Industrial production (IP) rose to a five months high, up 4.2%y/y in October supported by the better performance from all the three sub-indices. Interestingly, we found the mining output turnaround for the first time since May 2018 largely supported by crude oil and natural gas. . Despite the turnaround in mining data, we remain cautious. Risk of potential disruption in supply from the Kebabangan gas field in Sabah is expected to persist up to mid- 2019.

Though October’s manufacturing IP number turned out to be favourable, the business conditions remains a challenge with the headline Nikkei’s Manufacturing Purchasing Managers' Index (PMI) down to a six-month low to 48.2 in November. The latest PMI data pointed to the sharpest fall in the health the goods-producing sector since May. It extended the current period of decline to two months. We feel the growth prospects for 4Q2018 may be slower. Our preliminary estimate suggest the 4Q2018 GDP growth could come in around 4.0% - 4.2% y/y. If happens, it will be in line with our 4.6% projection for 2018.

• Industrial production (IP) rose to a five months high in October. IP gained 4.2%y/y in October from 2.3%y/y in September supported by the better performance from all the three sub-indices. This is the first time we are witnessing all the three sub-indices registered positive growth since April 2018. Between May and September, the mining sector has been in the negative growth trajectory, while both manufacturing and electricity posted positive growth.

• Mining grew 1.4% y/y in October after posting a decline of 6.2% y/y in September largely supported by crude oil and natural gas. Both the production of crude oil and natural gas rose 0.4% y/y and 2.3% y/y respectively in October following a sharp drop of 6.3% and 6.2% y/y, respectively in September. Despite the turnaround in mining data, we remain cautious. Risk of potential disruption in supply from the Kebabangan gas field in Sabah is expected to persist up to mid-2019.

• Meanwhile, manufacturing output continued to grow at a favourable pace. In the month of October, its output grew 5.4%y/y from 4.8%y/y in September. Production from the electrical & electronic (E&E) segment lend support, up 7.1% y/y in October from 5.5%y/y in September. Besides, positive output from resource based products such as petroleum; chemical; rubber and plastic also lend support to manufacturing output.

• The decent growth levels for manufacturing output was further supported by the strong manufacturing sales data. It rose 10.2%y/y in October from 8.2%y/y in September. Healthy global growth and trade added with competitive ringgit against the US$ plus a favourable domestic environment reflected by the labour market and wage growth will continue to lend support on manufacturing sales.
• Though October manufacturing IP number turned out to be favourable, the business conditions remains a challenge. Based on the headline Nikkei’s Manufacturing Purchasing Managers' Index (PMI), it fell to a six-month low to 48.2 in November from 49.2 in October. Readings above 50 indicates an expansion while those below 50 indicates a contraction.

• Latest PMI data pointed to the sharpest fall in the health the goods-producing sector since May. It extended the current period of decline to two months. We feel the growth prospects for 4Q2018 may be slower. Our preliminary estimate suggest the 4Q2018 GDP growth could come in around 4.0% - 4.2% y/y. If happens, it will be in line with our 4.6% projection for 2018.

Source: AmInvest Research - 13 Dec 2018