KUALA LUMPUR (June 3): AffinHwang Capital Research said companies under its coverage in the utilities sector reported a decent 1QCY15 with results that met expectations.

In a note today, the research house said that if not for the higher taxation at Tenaga Nsional Bhd, the sector would have recorded stable earnings on a year-on-year basis.

Maintaining its earnings forecasts, the research house sees minimal risks to earnings going forward.

“We remain 'overweight' on the sector. Tenaga is still our top pick as a key proxy to the KLCI for its resilient business model and cash flow,” AffinHwang Capital said.

In regard to Tenaga, the research house noted speculation regarding a bail-out of 1MDB would weigh on sentiment.

“From an earnings perspective, however, Tenaga continues to meet expectations and the successful implementation of the Incentive Based Regulation (IBR) should re-rate the stock towards our target price,” the note said.

The seven companies under AffinHwang Capital’s coverage (Tenaga, Petronas Gas Bhd, YTL Corporation Bhd, YTL Power International Bhd, MMC Corporation Bhd, Gas Malaysia Bhd and Puncak Niaga Holdings Bhd) reported results that were within its expectations.

The research house noted, however, that YTL Corp’s 9MFY15 results were broadly within its expectations but below that of the consensus.

Nonetheless, it said YTL Corp’s tendency to record its seasonally lowest taxation in 4Q could be a boon to its 4QFY15 bottom line.

“We remain upbeat on the sector given that there were no negative earnings surprises, apart from Petronas Gas’ clarification that the Lahad Datu regasification terminal has been called off,” it said.