KUALA LUMPUR (July 5): Kenanga Research has upgraded the utilities sector to “overweight” following its upgrade on Tenaga Nasional Bhd (OP; TP: RM10.64).

In a note on Wednesday (July 5), the research house said it likes the sector for its earnings defensiveness and decent dividend yields of 4%-6%.

It said that furthermore, their earnings are backed by a regulated asset base model which offers recurring dividends for yield seekers.

“Recent easing fuel prices are positive to Tenaga and Petronas Gas Bhd (MP; TP: RM17.13) but negative for Gas Malaysia Bhd (MP; TP: RM3.54) as lower gas prices erode retail margins.

“Nonetheless, the earnings impact is neutral over the long term given the fuel cost pass-through mechanism.

“Our top pick for the sector is YTL Power International Bhd (OP; TP: RM1.48) for the promising prospects of PowerSeraya, defensive Wessex’s earnings and its exciting new data centre and digital banking ventures,” it said.