News

• IPI growth was stable at +4.6% yoy (Feb: +4.7% yoy), lower than consensus estimate of +4.8% yoy. Growth was led by increase in manufacturing and mining output that offset the decline in electricity production (refer to Figure #1).

• On a month-on-month basis, IPI rebounded by +11.1%, led by broad-based improvement in all sub-sectors.

• In 1Q17, IPI growth moderated to +4.2% yoy (4Q16: +5.1% yoy; 1Q16: +3.3% yoy).

Comments

• The stable IPI growth was supported by continued expansion in mining and manufacturing sub-sectors. Manufacturing production moderated by +5.9% yoy (Feb: +6.5% yoy) while mining output grew by +2.0% yoy (Feb: +0.4% yoy). Electricity production declined on an annual basis (-0.2% yoy; Feb: +1.5% yoy) on the back of high base effect a year ago due to the unusual hot weather.

• In the manufacturing sector, moderation in growth was led by lower expansion in the domestic-oriented sector (+5.1% yoy; Feb: +7.3% yoy) that offset the mild improvement in export-oriented sector (+6.2% yoy; Feb: +6.1% yoy). In the domestic-oriented sector, slower growth emanated from food and beverage sub-sector (+5.6% yoy; Feb: +15.9% yoy) that offset the acceleration in transport equipment & other manufacturers (+6.2% yoy; Feb: +1.7% yoy).

• Export-oriented sector recorded a slightly faster pace of expansion following faster growth in E&E sub-sector (+8.5% yoy; Feb: +8.1% yoy) and wood products (+9.7% yoy; Feb: +8.7% yoy). The faster pace of annual expansion in E&E products is consistent with the advance in global chip sales in Mar 2017 (+18.1% yoy; Feb: +16.5% yoy) signaling continued growth in this segment.

• Mining sector remained choppy with growth improving to +2.0% yoy (Feb: +0.4% yoy) as crude oil output declined by a smaller magnitude of -2.6% yoy (Feb: -4.7% yoy) while pace of natural gas production accelerated further by +7.9% yoy (Feb: +7.0% yoy). The decline in crude oil output reflected Petronas commitment to 20,000bpd cut as an effort jointly taken by OPEC and non-OPEC members to curtail oil output from January 2017 for 6 months.

• 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 have diminished but centred along anti-protectionism threats.

• Despite the weaker Jan-Mar IPI growth of +4.2% yoy (4Q16: +5.1% yoy), we raise our estimate of 1Q17 GDP to +4.9% yoy (previously +4.6%). Data releases for services and construction showed higher annual growth for 1Q17 reinforced by an output improvement in the agriculture sector. Our full year 2017 GDP growth forecast is, however, maintained at 4.5%. We also retain our forecast for BNM to maintain its policy rate at 3.00%.

Source: Hong Leong Investment Bank Research - 12 May 2017