Dividends yield dividend for utilities sector

PETALING JAYA: Kenanga Research is maintaining a “neutral” outlook on the utilities sector as corporate results for the first quarter of the year (1Q23) have largely fallen within the securities firm’s expectations, coupled with earnings defensiveness and decent dividend yields.

Among the six utility firms under the research house’s coverage, it said YTL Power International Bhd was the only outperformer, after the results of the YTL Corp Bhd’s subsidiary for the nine months ended March 31 exceeded Kenanga Research’s forecasts yet again.

The research house credited the solid performance of YTL Power to the stronger-than-expected showing of YTL PowerSeraya Pte Ltd, YTL Power’s Singapore producer unit that supplies roughly 30% of the city state’s energy needs.

On the flip side, Kenanga Research said in a research note that results for Malakoff Corp Bhd had disappointed with wider losses on fuel margins, as its weighted average coal cost came in higher than the applicable coal price, even as prices for the commodity had declined sharply.

“Samaiden Group Bhd’s results for the three quarters ended March 31 also fell short of expectations, on higher-than-expected staff cost and professional fees, as well as listing expenses,” said Kenanga Research.

Meanwhile, the first quarter results of Tenaga Nasional Bhd (TNB), Petronas Gas Bhd (PetGas) and Gas Malaysia Bhd were largely within expectations, although he added that easing fuel prices at present are positive to TNB and PetGas, but a negative element for Gas Malaysia.

With the declining fuel prices, Teh said TNB’s under-recovery imbalance cost pass-through (ICPT) contracted 43% quarter-on-quarter (q-o-q) to RM3.63bil, and hence ICPT receivables fell to RM13.8bil from the record high of RM16.9bil in the final quarter of 2022.

“Similarly, PetGas benefited from low gas prices leading to lower internal gas consumption for its regulated business as well as non-regulated utilities segment.

“On the other hand, Gas Malaysia’s gas selling price remained high, although we believe it had peaked, which led to top line growth but its bottomline was affected by higher repair and maintenance costs,” the research house pointed out.

The “neutral” call on the sector was derived from limited upside, a factor which is balanced by the sector’s earnings resilience and decent yields of between 4% and 6%, the research house said.

Kenanga Research picked YTL Power as its favourite utility counter, given its improved earnings prospects following the turnaround of PowerSeraya.

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