PETALING JAYA: The first half of 2026 (1H26) was dominated by petrochemical-linked raw materials, foreign exchange (forex), freight, trade policy and tariffs, but 2H26 is expected to see cost pressures shifting towards energy.
In a report, Mercury Securities Sdn Bhd said higher liquefied natural gas (LNG) prices would feed into gas costs with a lag.
It added that as a result of the lag, the spike seen in 1H26 would feed into manufacturers’ cost base over the coming quarters. “PGF Capital Bhd and Nextgreen Global Bhd’s new capacity will set up earnings growth for 2027, making execution the key variable,” the research house said.
According to the research house, PGF is directly exposed to energy costs as it manufactures glass mineral wool insulation for Malaysia and Oceania, a furnace-based process in which natural gas is a core production input.
Mercury Securities said Nextgreen’s margin is driven by what it sells rather than what it pays for raw materials.
“The key variable for 2H26 is how large NexCompost’s revenue share becomes, not raw material prices. The second quarter of 2026 was the first quarter in which solid fertiliser (NexCompost) contributed meaningfully, at about 22% of revenue, and it carries a structurally lower margin than liquid fertiliser,” it noted.
As for Pecca Group Bhd, plastic input costs saw some volatility in 1H26 – the plastic cost spike was real, but its impact on Pecca’s margins was small.
“Local sourcing does not remove the resin price risk, since domestic suppliers still price off regional benchmarks, but it does reduce Pecca’s exposure to forex and freight on imported inputs,” the research house said.
Mercury Securities said currently, SumiSaujana Group Bhd is its only “buy” recommendation.
“Because this company manufactures specialty chemicals for the oil and gas industry, it relies largely on imported input materials – leaving its cost base exposed to input prices, the exchange rate, and freight,” the research house pointed out.
Meanwhile, Mercury Securities said among the five companies under its coverage, only two came in above expectations, which were SumiSaujana and HSS Engineers Bhd.
Margins were the factor that determined performance rather than volume.
SumiSaujana and HSS Engineers beat expectations because of pricing and cost discipline, while PGF and Pecca missed out on the back of margin pressure and delayed capacity.
Mercury Securities added should the overnight policy rate or OPR rise, the five companies under its coverage would experience impact at varying degrees.
It said as Budget 2027 draws nearer, it is aware that the focus continues to be on fiscal consolidation, targeted subsidies and industrial upgrading. However, it said it would continue to keep an eye out for any changes to fuel or energy subsidies, which would affect input costs across the sector.
“HSS Engineers is the most direct beneficiary of development spending in our coverage. Its RM2.2bil order book is anchored by public transport and water projects, while it continued to bid for a further RM480mil of work.
“Allocations for rail, water and highway projects would support replenishment of that order book.”