• Distributive trade surged by 10.3% yoy in July

• Sales value continued to exceed RM100bn for third consecutive month

• Retail trade and motor vehicle rose by 13.3% yoy and 12.1% yoy respectively

• Consumers to tighten their purse in the coming quarters

Distributive trade rose by 10.3% yoy to a record an all-time high of RM106.5bn in July. Sales value continued to exceed RM100bn for the third consecutive month. Retail trade hit its highest ever value at RM43.4bn. Similarly, the sales value of motor vehicles reached a record high of RM13.9bn whilst wholesale trade sales value recorded RM49.2bn.

The favourable growth in July was supported by the broad-based segment under distributive trade. Among the three segments, wholesale trade contributed the highest share in the sales value (46.2%) followed by retail trade (40.8%) and motor vehicles (13.0%). Retail trade climbed by 13.3% yoy (Jun: 12.1%; May: 9.3%). Similarly, motor vehicles sales expanded by 12.1% yoy (Jun: 10.1%; May: -2.9%) whilst wholesale trade grew by 7.2% yoy (Jun: 7.4%; May: 7.8%).

On monthly basis, the distributive trade eased further to 0.3% in July from 2.3% in June. Both retail and motor vehicles sales expanded by 1.7% mom and 6.5% mom respectively while wholesale trade dipped by 2.5% mom.

Consumers expected to tighten their purse in the coming quarters

Retail sales climbed by 13.3% yoy to hit the highest ever value at RM43.4bn. It was the strongest growth in retail sales since August last year. Similarly, motor vehicles sales had also expanded by 12.1% yoy to a record high of RM13.9bn. As anticipated, consumers ramped up their expenditures especially on big-ticket items such as motor vehicles after a cautious spending earlier in order to benefit from the 3-month tax holiday period beginning on 1st June. In fact, total industry volume (TIV) for the automotive industry in July remained strong and registered a massive 41.0% yoy and a 6.1% mom (Jun: 28.3% yoy and 50% mom) growth to 68,465 units (Jun: 64,502 units).

Moving forward, we foresee a continuous positive performance in distributive sales buoyed by slowdown in inflation, stable job market and supportive policy changes such as zero-rated GST and stabilized retail fuel prices.

Ground sentiments have improved post-election. The MIER consumer sentiment and business condition indexes have picked up significantly in 1H18, reflecting the feel-good factor on the ground. As Malaysians take advantage of a rare three-month tax holiday where no government tax on goods and services are collected, retail sales are expected to achieve a higher growth in 2018, based on changes in spending patterns during the period when no GST is collected. We also expect improved retail sale growth rate for August before SST's return. But we suspect the positive sentiment could subside at some point amid negative external and domestic factors. As for the final quarter of 2018, we expect growth in retail sales to be slower to reflect higher consumers' spending during the threemonth period with zero-rated GST as major purchases are expected to have been made from June to August of this year. Expect consumers to be more cautious on spending and tighten their purse strings in the coming quarters.

Source: BIMB Securities Research - 12 Sept 2018