January’s Industrial Production (IP) rose 3.0% y/y supported by the mining sector, which rebounded to 1.5% y/y for the first time in four months due to higher crude petroleum and natural gas output in line with the firmer commodity prices. Besides, manufacturing production grew at a credible 4.8% y/y in January underpinned by domestic and exportoriented industries. As a result, manufacturing sales climbed strongly by 10.8% y/y in January. We expect the economy to perform robustly in 2018 supported by the manufacturing sector with the return of expansion in new orders, lower stocks alongside rising employment and a buoyant sentiment added with strong exports fuelled by E&E and commodities including oil palm goods and LNG. With the expectations of an improvement in demand condition, we foresee company expansion plans in the pipeline, steady growth from the distributive trade and a healthy Malaysian ringgit against the USD. These key factors will help support the overall business confidence which is seen to be improving.

• January’s Industrial Production (IP) rose 3.0% y/y from 2017’s low of 2.9% y/y in December. Growth was supported by the mining sector which rebounded to 1.5% y/y from -4.1% y/y in December, the first rebound in four months. The sector benefitted from higher crude petroleum and natural gas output, up 1.8% y/y and 1.4% y/y respectively in January, in line with the firmer commodity prices.

• Meanwhile, manufacturing production grew at a credible 4.8% y/y in January from 5.3% y/y in December 2017. It was supported by industries like food, beverage & tobacco products (14.4% y/y), petroleum products, chemicals, rubber and plastics (2.1% y/y) and electrical & electronic equipment products (4.0% y/y). We are positive on the activities of these sectors. Besides, manufacturing sales rose 10.8% y/y in January from 9.4% y/y in December.

• We expect the domestic economy to continue performing strongly in 2018 supported by the manufacturing sector where we noticed the return of expansion in new orders, lower stocks alongside rising employment and a buoyant sentiment. Adding to this, January’s export expanded 17.9% y/y, fuelled by a stronger demand for electrical and electronic (E&E) products and commodities, which included oil palm goods and liquefied natural gas (LNG).

• With the expectations of an improvement in demand condition, we foresee company expansion plans in the pipeline and a healthy Malaysian ringgit against the USD. These key factors will help support overall business confidence which is seen to be improving. Besides, we anticipated the distributive trade to remain healthy. It rose 8.1% y/y in January from 7.3% y/y in December, supported by the steady growth from the wholesale and retail business which were up 7.9% y/y and 9.9% y/y in January respectively from 8.0% y/y and 10.0% y/y respectively in December.
• We expect distributive trade sales to continue on this positive trend in 2018 due to a combination of factors: 1) better consumer confidence; 2) moderating inflation which should lift disposable income; as well as 3) a stronger currency that would help ease import costs, translating into higher consumption overall. We project both wholesale and retail trade to grow around 8%–9% and 10%–11% respectively for 2018 from 8.8% and 11.5% in 2017.
• We foresee the 2018 GDP to grow around 5.5% and expect the USD/MYR to remain around 3.88-90 which is our base case and may even trend to our best case of 3.78-80. Our fair value of the USD/MYR is 3.76.

Source: AmInvest Research - 14 Mar 2018