• Manufacturing sales value decreased by 1.4% YoY

• Continued drop in export-oriented output offset by sustained rise in domestic-oriented production

• Manufacturing sector employment increased by 2.5% YoY

• Manufacturing activity likely bottomed alongside nascent signs of an upturn in the electronics cycle

The sales value of the Manufacturing sector declined by 1.4% YoY in October, albeit at a smaller rate as compared to the 2.4% drop in the preceding month. The decrease was predominantly influenced by the persistent decline in the Petroleum, chemical, rubber & plastic products sub-sector by 9.5% (Sep: -12.3%); and the Electrical & electronics products sub-sector which fell by 2.7% (Sep: - 0.04%).

As compared to the preceding month, the sales value inched down by 0.7% as against RM157.8bn recorded in September while the seasonally adjusted sales value decreased 1.5%.

The sales value of export-oriented industries which accounted for more than two-thirds of total sales, decreased by 5.2% YoY in October, following a 5.9% contraction in September 2023. It was mainly attributed to the double-digit decrease in the Manufacture of coke & refined petroleum products (Oct: -18.4%; Sep: -21.6%). In addition, the Manufacture of vegetable & animal oils & fats (Oct: -3.6%; Sep: -8.4%) and Manufacture of computer, electronics & optical products (Oct: -2.8%; Sep: -0.1%) also influenced the deterioration. Nonetheless, the domestic-oriented industries recorded vibrant growth of 9.9% YoY in October (Sep: 8.2%). The steady expansion was primarily spurred by the noteworthy 20.6% (Sep: 10.4%) growth in the sales value of the Manufacture of motor vehicles, trailers & semitrailers. Furthermore, the Manufacture of food products (Oct: 10.5%; Sep: 9.5%); and the Manufacture of fabricated metal products, except machinery & equipment (Oct: 9.2%; Sep: 11.5%) also contributed significantly in propelling the performance of domestic-oriented industries. On a month-on-month comparison, export-oriented industries shrank by 2.1% while domestic-oriented industries expanded by 3.2%.

Hiring in manufacturing sector continue to increase. The manufacturing sector engaged 2.38mn persons in October 2023, an increase of 2.5% as compared to the 2.32mn persons registered in October 2022. The increment was mainly attributable to the rise in the number of employees in the food, beverages & tobacco (7.7%); non-metallic mineral products, basic metal & fabricated metal products (2.5%); and electrical & electronic products (1.6%) subsectors. On a month-on-month basis, the number of employees in the manufacturing sector increased slightly by 0.2%. Resembling the positive trend in employment, the salaries & wages paid in the manufacturing sector rose by 3.4% YoY, totalling RM8.15bn in October. As compared to the previous month, the salaries & wages paid posted a marginal growth of 0.1% as against 1.7% registered in September. Furthermore, the average salaries & wages per employee in October was RM3,425 which rose by 0.9% YoY. The sales value per employee decreased by 3.7% to record RM65,879 while the average sales value per employee decreased 0.9% MoM.

Slower manufacturing sector sales value for 10M23. Overall performance for January to October 2023, the sales value of the Manufacturing sector rose by 0.9% YoY, to register RM1.499tn. Meanwhile, the number of employees added by 2.5% to record a total of 2.38mn persons with salaries & wages grew by 3.6% to RM80.9 billion. However, although the number of employees, sales value per employee or productivity, registered a decline of 1.5%, amounting to RM630,367 for the first ten months of 2023.
 

Global semiconductor sales increase 3.9% MoM and marks eighth consecutive month of market growth

The Semiconductor Industry Association (SIA) announced global semiconductor sales totalled USD46.6bn during the month of October 2023, an increase of 3.9% MoM but 0.7% YoY less than the October 2022 total of USD46.9bn. The global semiconductor market grew on a month-to-month basis for the eighth consecutive time in October, demonstrating clear, positive momentum for chip demand as 2023 winds down. Moving forward, the SIA forecast year-end sales for 2023 will be down compared to 2022, but the global semiconductor market is projected to rebound strongly next year with double-digit growth projected for 2024.

Anticipated revival in the global semiconductor market for 2024. The World Semiconductor Trade Statistics (WSTS) organisation, endorsed by SIA, projects annual global sales will decrease 9.4% in 2023 but increase 13.1% in 2024. The forecast projects the industry’s worldwide sales will be USD520.0bn in 2023, down from the 2022 sales total of USD574.1bn. The outlook for 2024 points to a vigorous upswing in the worldwide semiconductor market, with projections indicating a 13.1% increase, reaching a valuation of USD588.4bn.

Outlook

Sales value for manufacturing sector recorded the fifth consecutive month of contraction with growth in Malaysia's manufacturing sales declined 1.4% YoY in October, albeit at a smaller rate as compared to the 2.4% drop in the preceding month. This aligns with the Industrial Production Index (IPI) which rebounded to 2.7% in October (Sep: -0.5%) with the growth of the Manufacturing sector continued, with 0.9% (Sep: 0.4%).

Manufacturing Purchasing Managers’ Index (PMI) rose to 47.9 in November, up from 46.8 in October. While the index continues to signal contraction by remaining below the neutral threshold of 50.0, it has risen to a seven-month high, indicating a potential upturn in manufacturing activity in the near future. For 11 months of 2023, the average PMI remained modest at 47.7 (2022: 49.8) while from October to November, the PMI averaged 47.4, marginally lower than the third-quarter figure of 47.5. Despite this, looking at the current trend, there is optimism for a potentially improved reading in the final quarter, even if it remains below the growth threshold. The tentative indications of improved demand witnessed in November, coupled with optimistic expectations for the upcoming year, have bolstered confidence in the long term prospects of manufacturing production. In fact, sentiment has experienced a slight strengthening. While overseas demand continues to hover at a moderate level, the upswing in business confidence implies that these emerging positive trends may carry forward into 2024. Meanwhile, Malaysia's export contraction narrowed for the second straight month to a single-digit of 4.4% YoY in October from -13.8% in September, a strong signal that the worst may be behind us. Exports of manufactured goods registered a smaller decline of 3.5% YoY in October (Sep: -11.9%), while a smaller fall in exports of electrical & electronic (E&E) products (Oct: -2.3%, Sep: -5.6%) also helped to narrow the overall export contraction in October.

We foresee increased domestic consumption will continue to support further improvement in manufacturing sales. We factored in some recovery in external demand, in view of turnaround in global E&E cycle, which would support better output growth in the final quarter 2023. Meanwhile, after a period of decline, chip industry is expected to recover in 2024, in part, to growing demand from the US. While global semiconductor revenue is still expected to see a decrease in 2023, in addition to resilience in the US, increasing demand from AI server and end point device manufacturers will contribute to the market experiencing a period of growth in 2024. Elevated inventory levels of PCs and smartphones are expected to return to normal in the second half of 2024, as continued electrification of manufacturing equipment drives semiconductor content over the next decade. The introduction of PCs and smartphones that use AI next year, in addition to improvements in the average selling prices of memory and DRAM bit volume, will also drive a growing need for semiconductors.

With the expected improvement in the final quarter of 2023, there is an upside bias such as a better turnaround in E&E trade. Given the declines and the weak performance this year, we foresee external trade will continue to recover and this will support for exports and hence manufacturing sales to rebound next year. The recent uptick in Manufacturing PMI suggests a possible resurgence in the health of the manufacturing sector as the year draws to close, with positive momentum extending into 2024. This is partly attributed to the potential upswing in the technology sector and China’s gradual recovery, both of which are expected to contribute to an improvement in Malaysia’s export performance moving forward. In line with the improving manufacturing outlook, we expect the manufacturing sales to improve as well, although the near-term pace of increase may be curbed by external demand which continues to be weighed down by tight financial conditions stemming from an elevated interest rate environment in the Advanced Economies. Towards the middle of 2024, signs of a broader recovery in manufacturing could emerge as central banks, especially in some Advanced Economies (AE) may begin to cut policy rates

On the other hand, factors which could weigh down on outlook among others are significant slowdown in the advanced economies and escalation of geopolitical and trade tensions, which could adversely affect stability of global trade flow.

Source: BIMB Securities Research - 11 Dec 2023