KUALA LUMPUR (April 6): Kenanga IB Research has downgraded the Power Utility sector to “Neutral” (from Overweight) and said it was turning Neutral on the sector following its recent downgrade in Tenaga Nasional Bhd after the government declared a 2.25 sen/kWh rebate for Mar-Jun 2015.

In a note today, the research house said with continuous low fuel prices trend, Tenaga was likely to see earnings weakness in 2H15 should the tariff rebate continues.

“While we like the ICPT mechanism, we prefer a direct tariff cut/hike instead of a tariff rebate to the base tariff of 38.53 sen/kWh.

“Based on the current scenario of the base tariff and fuel price assumptions staying till 2017, this does not align with the government’s subsidy rationalisation plan which now will take longer than anticipated,” it said.

The research house said that on the other hand, the government’s commitment towards the ICPT would be judged in the upcoming June-Review.

“In all, we downgrade our sector call to Neutral from Overweight.

“Although there is no sector pick for this quarter, we still like small cap Pestech International Bhd as an alternative play for its explosive earnings growth story,” it said.