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Asia-Pacific

Power transactions and trends | Q3 2017

Deal value decreases as renewables dominate

In Q3, the Asia-Pacific power and utilities (P&U) sector saw deal volume increase but value decline as activity is dominated by renewables.

Clean energy is now a primary focus for investors who are targeting acquisitions, partnerships and greenfield projects in both developed and developing markets. The quarter’s largest deal was in the Philippines – the US$1.3b acquisition of a 31.5% stake in the country’s largest geothermal energy producer, Energy Development Corporation.

EY - Infographic

Q3 2017 transactional highlights

  • Decline in value from network and “others” deals, with network transactions dropping from US$6.5b in Q2 to US$0.02b and value from “others” declining from US$4.7b to US$0.4b in Q3.
  • Renewables deal mix changes, as geothermal M&A contributes 39% of deal value.
  • China dominated thermal generation M&A, hosting three of the four deals in this segment with a total deal value of US$0.6b.
  • Water and wastewater deal value increases to US$297m in Q3 (from US$167m in Q2) with five of these six transactions being domestic corporate deals in China.

Asia-Pacific deal value and volume, by segment

(Announced asset and corporate-level deals, Q3 2015–Q3 2017)

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

Investment activity in Asia-Pacific by country, (Q3 2017)*

EY - Asia-Pacific investment flows inbound and outbound by country (Q3 2017)

Top five Asia-Pacific deals (Q3 2017)

All deals are announced deals, and the values indicated are disclosed enterprise values comprising equity and debt components.

EY - Top 5 Asia-Pacific deals, Q3 2017

Note: Percentages may not add to 100% due to rounding.

Source: EY analysis based on Mergermarket data

Valuations snapshots

A lack of large deals held valuations steady in Q3, recording an overall two-year forward EV/EBITDA (enterprise value by earnings before interest, tax, depreciation and amortization) multiple of 8.7x, a premium of 5% above the long-term average of 8.3x. The two-year forward price-to-earnings (P/E) ratio traded at a multiple of 12.8x in Q3, a 12% premium to the long-term average multiple of 11.4x.

  • T&D assets traded at a two-year forward EV/EBITDA ratio of 10.0x compared to a long-term average of 9.2x. The two-year forward P/E multiple traded at 18.1x, a 25% premium to the long-term average multiple of 14.5x.
  • Integrated utilities traded at a two-year forward EV/EBITDA ratio of 9.2x compared to the long-term average of 8.6x, a premium of 7%. The two-year forward P/E ratio for the segment traded at 12.5x, an 8% premium to the long-term average of 11.6x.
  • Generation assets traded at a two-year forward EV/EBITDA multiple of 7.5x. The two-year forward P/E multiple traded at 8.3x, a discount of 1.9% compared to Q2.
  • Renewable energy assets traded at a two-year forward EV/EBITDA ratio of 8.0x, a 14% premium to long-term averages. The two-year forward P/E multiple traded at 12.5x, declining 13.4% compared to Q2, but a premium of 21% to the long-term average of 10.3x.

 

Average EV/EBITDA trading multiples for select utilities

(On FY2 consensus earnings-per-share estimates, 2011–Q3 2017)

EY - On FY2 consensus earnings per share (EPS)  estimates, 2011–Q3 2017

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 estimates, 2011–Q3 2017)

EY - On FY2 consensus earnings per share (EPS)  estimates, 2011–Q3 2017

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

  • China increases renewables investment as the country plans 54.5 GW of large-scale solar projects and aims to power 20 cities by geothermal energy by 2020.
  • Renewables heat up in India, with several large projects underway, including Engie’s plans to acquire Equis Energy’s green energy assets and develop a further 2 GW renewable capacity by 2019.
  • More developing countries adopt clean energy, with Banpu, Thailand’s biggest coal company, investing in renewables across Cambodia, Laos, Vietnam and Myanmar.
  • Nuclear consolidation in China, as the country’s two state nuclear developers merge into one brand. China plans to increase total nuclear capacity to as much as 200 GW by 2030.
  • Outbound investment will increase as Chinese utilities make overseas acquisitions.

EY Asia-Pacific Transaction Advisory Services (TAS) P&U contacts

Matt Rennie
Global TAS P&U Leader
Brisbane, Australia
+61 7 3011 3239

Nick Cardno
Oceania TAS P&U Leader
Sydney, Australia
+61 2 9248 4817

Gilles Pascual
ASEAN TAS P&U Leader
Singapore
+65 6309 6208

Alex Zhu
Greater China TAS P&U Leader
Beijing, China
+86 10 5815 3891

Somesh Kumar
India TAS P&U Leader
New Delhi, India
+91 11 6671 8270

Peter Wesp
Japan TAS P&U Leader
Tokyo, Japan
+81 3 4582 6400

Bum Choong Kim
Korea TAS P&U Leader
Seoul, Korea
+82 2 3787 4107