News

Malaysia’s IPI growth picked up to 6.0% in May (Apr: +4.9% yoy), higher than consensus estimate of +4.2%. The faster IPI expansion was driven by pick-up in manufacturing and electricity output growth which was offset partly by more moderate mining performance.
Mom basis, IPI rebounded by 3.2% after a decline in April (-2.4% mom).

April IPI growth was revised higher by 0.7ppt from 4.2% yoy previously due entirely to an upward revision in manufacturing growth (+1.0ppt).

Jan-May IPI grew by 5.1% yoy (2013: +3.3% yoy) driven mainly by robust manufacturing output growth (+6.7% yoy)

Comments

Contrary to our expectation of stable IPI growth, manufacturing output surged further in May, driven by both export- and domestic-oriented industries. While E&E industry continued to be buoyed by robust export demand, domestic-oriented industries such as food & beverages and transport equipment also expanded favourably by 20.4% yoy and 32.0% yoy respectively (Apr: +12.0% yoy & 15.0% yoy respectively).

Mining output grew at a slower pace in May (+1.4% yoy; Apr: +4.7% yoy) as the decline in natural gas output (-0.4% yoy; Apr: +3.5% yoy) more than offset a slower growth in crude oil production (+3.1% yoy; Apr: +5.8% yoy).

Within the manufacturing sector, E&E output continued to rise, albeit at a more moderate pace of 9.8% yoy (Apr: 15.2% yoy), the first single-digit growth since Dec-13. Growth was driven by strong expansion in printed-circuit boards (PCBs) and computer parts (Figure #3). As growth in global semiconductor sales has also tapered (+8.8% yoy; Apr: +11.5% yoy), we can expect contribution of E&E to moderate into the remainder of 2014.

Output growth of petrochemical industry (25.4% of IPI) remained weak (-3.3% yoy; Apr: -3.9% yoy) with sustained output decline in refined petroleum (-4.3% yoy) and chemical products (-3.8% yoy). Meanwhile, basic metal & non-metallic mineral products sustained its stable growth (+3.6% yoy; Apr: +3.9% yoy) with expansion across all product segments (i.e. basic metal & fabricated metal).

Near-term outlook for manufactured exports remained resilient given the rebound in intermediate imports (+10.4% yoy; Apr: -3.9% yoy). Global factory PMI has also improved in June with the exception of Euro zone (Figure #5). Manufacturing PMI for the US and China remained stable at 55.3 and 51.0 (May: 55.4 and 50.8 respectively). However, Euro zone recorded further moderation to 51.8 (May: 52.2).

We maintain our 2014 GDP forecast at 5.5%, with quarterly GDP growth tapering off due to higher base and fading of export boost.

While BNM has left its option open for further rate hike, we believe BNM will stay pat in the Sep & Nov MPC meeting while evaluating the incoming data on growth, inflation, and financial data (i.e. property sector).

Source: Hong Leong Investment Bank Research - 11 Jul 2014