News

Malaysia’s IPI growth was stable at 4.2% yoy in April (Mar: +4.3% yoy), broadly in line with consensus estimate of +4.1%. The stable IPI expansion was due to a rebound in mining output growth which offset more moderate manufacturing and electricity performance (Figure #1).

Mom basis, IPI declined by 3.0% after a strong surge in March (+10.3% mom) as industrial output normalized after experiencing volatile period in Jan-Mar due to festivity.

Jan-Apr IPI grew by 4.6% yoy (2013: +3.3% yoy) driven mainly by robust manufacturing output growth (+6.2% yoy).

Comments

The resilient manufacturing output growth was in line with strong export performance during the month. However, we expect manufacturing growth to taper off into the remainder of 2014 due to higher base in the corresponding period last year as well as two consecutive months of decline in imports of intermediate goods (-3.9% yoy; Mar: -8.8% yoy).

Mining output staged a recovery in April (+4.7% yoy; Mar: -0.9% yoy) due to rebound in output growth of both crude oil and natural gas (+5.8% yoy & +3.5% yoy). Mom basis, mining output declined 3.9%, with the Mining Index retracing to 97.3 (2010=100).

Within the manufacturing sector, E&E output growth remained strong and unchanged at 14.2% yoy, driven by strong expansion in printed-circuit boards (PCBs) and semiconductors (Figure #3). With global semiconductor sales still growing stronger (Apr: +11.5% yoy), we can expect E&E exports to remain in expansion mode into mid- 2014.

Output growth of petrochemical industry (25.4% of IPI) dipped into the negative territory (-5.9% yoy; Mar: +2.0% yoy) with a significant decline in chemical products (-17.3% yoy) reinforced by output contraction in refined petroleum (-3.2% yoy). The trend of output growth moderation is also observed for transport equipment (+4.0% yoy; Mar: +14.1% yoy) and basic metal & non-metallic mineral products (+3.0% yoy; Mar: +4.4% yoy).

Global PMI data for May showed some divergence in global factory activity (Figure #5). Manufacturing PMI for the US and China experienced improvement to 55.4 and 50.8 respectively (Apr: 54.9 & 50.4 respectively). However, manufacturing PMI of the Euro zone softened to 52.2 from 53.4 in April.

We maintain our full-year 2014 GDP growth forecast at 5.5%. Sequentially, we still expect quarterly yoy GDP growth to taper off due to higher base and fading of export boost.

Reinforced by the hawkish MPS, we expect BNM to hike the OPR by 25bps in its July MPC meeting. We expect BNM to stay pat thereafter to assess the evolution of growth, inflation and financial data related to the property sector.

Source: Hong Leong Investment Bank Research - 12 Jun 2014