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Asia-Pacific

Power transactions and trends | Q4 2017

How are new technologies growing energy investment in Asia-Pacific?

In 2017, Asia-Pacific was the only regional power and utilities (P&U) sector to record moderate growth. More investment in renewable energy and the technology that supports it is behind the boosted deal value.

EY - Asia-Pacific Infographic

Asia-Pacific deal value and volume, by segment
(announced asset and corporate-level deals, Q4 2015–Q4 2017)

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

Asia-Pacific deal value and volume, by segment
(announced asset and corporate-level deals, 2013–2017)

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

Source: EY analysis based on Mergermarket data.

Q4 2017 transactional highlights

Key figures:

  • 2017 deal value reached US$46.7b – a 14% increase from 2016
  • 74 renewables deals contributed US$13.5b – a 72% increase from 2016
  • 23 deals in transmission and distribution (T&D) made up US$20.1b
  • 38 deals in the “others” category (integrated utilities, technology, and water and wastewater companies) contributed US$11.5b
  • 18 deals in conventional generation recorded deal value of US$1.7b, the lowest in this segment of all regions

Read our full Asia-Pacific report here

Investment highlights in 2017:

  • Megadeals boosted T&D value, with most of 2017’s US$20.1b investment in these assets contributed by just three megadeals in the first half of the year.
  • Financial investors were dominant in renewable energy, outstripping corporate buyers for the first time in eight years.
  • Investment in generation fell to an eight-year low of US$1.7b.
  • New technologies attracted attention with investment increasing in battery storage capacity.

Asia-Pacific regional capital flows, 2017

EY - Asia-Pacific regional capital flows, 2017

Source: EY analysis based on Mergermarket data.

Top five Asia-Pacific deals, Q4 2017

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

EY - Top five Asia-Pacific deals, Q4 2017

Source: EY analysis based on Mergermarket data.

Valuations snapshot

Average EV/EBITDA trading multiples for select utilities

(on FY2 consensus earnings-per-share estimates, 2011-Q4 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, EY analysis

Average P/E trading multiples for select utilities

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

EY - Average P/E trading multiples for select utilities

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

Sources: Bloomberg, EY analysis

In 2017, valuations of P&U assets in Asia-Pacific remained steady. Overall, the sector traded at a two-year forward EV/EBITDA (enterprise value by earnings before interest, tax, depreciation and amortization) ratio of 8.8x in Q4, a 1.6% discount to Q3 but a 6% premium to long-term averages. The two-year forward P/E (price to earnings) ratio in Q4 was 12.8x, a 0.5% discount to Q3 but an 11% premium to long-term averages.

Q4 valuations:

T&D

  • Two-year forward EV/EBITDA ratio: 10x – no change from Q3, 9% premium to long-term average
  • Two-year forward P/E ratio: 18.1x – 4.3% premium to Q3, 25% premium to long-term average

What it means: Investors are paying a premium for these assets while earning expectations remain stable.

Integrated

  • Two-year forward EV/EBITDA ratio: 9.3x – 0.3% discount to Q3, 8% premium to long-term average
  • Two-year forward P/E ratio: 12.8x – 3.5% premium to Q3, 10% premium to long-term average

What it means: Investors remain bullish toward these assets, although little increase in earnings is expected in the medium term.

Renewable energy

  • Two-year forward EV/EBITDA ratio: 8.1x – 4% discount to Q3, 14% premium to long-term average
  • Two-year forward P/E ratio: 11.4x – 8.8% discount to Q3, 10% premium to long-term average

What it means: High valuations reflect continued demand for these assets, which contributed US$7b – 49% of total deal value – in Q4.

Independent power producers

  • Two-year forward EV/EBITDA ratio: 7.6x – 2.6% discount to Q3, 8% discount to long-term average
  • Two-year forward P/E ratio: 8.7x – 3.8% discount to Q3, 7% discount to long-term average

What it means: The EV/EBITDA figures indicate that analysts expect some earnings increases. However, the P/E ratio of 8.7% is a 31% discount to that of the overall sector, signaling the ongoing bearish sentiment of investors for these assets.

Is the end of coal the start of new, cleaner growth for the Asia-Pacific energy sector?

The Asia-Pacific sector is a study in contrasts. In 2018, while some countries pursuing full electrification will still invest in thermal generation, most are phasing out coal in favor of renewables. We are seeing the emergence of a dynamic investment environment in clean energy and the technology that supports it. Major trends in 2018 include the following:

  • Investment in renewables to gain pace: Solar and wind projects are increasing across the region as many governments, including China, India and South Korea, commit to renewable energy.
  • China and India remain hotspots of investments: China’s “One Belt One Road” policy generated significant investment activity in 2017, and we expect this to continue this year. The country’s latest Five-Year Plan includes plans to invest US$360b in renewable generation by 2020. Meanwhile, India is focusing on new solar capacity and improving grid reliability.
  • Power market reforms increase: China, India, Japan, the Philippines and Vietnam are all completing energy reforms, which are expected to attract private investment, improve services and boost the appeal of new technologies.
  • Continued phaseout of coal: Across the region, coal power plants are closing. By 2019, about 6 GW of old coal power plants will be retired in India. Australia’s AGL utility plans to retire all coal plants by 2022.

Client insights

Read our client story about CEO Vijay Sirse of Red Dot Power, which describes itself as a new age energy company offering integrated energy solutions.

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