KUALA LUMPUR (Jan 8): The utility sector is anticipated to maintain stable earnings and cash flow throughout 2024, supported by sustained demand, secured by Incentive-Based Regulation and Imbalance Cost Pass-Through (IBR/ICPT) mechanisms, along with long-term agreements, according to Hong Leong Investment Bank (HLIB) Research.

In a note on Monday, the research house said that despite the impact of negative fuel margins on Tenaga Nasional Bhd's (TNB) earnings in the nine-month period of 2023 (9MFY2023), TNB's cash flow remained stable, with an anticipated return to normal earnings in 2024 as energy prices stabilise.

"In the long term, TNB's earnings are expected to grow with the expansion of the regulated asset base (RAB) and new contributions from renewable energy investments," noted HLIB.

HLIB also foresees sustained earnings for Petronas Gas Bhd in 2024, as the gas processing segment has secured a new agreement with parent company Petronas spanning from 2024 to 2029.

Additionally, HLIB expects YTL Power International Bhd to maintain strong earnings in the upcoming quarters, supported by the solid performance and margins of the Singapore retail segment, new contributions from Jordan Attarat, stable performance of Jawa Power, and the recovery of UK Wessex due to declining inflationary pressures.

HLIB anticipates consistent stability in dividends, with TNB offering 55 sen per share, Petronas 72 sen per share, and YTL Power providing a higher dividend payout of 10 sen per share.

The research house also expressed confidence in the government upholding its commitments to RAB/ICPT mechanisms to maintain investor confidence in current and future government policies.

"We maintain our sector call on utilities with an 'overweight', with a 'buy' for YTL Power (target price [TP]: RM3.90) and TNB (TP: RM11), and a 'hold' for Petronas Gas (TP: RM17.75)," it said.