The potential strengthening of the El Niño weather phenomenon could create both opportunities and challenges across key sectors in Malaysia, with plantation, utilities, fertiliser and consumer-related companies among those likely to see varying impacts, according to a report by MBSB Research.
The research house said prolonged hot and dry conditions could influence commodity prices, electricity demand, water consumption and agricultural activities, creating a mixed investment outlook across industries.
MBSB noted that plantation companies could benefit from higher crude palm oil (CPO) prices if the price gains outweigh the impact of weaker production caused by drought conditions.
“Should the rise in CPO prices outweigh the decline in output, planters could still benefit from stronger profitability despite softer production,” it said.
Among plantation counters, SD Guthrie Berhad was highlighted as a potential beneficiary due to its exposure to palm oil prices, while Johor Plantations Group Berhad could also see improved profitability under favourable CPO price conditions.
Electricity Demand Expected to Rise
The utilities sector could also benefit from hotter weather as households and businesses increase usage of air-conditioning, fans, refrigeration and cooling systems.
MBSB pointed to historical trends during the 2016 El Niño event, when electricity demand in Peninsular Malaysia surged as temperatures climbed.
The research house said peak electricity demand rose significantly during that period, driven largely by stronger domestic consumption.
It expects Tenaga Nasional Berhad to benefit from stronger electricity sales, although higher temperatures may also put pressure on grid infrastructure.
“Higher peak-load pressure may require sufficient generation availability, grid capacity and reserve margins to maintain supply reliability,” MBSB said.
The report also warned that lower rainfall could affect hydropower generation, potentially increasing reliance on coal and gas-fired power plants.
However, renewable energy players may gain from the structural shift towards cleaner energy, with Pekat Group Berhad and Samaiden Group Berhad among MBSB’s preferred renewable energy picks.
Food Producers Face Margin Pressures
The food sector may experience a combination of benefits and risks, depending on exposure to commodities and input costs.
MBSB said higher crop prices during El Niño could support demand for agricultural inputs, but food manufacturers could face margin pressure from rising raw material costs.
Companies that sell staple packaged foods may find it difficult to fully pass on higher costs due to consumer price sensitivity and potential government intervention on essential items.
PPB Group Berhad was highlighted as having a relatively resilient position due to its role as Malaysia’s leading flour miller and its associate stake in Wilmar International Limited.
The report noted that higher wheat prices could pressure flour milling margins, but exposure to Wilmar’s commodity earnings could provide some offset.
Water Demand and Security in Focus
Hotter and drier conditions are also expected to increase water demand from households, commercial users and industries.
While this could benefit water-related companies, MBSB cautioned that prolonged drought may create challenges in maintaining supply due to lower raw water availability and increased evaporation.
Ranhill Utilities Berhad was identified as a potential beneficiary due to higher water demand, tariff adjustments and growing industrial demand, including from data centre developments in Johor.
Fertiliser Sector Sees Mixed Outlook
Fertiliser producers could see second-order effects from El Niño, with crop protection efforts potentially supporting demand.
However, affordability could become a concern as farmers face higher input costs.
MBSB cited the World Bank’s outlook that fertiliser prices could rise in 2026, driven by higher urea prices and supply constraints, potentially affecting farmers’ purchasing power.
Among Malaysian companies, Petronas Chemicals Group Berhad was highlighted as the clearest nitrogen fertiliser proxy due to its ammonia and urea exposure, supported by feedstock advantages and stronger margin resilience.
Other fertiliser-related companies include Hextar Industries Berhad, Cropmate Berhad, Hap Seng Consolidated Berhad and Imaspro Corporation Berhad, although their exposure varies.
Consumer Stocks May Benefit From Changing Behaviour
The report also identified possible beneficiaries among consumer companies as households adapt to hotter weather.
Bottled water producers may see stronger demand, with Spritzer Berhad and Life Water Berhad positioned to benefit from increased consumption.
Meanwhile, value retailers such as 99 Speed Mart Retail Holdings Berhad and MR D.I.Y. Group (M) Berhad could see higher spending on essential items and potential downtrading behaviour during periods of economic pressure.
MBSB’s preferred names linked to the El Niño theme include plantation, renewable energy, utilities, fertiliser and selected consumer counters, reflecting the broader impact of climate conditions on Malaysia’s investment landscape.
