News

• IPI growth picked up to +4.7% yoy in Feb (Jan: +3.5% yoy) but was lower than consensus estimate of +6.1%. The faster IPI growth reflected an improvement in electricity and manufacturing production that offset moderation in mining output (refer to Figure #1).

• On a month-on-month basis, IPI declined by -5.8% (Jan: -4.6%) following a broad-based decline in all sub-sectors.

Comments

• The pick-up in IPI growth was due to faster expansion in manufacturing and electricity sub-sectors. Manufacturing production accelerated by +6.5% yoy (Jan: +4.6% yoy) while electricity production grew by +1.5% yoy (Jan: +1.1% yoy). However, mining output slowed further to +0.4% yoy (Jan: +1.1% yoy).

• In the manufacturing sector, growth improved following an acceleration in both domestic-oriented (+7.3% yoy; Jan: +4.3% yoy) and export-oriented sector (+6.1% yoy; Jan: +4.7% yoy). In the domestic-oriented sector, the faster growth emanated from food and beverage sub-sector (+15.9% yoy; Jan: +6.9% yoy) that offset the deceleration in transport equipment & other manufacturers (+1.7% yoy; Jan: +3.2% yoy).

• Export-oriented sector recorded a slightly faster pace of expansion following faster growth in E&E sub-sector (+8.1% yoy; Jan: +6.9% yoy), apparel sub-sector (+7.8% yoy; Jan: +6.7% yoy) and wood products (+11.3% yoy; Jan: +8.8% yoy). Despite the faster pace of annual expansion, output of E&E products declined on a monthly basis, partially due to seasonal factor and lesser number of working days. Similarly, February global chip sales also registered a slight decline due to same factors, but grew on an annual basis (+16.5% yoy; Jan: +13.9% yoy).

• Mining sector remained choppy with growth tapering further to +0.4% yoy in February (Jan: +1.1% yoy) as crude oil output declined by larger magnitude of -4.7% yoy (Jan: -2.3% yoy) while pace of natural gas production accelerated by +7.0% yoy (Jan: +5.3% yoy). The decline in crude oil output reflected the decision taken by OPEC and non-OPEC members to jointly curtail oil output from January 2017 for 6 months to ease global glut (Petronas committed to 20,000bpd cut).

• Nevertheless, near-term outlook for manufacturing IPI remains favourable with continued expansion in forward indicators (i.e. global PMIs, world chip sales, and business confidence). Downside risks remain following structural global constraints and anti-protectionism threats.

• Despite the weaker Jan-Feb IPI growth of +4.1% yoy (4Q16: +5.1% yoy), we maintain our view for GDP to be stable this year at 4.5%. Weaker crude oil production will be offset by improvement in the agriculture sector amid continued manufacturing growth and robust construction performance. We retain our forecast for BNM to maintain its policy rate at 3.00% in 2017 due to expectations of stable growth and firmer inflation.

Source: Hong Leong Investment Bank Research - 12 Apr 2017