.ey.com

Alex Zhu
Greater China TAS P&U Leader
Beijing, China
+86 10 5815 3891
alex.zhu@cn.ey.com

Somesh Kumar
India TAS P&U Leader
New Delhi, India
+91 11 6671 8270
somesh.kumar@in.ey.com

Peter Wesp
Japan TAS P&U Leader
Tokyo, Japan
+81 3 4582 6400
peter.wesp@jp.ey.com

Bum Choong Kim
Korea TAS P&U Leader
Seoul, Korea
+82 2 3787 4107
bum-choong.kim@kr.ey.com