News

• IPI growth accelerated to +6.2 yoy in Nov (Oct: +4.2% yoy), outpacing consensus forecast of +5.5% yoy. The increase in IPI reflected a broad-based expansion across all sectors (refer to Figure #1).

• MoM on seasonally adjusted basis, IPI rose by +0.8% (Oct: +0.8%) following an increase in manufacturing and electricity sub-sectors.

Comments

• The faster pace of IPI growth was due to broad-based expansion in all sectors. Mining production grew by +4.7% yoy (Oct: +3.6% yoy) while manufacturing production rose by +6.5% yoy (Oct: +4.2% yoy). Meanwhile, electricity production expanded by +9.7% yoy (Oct:+6.9% yoy).

• In the manufacturing sector, growth accelerated as the domestic-oriented sector recorded a faster rate of expansion (+4.6% yoy; Oct: +1.4% yoy). This was due to increase in food and beverage sector (+10.4% yoy; Oct: +2.5% yoy), that more than offset the decline in transport equipment (-6.1% yoy; Oct: -5.4% yoy).

• Similarly, export-oriented sector recorded an improvement in November (+7.2% yoy; Oct: +5.3% yoy) following acceleration across all sub-sectors, including the E&E sub sector (+8.9% yoy; Oct: +8.0% yoy). This is also consistent with faster expansion in November’s E&E export performance as global demand improved. Of significance, global chip sales advanced for the fourth consecutive month in November (+7.4% yoy; Oct: +5.1% yoy). Similarly, production of textiles, wood products, petroleum, chemical, rubber and plastic products also rose in November on an annual basis.

• Mining sector remained choppy and increased by +4.7% yoy in November (Oct: +3.6% yoy) as the decline in crude oil output (-2.0% yoy; Oct: +2.7% yoy) was more than offset by accelerating natural gas production (+15.4% yoy; Oct: +4.5% yoy).

• Near-term outlook for IPI are showing signs of improvement. Besides the uptick in some of the forward indicators (i.e. global PMIs, world chip sales, and business confidence), the robust growth in electricity production (+9.7% yoy; Oct: +6.9% yoy) suggests that domestic activities continued to improve in 4Q16.

• The stronger Oct-Nov IPI growth of 5.2% (3Q16: +4.0%) indicates continued pick-up in growth momentum in 4Q16. We maintain our 2016 full-year GDP growth forecast at 4.2%. In 2017, we expect growth to be higher at +4.5% yoy, driven by the primary commodity and construction sectors. A gradual recovery in CPO output and implementation of infra projects following the record value of projects awarded in 2016 would support growth momentum.

• We retain our forecast for BNM to maintain policy rate at 3.00% in 2017 on expectations of firmer growth outlook and higher inflation.

Source: Hong Leong Investment Bank Research - 12 Jan 2017