KUALA LUMPUR, (Sept 21): Affin Hwang Investment Bank Bhd has downgraded the utility sector to "Neutral" (from Overweight) but nonetheless believes the sector’s earnings are still relatively resilient.

At noon at least seven utility stocks under Affin Hwang's coverage were down across the bourse. They were Puncak Niaga Holdings Bhd, JAKS Resources Bhd (JAKS), YTL Power International Bhd (YTLP), Tenaga Nasional Bhd, Malakoff Corporation Bhd, Petronas Gas Bhd (PetGAS) and MMC Corporation Bhd.

In a note today, the research house said it had "Buy" ratings for only four out of nine companies under its coverage.

Affin Hwang believes the sector’s earnings were still relatively resilient, given the instances of negative earnings surprises were either due to a more challenging environment outside of Malaysia (YTL Power) or non-concession businesses, due to diversification like YTL Corporation Bhd, Puncak Niaga Holdings Bhd (Puncak) and JAKS Resources Bhd (JAKS).

Based on the pricing close of Sept 18, the four are Malakoff Corporation Bhd, MMC Corporation Bhd, Gas Malaysia Bhd and JAKS.

The other companies with "Hold" ratings are Puncak, Tenaga Nasional Bhd (Tenaga), Petronas Gas Bhd (PetGAS), YTL Corporation Bhd (YTL Corp) and YTL Power International Bhd (YTLP).

"We downgrade the sector to Neutral, as we had recently downgraded Tenaga to Hold," it said.

Nonetheless, Affin  Hwang believes the sector’s earnings are still relatively resilient. "Our top pick is MMC Corporation Bhd, which we believe is undervalued relative to its RNAV," it added.

It noted that it believe the group’s core businesses in ports & logistics and engineering & construction are relatively undervalued at this juncture, with an implied forward PE valuation of only 5.2 times.

In addition, the research house noted the group is making steady progress in monetising the landbank at Senai Airport City in Johor.

Going forward, the research house said that management is looking to monetise 200 acres (potentially generating RM435 million in revenue based on RM50 psf) every year, to enhance its earnings and is improving accessibility to enhance its landbank value.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)