Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Tue, 3 Dec 2019, 4:43 PM


Malaysia - IPI - IPI Growth Was Flat at 1.7% Yoy in September

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Growth Supported by Manufacturing and Electricity Output

Malaysia’s industrial production index (IPI) was flat at 1.7% yoy for the second consecutive month in September, in line with market expectations. However, this was revised and adjusted lower from 1.9% yoy initially to 1.7% yoy in August. Sustained IPI growth was due to higher electricity output, which expanded by 4.1% yoy in September from 0.3% in August, while the growth in the manufacturing sector also expanded, but at a slower pace of 2.5% in September (3.6% in August). Meanwhile, mining output fell by 1.6% yoy in September, for the third consecutive month but also at a slower pace than -3.9% in August, weighed down by the decline in output of crude oil and condensate of 4.7% yoy (-9.5% in August).

Slower Activity Across Most Export and Domestic-oriented Industries

Growth in manufacturing output slowed for the second consecutive month, as reflected in lower activity in most export and domestic-oriented industries. In the export oriented industries, output of petroleum, chemical, rubber and plastic products industries slowed to 2.1% yoy in September from 3% in August, due to slower production in all its subcomponents. Output of electrical & electronic (E&E) products slowed sharply to 0.8% yoy from 3.1% in August, its slowest pace since March 2013 led by weaker growth in computer, electronics and optical as well as machinery and equipment. This was in line with the contraction of Malaysia’s exports of E&E products which declined for the second consecutive month by 12.2% yoy in September from -7.4% in August.

Similarly, output of textile, wearing apparel, leather products and footwear industries slowed to 4% yoy in September from 6% in August weighed down by all its subcomponents. In contrast, production of wood products, furniture, paper products and printing rose to 5.8% yoy in September from 5.6% in August, led by higher output of wood and products of wood and cork as well as printing and reproduction recorded media.

As for domestic-oriented industries, output of food, beverages and tobacco industries slowed to 1.5% yoy in September from 2.4% in August due to lower production of food products and beverages. Slower production was also registered for non-metallic mineral products and basic metal & fabricated metal products of 3.8% yoy in September from 4.1% in August weighed down by lower output of other non-metallic mineral products.

However, output of transport equipment and other manufacturers rose for the third consecutive month by 6.3% yoy in September from 5.9% in August.

Real GDP Growth Likely to Expand by 4.6% Yoy Estimated for 3Q19

On quarterly basis, IPI growth slowed to 1.6% yoy in 3Q19 from 3.9% in 2Q19, which was its slowest quarterly growth level since 1Q13. Nevertheless, IPI growth was supported by sustained expansion of the manufacturing output (3.4% in 3Q19 vs 4.1% in 2Q19) and electricity output (2.1% in 3Q19 vs 4.4% in 2Q19). As for the mining output, production declined by 4.7% yoy in 3Q19 following a positive growth of 3.3% in 2Q19, due to the decline in output of crude petroleum oils and condensates.

Bank Negara Malaysia (BNM) will be releasing the 3Q19 GDP growth number on 15 November 2019. In view of the softer performance of IPI growth in 3Q19, we expect real GDP growth to slow to 4.6% yoy as compared to 4.9% in 2Q19. Despite this, we expect domestic demand growth, especially private consumption, to remain supportive of economic growth. However, weaker external demand due to US-China trade tensions and global growth slowdown may weigh on the country’s export performance. For the full year, we are maintaining our real GDP growth projection of 4.7% in 2019E (4.7% in 2018).

Going into 2020, we are projecting Malaysia’s real GDP growth to be slightly lower in the area of 4.5%, below the government’s 4.8% projection for next year as we anticipate export growth to be weighed down by external uncertainties such as continuation of the trade war tensions. Despite this, we expect private consumption to remain supportive and commendable on the back of the healthy labour market and steady wage growth as well as government measures and initiatives introduced in Budget 2020 to support private consumption. We believe Malaysia’s manufacturing sector will continue to be weighed down in coming months as Malaysia’s manufacturing PMI has remained below the 50-level mark since October 2018 despite rising to a six-month high in October of 49.3 (47.9 in September). Meanwhile, external conditions may also remain uncertain as trade talks between US and China have yet to be resolved. In 2020, even though World Semiconductor Trade Statistics (WSTS) projects a rebound in global semiconductor sales of 4.8% in 2020 compared to its projection of a 13.3% decline in 2019, there is also downside risk.

Source: Affin Hwang Research - 12 Nov 2019

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