• IPI increased by 1.7% yoy; declined 0.3% mom

• Mining output contracted further whilst manufacturing and electricity production moderates

• Manufacturing sales continue to slow

• Productivity increased by 1.7% yoy

• Global semiconductor sales up 3.4% mom but down 14.6% yoy in September

• Global IPI performances remains weak

• Industrial output to remain lacklustre

Modest industrial production growth in September

Malaysia’s industrial production index (IPI) rose by 1.7% yoy in September, the same as a downwardly revised figure in the previous month. The slowdown is mainly due to further contraction in mining output and moderation in factory and electricity productions.

However, on monthly basis, the IPI declined 0.3% in September, after a 0.3% declined in August. Recovery in the manufacturing production (Sep: +0.1%; Aug: - 1.5%; Jul: +2.0%; Jun: +1.2%; May: +3.1%; Apr: -2.0%) unable to support the monthly IPI growth due to the decrease in mining (Sep: -1.0%; Aug: +4.2%; Jul: -10.7%; Jun: - 3.9%; May: +3.8%; Apr: -5.9%) and electricity (Sep: -2.7%; Aug: -1.1%; Jul: +7.2%; Jun: -7.9%; May: +2.4%; Apr: -0.2%) outputs.

The IPI recorded a growth of 1.6 % yoy in 3Q19. The increase was contributed by the growth of manufacturing index (3.4%) and electricity index (2.1%). Meanwhile, mining index declined to 4.7%. When compared to 2Q19 the IPI declined 0.1%.

The IPI of Malaysia for the period of January to September 2019 recorded a growth of 2.7% yoy. The increase was contributed by the growth in electricity sector (4.1%) and manufacturing sector (3.8%). Meanwhile, the mining sector declined by 1.1%.

Mining output contracted further whilst manufacturing and electricity production moderates

IPI growth recorded at 1.7% yoy in Sep, similar with previous month, mainly due to further contraction in mining output and moderation in factory and electricity productions.

Growth of mining activity dropped 1.6% yoy due to the decrease in the crude oil and condensate index (Sep: -4.7%; Aug: +9.5%; Jul: -22.7%; Jun: -3.7%; May: -2.0%; Apr: -1.9%; Mar: -2.0%; Feb: -4.3%; Jan: -2.2%)). Meanwhile natural gas index increased by 1.1% (Aug: +1.2%; Jul: +7.3%; Jun: +13.0%; May: +7.6%; Apr: +6.1%; Mar: +1.4%; Feb: -5.6%; Jan: +0.3%).

Growth in manufacturing output rose by 2.5% yoy in September after recording a growth of 3.6% in August. The major subsectors contributing to the increase in September were transport equipment and other manufactures (6.3%), non-metallic mineral products, basic metal and fabricated metal products (3.8%) and petroleum, chemical, rubber and plastic products (Sep: 2.1%; Aug: 2.8%; Jul: 3.4%; Jun: 3.0%; May: 3.2%; Apr: 3.6%; Mar: 3.7%). Output growth in electrical & electronics (E&E) dropped tremendously (Sep: 0.8%; Aug: 3.5%; Jul: 4.9%; Jun: 3.5%; May: 3.7%; Apr: 4.1%; Mar: 2.7%; Feb: 3.1%; Jan: 3.9%).

The electricity sector output increased by 4.1% in September, up from 0.3% yoy in August.

Manufacturing sales continue to slow

Manufacturing sales slowed in September and grew by 2.9% yoy (Aug: 4.7%; Jul: 6.0%) to RM72.9bn as compared to RM70.8bn reported a year ago.

The year-on-year growth registered in sales value in September 2019 was driven by the increase in non-metallic mineral products, basic metal & fabricated metal products (Sep: 6.4%; Aug: 6.6%), petroleum, chemical, rubber & plastic products (Sep: 1.4%; Aug: 4.1%) and electrical & electronics products (Sep: 1.3%; Aug: 3.6%).

Sales value of the manufacturing sector rose 4.5% to RM220.6bn in 3Q19 as compared to 6.3% registered in the previous quarter.

On month-on-month growth, the sales value went down by 0.9% (RM0.7bn) while on a seasonally adjusted terms, the sales value registered a decrease of 2.9%

Despite slower sales growth, manufacturers maintained their pace of hiring during the month as reflected in the hiring of workers where total employees engaged in the manufacturing sector in September was 1,087,179 persons, an increase of 1.2 per cent or 12,887 persons as compared to 1,074,292 persons in September 2018. On monthly basis, the number of employees decreased marginally at 0.1% as compared to 1,088,547 persons registered in the preceding month.

Salaries & wages paid amounted to RM4.01bn, rose by 2.8% yoy or RM108.0m in September. Simultaneously, salaries & wages paid in September increased 0.2% mom (RM8.9m). The average salaries & wages paid per employee in September was RM3,690, increased by 1.6% yoy and edged up by 0.4% mom.

Productivity or average sales value per employee in September increased by 1.7% yoy to register RM67,013. Meanwhile, on month-on-month basis, the average sales value per employee decreased by 0.8%.

The sales value of the manufacturing sector in the period January to September 2019 registered a growth of 5.6% yoy to RM641.5bn. The number of employees engaged during the period grew by 1.2% to register 1,087,179 persons while salaries & wages paid posted an increase of 4.7% to RM36.1bn. The sales value per employee during the reference period rose by 4.3% to record RM590,104.

Global semiconductor sales up 3.4% mom but down 14.6% yoy in September

Following months of slower sales earlier in the year, the global semiconductor market rebounded somewhat in the third quarter of 2019. According to data from the Semiconductor Industry Association (SIA), worldwide sales of semiconductors reached USD106.7bn during 3Q19, an increase of 8.2% over the previous quarter and 14.6% less than 3Q18.

While sales remain well behind the record totals from last year, month-to-month sales increased for the third consecutive month in September and were up across all major product categories. Global sales for the month of September 2019 reached USD35.6bn, an increase of 3.4% mom and 14.6% less than sales from September 2018. Regionally, sales increased on a month-to-month basis in China (4.4%), the Americas (4.3%), Europe (2.9%), Asia Pacific/All Other (2.4%) and Japan (1.2%). On a year-to-year basis, sales were down across all regions: Europe (-6.4%), Asia Pacific/All Other (-6.9%), Japan (-10.0%), China (-12.9%) and the Americas (-30.4%).

Global IPI performances remains weak

Singapore’s industrial production (IP) registered a positive +0.1% yoy (+3.7% mom sa) growth in September. IP growth has also been revised higher in July (+1.2% yoy, from -0.1% yoy) and August (-6.4% yoy from -8.0% yoy). Accounting for the latest data and the upward revisions, Singapore’s manufacturing growth clocked a milder-than-expected contraction of -1.7% yoy in 3Q19. Industrial production in Thailand declined by 4.7% yoy in September after a 4.4% fall in the previous month. This was the fifth straight month of yearly decrease in industrial output. Manufacturing production in Philippines declined 2.3% yoy in September, the tenth straight month of drop, after an upwardly revised 8.3% fall in the prior month.

China registered a sharper-than-expected improvement in industrial production as China’s industrial production growth rebounded to 5.8% yoy in September from 17-year low of 4.4% in August. Industrial production in Japan also rebounded and registered an increase of 1.1% in September. Meanwhile, industrial production in the US decreased 0.1% yoy in September, down from a 0.4% gain in the previous month. That was the first decline in annual industrial activity since November 2016, as manufacturing output fell the most since August 2016. On a monthly basis, industrial production dropped 0.4%, the most since April.

Industrial output to remain lacklustre

Production output in September remained soft at 1.7% yoy, , the same as a downwardly revised figure in August. This comes on the back of a sharp drop in the export data for the same month. September’s exports plunged by 6.8% yoy, the biggest decline in three years. The bleak export figure was due to lower shipments of E&E products (Sep: -12.2%; Aug: -7.4%) which drifted to a 79-month low. Meanwhile, latest data showed that manufacturing downturn persisted in October, but at the softest pace in six months (PMI: 49.3; Sep: 47.9).

The trade war and an electronics down-cycle continued to weigh down on export and industrial performance. While there have been emerging signs of a trough in global manufacturing activities, the potential improvement ahead will likely remain weak amid a still challenging global economic climate. Despite recent positive developments surrounding the US-China trade feud, the impact of existing tariffs would still weigh on global trade and growth in the immediate term. Moving forward, we foresee IPI performance to continue expanding at modest pace as trade war factor remains a major downside risk to global trade activities and manufacturing production, which has the highest weightage (68.25%) in the overall IPI index. Malaysia stands to experience negative spill overs towards its domestic activities and industrial output growth will likely remain lacklustre in the near term.

Source: BIMB Securities Research - 12 Nov 2019