News

• Export growth grew at a faster pace of +1.6% yoy in Apr (Mar: +0.2% yoy). Imports declined for the second consecutive month, albeit at a slower pace of -2.3% yoy (Mar:-5.5% yoy). The export reading came in below market estimate of +2.0% yoy.

• Trade surplus narrowed to RM9.1bn (Mar: +RM11.2bn). Jan-Apr trade surplus was higher at RM33bn (Jan-Apr 2015: RM28.2bn).

• Exports to US and ASEAN continued to expand (+11.7% yoy & +7.2% yoy respectively; Mar: +11.8% yoy & +5.6% yoy respectively). However, exports to Japan and China declined (-18.7% yoy & -16.6% yoy respectively; Mar: -15.1% yoy & -5.9% yoy respectively). Shipments to EU reversed to a decline of -5.4% yoy (Mar: +6.5% yoy), recording its first contraction since May’15.

Comments

• The marginally faster export growth was due to the easing of drag from commodity exports (-0.4% yoy; Mar: -14.5% yoy) amid sustained manufactured shipments (+5.3% yoy; Mar: +5.2% yoy).

• Manufactured export improved slightly following an increase in E&E export growth (+2.1% yoy; Mar: +0.5 yoy). Other manufactured products continued to chart doubledigit growth driven by MYR weakness on YoY basis, i.e. machinery (+17.2% yoy; Mar: +17.9% yoy) and optical (+14.8% yoy; Mar: +10.4% yoy). Metal exports recorded a moderation in growth (+5.8% yoy; Mar: +57.3% yoy) as metal prices corrected after a strong rally since end-2015.

• Exports of commodity-related products improved significantly (-0.4% yoy; Mar: -14.5% yoy) benefiting from higher export volume and slower decline in most major commodity prices. For example, average unit price of crude petroleum declined by 26.2% yoy (Mar: -28.1% yoy). Similarly, LNG prices recorded a slower decline of -34.7% yoy (Mar: -41.4% yoy).

• Intermediate imports declined at a slower pace of -6.8% yoy (Mar: -8.1% yoy), marking the third month of contraction, pointing to an uncertain manufacturing prospects. This is consistent with weak expansion in May global PMI which indicates subdued global trade activity. Capital imports declined marginally by -0.02% yoy, following a sharp contraction in the previous month.

• Trade surplus of RM33.0bn in Jan-Apr could translate into higher current account in 2016 (HLIB forecast: RM10bn). However, we reckon that capital imports could start to kick in strongly in 2H16 (systems & coaches for MRT1), leading to a smaller surplus by year-end. We maintain our 2016 full year GDP growth forecast at 4.2%.

• We opine that while the external sector may remain weak, growth is expected to be supported by consumption activity and infrastructure projects in 2H2016. We expect BNM to wait patiently for income measures and infrastructure spending to take effect. Maintain our view of no change in OPR in 2016.

Source: Hong Leong Investment Bank Research - 6 Jun 2016