KUALA LUMPUR (June 25): Kenanga Research has maintained its 'neutral' rating for the utilities sector, and said the sector offers earnings defensiveness backed by regulated assets.
In a sector note on Tuesday, the research house downgraded Tenaga Nasional Bhd (TNB) (KL:TENAGA) to 'market perform' from 'outperform', following the recent run-up in its share price.
It said other utilities stocks are fully valued as well.
“Nonetheless, utilities stocks still offer dividend yields of 3% to 6%.
“We have no top pick for the sector,” it said.
Kenanga said TNB guided for a decent electricity demand growth of 2.5% to 3.0% in Peninsular Malaysia in the financial year ending Dec 31, 2024 (FY2024) — from a high base of 3.6% in FY2023 on the reopening of the economy — underpinned by data centres completed in FY2023 (about 635MW) and nine more (about 700MW) to be completed this year, with two of them (535W) already completed in the first quarter ended March 31, 2024 (1QFY2024).
“Over a longer time horizon, TNB projects total potential demand of more than 5,000MW of electricity annually from new data centres by calendar year 2035.
“While TNB is a good proxy for the energy-intensive new data centres, we believe justice has been done, with a 40% appreciation in its share price year-to-date, adding RM23 billion to its market capitalisation,” Kenanga said.