- The Industrial Production Index (IPI) for Malaysia came in stronger than expected to register a growth of 7.6% in July, surpassing both ours and street estimates of 4.8% and 4.9% respectively. The IPI in June had been revised upwards by 0.4pp to +3.7%. The annual IPI growth in July was contributed by all three divisions including Manufacturing (+5.4% YoY), Mining (+15.4%) and Electricity (+6.2%).

- In the manufacturing segment, the production of E&E posted an increase of 3.6% in July mainly driven by the growth in exports (June: -1.4% YoY). The exports of E&E had registered a healthy growth of 6.0% during the month of July after recording a contraction for five consecutive months.

- As a recap, overall exports reverted to a growth of 4.5% YoY in July following five straight months of contraction. The export-driven industries signalled an expansion in factory output in 2Q13 as export-oriented manufacturing industries are probably gearing up for a potential rebound in global demand.

- Aside from that, production for domestic use remains intact and we do foresee a continual expansion led by improvements in the construction division. Based on the latest available data for the month of June, we note that industrial production for the domestic-oriented segments had advanced by 4.0% (May: +5.3%).

- Separately, a report yesterday showed that Malaysia’s total sales value of the manufacturing subdivision has finally surged in July after a period of contraction which started in February 2013. Overall sales advanced by 3.8% YoY to RM54.3bil in July on the back of higher sales in 64 of 116 (55.2%) industries surveyed (June: -2.0%).

- The manufacturing industries that posted strong sales growth in July include Manufacture of Refined Petroleum Products which grew by 12.9%; Manufacture of Television and Radio Receivers, Sound Or Video Recording Or Reproducing Apparatus, and Associated Goods (+19.5%); and Manufacture of Television and Radio Transmitters Manufacture of Television and Radio Transmitters and Apparatus For Line Telephony and Line Telegraph (+31.7%).

- Meanwhile, the sales of manufactured export products have not recovered. Manufacture of semi-conductor devices continue to pose a contraction in sales of 13.5% YoY in July. With E&E being the largest component, a recovery in exports relies extensively on the sustainability of E&E growth.

- On a positive note, the Semiconductor Industry Association (SIA) had announced recently that worldwide sales of semiconductors grew by 5.1% YoY to USD25.53bil during the month of July, the highest total in 2013. Mainly, sales in the US increased by 21.5% (or contributing close to 20% of global sales), marking the region’s largest annual increase in more than two years.

- Elsewhere, the global manufacturing data suggests further improvement in August. JP Morgan’s survey showed that the manufacturing sector had advanced to 51.7 points in August led by manufacturing growth in the US, Japan, Europe and China (July: 50.8 points).

- Going forward, we anticipate a gradual improvement for the local manufacturing division and a rebound for regional exports due to renewed optimism of a recovery in global demand. Additionally, the relatively weaker regional currencies vis-à-vis USD will bolster the region’s future exports growth driven by preferable terms of trade and relatively stronger purchasing power of the USD currency.

Source: AmeSecurities