News

• IPI growth picked up to 5.1% yoy in Sep (Aug: +2.3% yoy), exceeding market estimates of a 3.0% yoy gain. It was a broad-based expansion, led mainly by the manufacturing sector (refer to Figure #1).
• MoM basis, IPI turned around to rise by 3.7% after falling for three months in a row (Aug: -1.7% mom), chiefly due to growth rebound in manufacturing and mining production.
• On quarterly basis, IPI growth edged up to 4.5% yoy in 3Q (2Q: +4.3%) on higher manufacturing and electricity output .
• For the period of Jan-Sep 2015, IPI inked a slightly stronger growth of 5.1% yoy (Jan-Sep 2014: +4.9% yoy).

Comments

• The faster-than-expected IPI expansion in Sep was largely credited to (i ) stronger output growth of export-oriented products (i.e. E&E); and (ii) year-ago low-base effects in mining output.
• Manufacturing production posted a six-month high growth of 5.6% yoy in Sep (Aug: +4.3% yoy), mainly boosted by export -oriented industries which is in tandem with strongerthan- expected export growth during the month. Notable increases were seen in E&E products (+12.2%; Aug: +11.7%), refined petroleum products (+4.4%; Aug: -3.1%), as well as rubber & plastics products (+3.1%; Aug: +2.4%). Meanwhile, demand for domestic-oriented sector remained sluggish, especially transport equipment ( -1.1%; Aug: -1.4%) and F&B (-0.8%; Aug: +4.8%).
• Growth in mining output rebounded to 4.4% yoy (Aug: -3.4% yoy). It was chiefly lifted by robust crude oil output (+11.8%; Aug: +4.4%) as a result of resumption of operation in selected East Malaysia oil fields which were previously shut down for maintenance. Meanwhile, the contraction in natural gas output eased to 3.8% yoy (Aug: -11.8% yoy).
• Notwithstanding a rebound in Sep, we still see a challenging near-term outlook for IPI. Forward indicators (i.e. global PMIs, world chip sales, and business confidence) reflected lackluster global and domestic economic conditions. The persistent downward adjustment in China and subdued commodity price outlook would still undermine global demand ahead.
• In a separate release, services index for 3Q15 grew at a slower pace of 4.1% yoy (2Q15: +5.1% yoy). Quarterly basis, the combination of a marginal stronger IPI (+ 4.5% yoy; 2Q15: +4.3%) and weaker services continued to paint a downbeat picture for 3Q15 GDP. In this regard, we maintain our view of a slowdown in 3Q15, tweaking our GDP growth estimate lower to 4.5% (previously: +4.7% yoy). Full-year GDP growth forecast remains at 5.0%, factoring in a marginal growth rebound to 5.0% in 4Q15.
• Notwithstanding a more moderate growth expectations for 2016 (official: 4-5%) and a series of price hikes (toll, rail fare & cigarette) which has elevated the near -term inflation outlook, we retain our view that BNM will continue to stand pat at 3.25% into 1H16. Our view is reinforced by the dovish MPS last week.

Source: Hong Leong Investment Bank Research - 11 Nov 2015