April’s factory output rose by 4.0% y/y to a 6-month high due to the rebound in mining output and continuous expansion in manufacturing and electricity output, moving in line with exports which grew 1.1% y/y in April after 2 straight months of decline. Still, we remain cautious over the looming global economic slowdown from ongoing trade tensions that will dampen the prospect of stronger growth in the coming quarters.

Although April’s industrial production (IP) grew faster than expected, we will seek more evidence of activity strength persisting in the coming months before adjusting our growth outlook for 2019. For instance, the downside to our potential growth will be negated with the revival of major infrastructure projects like the ECRL and also the 121 construction projects. The official projection for 2019 GDP will likely grow 4.3%–4.8% from 4.7% in 2018. It falls within our base case projection of 4.5% while our best case is 4.7%. Our worst-case scenario is 4.0%.

• April’s industrial production (IP) grew faster than expected. The factory output rose by 4.0% y/y to a 6-month high from 3.1% y/y in March, beating market expectations of 2.7%. Growth is mainly attributed to the rebound in mining output and continuous expansion in manufacturing and electricity output. Mining rose 2.3% y/y (-0.2% y/y in March) due to a stronger output in natural gas sector, up 6.1% y/y (+1.4% y/y in March) while manufacturing grew 4.3% y/y (+4.1% y/y in March) and electricity climbed 5.8% y/y (+4.8% y/y in March),

• Imports in April rose 4.4%y/y. Meanwhile, manufacturing sales for April expanded 6.8% on year to RM69.9bil (US$16.79bil). Besides, on a m/m seasonally-adjusted basis, manufacturing and electricity were 1.5% and 1.7% higher respectively in April, while mining activity edged up 3.1% from March.

• Although April’s factory gate performance moved in line with our exports which grew 1.1% y/y in April after 2 straight months of decline, we remain cautious over the looming global economic slowdown from ongoing trade tensions. The ongoing trade tensions between the US and China, two of Malaysia's major trading partners, will dampen the prospect of stronger growth in the coming quarters.

• Besides, the Nikkei Manufacturing Purchasing Managers' Index, or PMI, fell to 48.8 in May from 49.4 in April. A reading above 50 signals expansion of the manufacturing sector, while a print below 50 represents a contraction. It suggests there are some signs of fatigure in the economy. Furthermore, in May when Bank Negara Malaysia cut its overnight policy rate for the first time in nearly three years by 25bps to 3.00% to perk up growth in a slowing economy, the cental bank also cautioned that potential downside risk still lingered even after the rate cut.

Source: AmInvest Research - 12 Jun 2019