• April IPI picked up to 4.6% yoy but contracted 3.5% mom

• Positive broad-based contribution in output across sectors

• Manufacturing sales improve in April

• Productivity climbed to 6.0% yoy

• Global semiconductor sales increase in April

• Stronger global industrial production in April

• IPI growth to remain strong

Industrial production picks up in April

Malaysia’s industrial production index (IPI) accelerated to 4.6% yoy in April after stabilising at 3.0% in the last two months. The faster pace of production in April was contributed by all major sectors; manufacturing (Apr: 5.3%; Mar: 4.1%), mining (Apr: 1.8%; Mar: 0.04%), and electricity (Apr: 5.8%; Mar: 4.4%). Electricity output growth in April recorded the highest gain since July 2017 (7.9%).

However, on monthly basis, the IPI contracted 3.5% in April after posting an outstanding growth of 9.9% in March. As compared to the last month’s figure which showed a broad-based contribution across sectors, it turned negative in April as all subsectors registered negative growth. Manufacturing, mining and electricity sector dropped by -2.1% (Mar: 9.2%), -8.2% (Mar: 10.8%) and -1.2% (Mar:14.1) respectively.

Positive broad-based contribution in output across sectors

The IPI growth picked up to 4.6% yoy in April from 3.1% in the prior month. The strong gains in production were broad-based across main sectors namely manufacturing, mining and electricity. The faster pace of growth in April was primarily supported by manufacturing sector which held 68.25% of the total weightage of the IPI. Manufacturing sector expanded by 5.3% yoy in April from 4.1% in March. The growth in manufacturing production was contributed by electrical and electronic equipment products (6.6%), petroleum, chemical, rubber and plastic products (3.0%) and non-metallic mineral products, basic metals and fabricated metal products (4.7%).

Mining sector grew by 1.8% yoy in April following a 0.04% increase in March. It marked the highest growth since September 2017 (2.4%). The expansion was spurred by an increase in the crude oil index (4.4%). Nevertheless, natural gas index declined by -0.4%.

Likewise, the electricity production surged by 5.8% yoy in April after posting a 4.4% growth in March. It registered the highest growth in 9 months.

Manufacturing sales improve in April

Manufacturing sales in April improved to 8.2% yoy after moderating at 3.9% in the previous month. The manufacturing sector registered a sales value of RM65.5bn in April 2018, with an increase of RM5.0bn as compared to RM60.5bn reported a year ago. The growth for the month was prompted by the increase in E&E products (Apr: 13.9%; Mar: 10.5%), petroleum, chemical, rubber and plastic products (Apr: 6.3%; Mar: -0.9%) and food, beverages and tobacco products (Apr: 6.4%; Mar: 5.0%).

On monthly basis, the sales value decreased by 4.4% (RM3.0bn) as compared with the previous month. On a seasonally adjusted mom, the sales value in April 2018 rebounded to 5.1% (Mar: -3.0%).

Manufacturers added more workers during the month as reflected in the hiring of workers where total employees engaged in the manufacturing sector in April 2018 was 1,069,410 persons, an increase of 2.1% or 22,100 persons as compared to 1,047,310 persons in April 2017. On monthly basis, the number of employees rose by 0.1% as compared to 1,068,116 persons in the prior month.

Salaries & wages paid in April 2018 rose by 10.2% yoy (RM353.5m). When compared to the previous month, the total amount paid in April 2018 fell by 1.0% (RM37.6m) to register RM3.8bn. The average salaries & wages paid per employee logged RM3,577 in April 2018, a rise of 7.9% yoy and a decrease of 1.1% mom.

Productivity or average sales value per employee in April 2018 climbed to 6.0% yoy from 1.7% in March. On monthly basis, it contracted by 4.5% mom to register RM61,226.

Global semiconductor sales increase in April

According to data from the Semiconductor Industry Association (SIA), global sales of semiconductor products reached USD37.6bn for the month of April 2018, an increase of 20.2% yoy and 1.4% more than last month’s total of USD37.1bn. On a regional basis, all major markets registered sales growth of between 10.2% yoy and 34.1% yoy. Cumulatively, semiconductor sales amounted to approximately USD149.0bn for the first four months of 2018. This constitutes about 32.1% of the World Semiconductor Trade Statistics’ (WSTS) revised 2018 sales estimates of USD463.4bn.

Global semiconductor sales projected to hit USD463.4b in 2018. The WSTS has recently revised 2018 sales figure upwards to USD463.4bn from USD377.8bn previously, representing an upgrade of 6.0%. This would mark the industry’s highest-ever annual sales, a 12.4% increase from the 2017 sales total.

Stronger global industrial production in April

Industrial production in the US moderated to 3.5% yoy in April from a downwardly revised 3.7% increase in March. Meanwhile, China’s industrial production improved to 7.0% yoy in April after posting at 6.0% in the prior month. The expansion was supported by manufacturing and electricity, gas and water production. Japan’s IPI increased marginally by 2.5% yoy in April from 2.4% in March.

Regionally, industrial production in Thailand was up by 4.0% yoy in April following an upwardly revised 3.2% rise in the previous month. Production of cars and cars engines; sugar; petroleum and plastic pellets rose higher in April. Singapore’s industrial production accelerated to 9.1% yoy from 6.1% in March.

IPI growth to remain strong

Industrial output improved further to 4.6% yoy in April from 3.1% in March. Meanwhile, exports scaled higher by 14% yoy in April from 2.2% in March. Exports of manufactured goods expanded 16.8% yoy driven by exports of E&E which rose 21.2% (37.8% of total exports). Imports rebounded to rise 9.1% from -9.6% in March. However, despite imports crossing into the positive growth trajectory, the intermediate and consumption goods performed poorly, falling -11.9% yoy and -1.8% yoy in April versus -14.4% yoy and -12.4% yoy, respectively in March. However, capital goods rose 4.8% yoy in April compared to a decline of 30.5% yoy in March. The intermediate goods marked the fifth consecutive month of a declining trend, indicating the lackluster demand in the manufacturing industry. This was also well reflected in the Manufacturing Purchasing Managers’ Index (PMI) in which the index deteriorated to 48.6 in April from 49.5 in March. While Malaysia’s latest manufacturing PMI slowed further in May (47.6), marking four months of declines amid reports of weaker new business and lackluster demand, we expect imports growth to remain at a moderate pace in the coming months.

There are lingering risks to global trade amid signs of moderation in the global manufacturing PMI (May: 53.1; Apr: 53.5) which has decelerated since end-2017. We expect bumpy export growth over coming months amid concerns that the US and China are headed towards the first round of tariffs. Any negative spillover in the tech sector will weigh on Malaysia’s electrical and electronics (E&E) sector whereby Malaysia’s E&E exports equal to 37.8% of total exports. We view IPI performance to continue expanding at steady pace in line with continued exports growth. We maintain our IPI growth estimate of 4.2% in 2018 albeit a slowdown in the technology sector and the high base effect will weigh on this year’s outlook.

Source: BIMB Securities Research - 12 Jun 2018