News

• Malaysia’s IP I growth slipped to a 9-month low of 4.0% yoy in April (Mar: revised up to +7.1% yoy), undershooting market expectations of a 4.5% yoy gain. The moderation was broad-based, led by mining sector (refer to Figure #1).
• MoM basis, industrial output reversed course, falling 5.2% after rebounding strongly by 12.3% in March. All subsectors printed negative growth.
• Notwithstanding the weakness, IPI posted a higher growth of 5.8% in the fi rst four months of the year (Jan-Apr 2014: +4.7% yoy). This was largely due to buoyancy of mining sector following the commencement of new oil fields.

Comments

• The lower-than-expected IPI growth in April was dragged down by: (i) sluggish export demand in the wake of weakening global growth amid declining selling prices; and (ii) lackluster E&E sector. These culprits more than offset the gain from low base effect a year ago.
• The mining sector experienced a sharp dip to an 8-month low of 3.9% yoy in April (Mar: +9.9% yoy), largely attributed to a bigger decline in natural gas output (-8.1% yoy; Mar: -2.4% yoy). The sustained contraction in natural gas sector was in tandem with the trend in LNG exports, partly due to falling demand from Japan as a result of warm weather in 2Q. Meanwhile, crude oil output remained robust, rising by 15.0% yoy (Mar: +21.8% yoy).
• Annual growth of manufacturing output eased to +4.1% (Mar: +6.3%), as the pick-up in domestic-oriented sectors (+4.2%; Mar: +2.8%) was insufficient to counteract the weakness in export-oriented sectors (+4.1%; Mar: +7.6%) such as E&E and refined petroleum products.
• The moderation in E&E output growth (+4.0%; Mar: +13.0%) was consistent with the 3.0% yoy decline in E&E exports and growth slowdown in global chip sales. The strength of domestic-market oriented industries was li fted by food (+6.3%; Mar: -6.7%) and motor vehicles production (+12.3%; Mar: -10.4%), more than cushioning a blip in building materials (+3.4%; Mar: +5.6%).
• We expect IPI growth to remain subdued in the near term as negative catalysts overshadowing positive impetus. Growth hindrances include: (i ) bumpy global manufacturing PMI; (ii) E&E sector losing momentum; (iii ) uncertainty in orders due to the newly imposed GST that affected both consumer and business spending. Meanwhile, positive catalysts on IPI are: (i) robust oil output from new fields; (ii) higher manufacturing demand for weak MYR beneficiaries (i.e. E&E and machinery); and (iii) ongoing infra projects.
• All datapoints (i.e. IPI, trade and monetary indicators) in April suggested that 2Q15 GDP is off to a weak start (HLIB estimate: ~4.3%) after a favourable 5.6% growth in 1Q15. We expect GDP growth to rebound in 2H15, hence maintaining our full-year target of 5.0%.
• We reiterate our OPR target at 3.25% throughout 2015 given a moderate growth outlook, manageable inflation risk and contained financial imbalances risk.

Source: Hong Leong Investment Bank Research - 12 Jun 2015