As expected, industrial production (IP) grew moderately by 3.0%y/y in May due to slower growth from all the sub-indices i.e. manufacturing (+4.1% y/y) and electricity (+2.6% y/y) with mining down -0.5% y/y. Weaker growth fell in tandem with softer May’s exports and imports reported at 3.4%y/y and 0.1%y/y respectively. Besides, the Purchasing Managers Index in May read at 47.6%.

Despite May numbers being a little soft, we are not too worried. We found the average first two months of 2Q2018 IP grew 3.8%, about the same pace as 1Q2018 though manufacturing slowed at 4.7%(5.7% in 1Q2018) while manufacturing sales grew faster by 6.9% (6.5% in 1Q2018) and exports and imports up 8.7%y/y and 4.6%y/y respectively (6.0%y/y and -0.3%y/y in 1Q2018).

Hence, our preliminary 2Q2018 GDP estimates suggests the economy could grow between 5.5% - 5.6% with a high side of 5.7% from 5.4% in 1Q2018. It should bring the 1H2018 GDP to around 5.5% - 5.6%. For the full year of 2018, to maintain our base case growth of 5.5% with the lower bound pegged at 5.3%, the 2H2018 GDP needs to hover between 5.1% and 5.5%.

• As expected, industrial production (IP) grew moderately by 3.0%y/y in May from 4.6% y/y in April following slower growth registered by all the sub-indices. Manufacturing grew 4.1% y/y in May from 5.3% y/y in April while electricity slowed to 2.6% y/y from 5.8% y/y in April. Mining output fell by 0.5% y/y in May from 1.8% y/y in April.

• At the same time, manufacturing sales grew at a slower pace in May, up 5.5% y/y from 8.2% y/y in April. Besides May’s Purchasing Managers Index eased to 47.6 from 48.6. It has been in the contraction region which is below 50 since February. Furthermore, both exports and imports in May grew at a slower rate by 3.4% (14.0% in April) and 0.1% (9.2% in April) respectively.

• Although May numbers have turned a little soft, we are not too worried. We found the average growth for the first two months of 2Q2018 for IP grew 3.8% which is about the same pace as 1Q2018 though manufacturing output rose slower at 4.7% versus 5.7% in 1Q2018. But manufacturing sales grew faster in the first two months average of 2Q2018 by 6.9% against 6.5% in 1Q2018. Furthermore, both exports and imports rose on average by 8.7%y/y and 4.6%y/y respectively for the first two months of 2Q2018 compared to 6.0%y/y and -0.3%y/y in 1Q2018.

• Meanwhile, May’s distributive trade grew 7.0%y/y with a sales value of RM103.7bil, passed the RM100bil mark for the third time in 2018. The growth is largely supported by the wholesale trade which grew steadily at 7.8%y/y as compared to April’s 7.6%y/y, recorded a sales value of RM 50.5bil.

• We expect distributive trade sales especially the retail segment to continue growing at a favourable pace supported by the improving household disposable income, stable inflation, tax holiday period and growing support from the digital platform. Hence, we expect both wholesale and retail trade to grow around 8%-9% and 10% -11% respectively in 2018 from 8.8% and 11.5% in 2017.

• Hence, our preliminary 2Q2018 GDP estimates suggests the economy could grow between 5.5% - 5.6% with a high side of 5.7% from 5.4% in 1Q2018. It should bring the 1H2018 GDP to around 5.5% - 5.6%. For the full year of 2018, to maintain our base case growth of 5.5% with the lower bound pegged at 5.3%, the 2H2018 GDP needs to hover between 5.1% and 5.5%.

Source: AmInvest Research - 13 Jul 2018