News

• IPI grew at a slower pace of +4.7% yoy (Aug: +6.8% yoy), lower than consensus estimate of +6.3% yoy. The moderation was broad-based as mining grew by +2.1% yoy (Aug: +5.4% yoy), electricity slowed to +2.2% yoy (Aug: +3.0% yoy), while manufacturing sector moderated to +5.7% yoy (Aug: +7.6% yoy) (refer to Figure #1).

• MoM basis, IPI declined by -0.1%, the third consecutive month of contraction (Aug: -0.2%).

Comments

• The moderation in IPI growth emanated from all sectors. Mining expanded by +2.1% yoy (Aug: +5.4% yoy). Manufacturing production growth moderated to +5.7% yoy (Aug: +7.6% yoy), while that of electricity slowed to +2.2% yoy (Aug: +3.0% yoy). The weaker IPI growth was expected as base effect fades towards the end of the year.

• In the manufacturing sector, growth was affected by moderation in both the export-oriented sector (+5.4% yoy; Aug: +7.2% yoy) and domestic-oriented sector (+6.6% yoy; Aug: +8.8% yoy). In the domestic-oriented sector, output of food and beverage continued to soften to +8.0% yoy (Aug: +9.4% yoy). Transport equipment weakened to +8.2% yoy (Aug: +9.9% yoy), due to motor vehicles and repair and installation of machinery.

• Export-oriented sector recorded a slower pace of expansion following a slowdown in petroleum production (5.1% yoy; Aug: +10.2% yoy) that offset the increase in chemical products (+5.3% yoy; Aug: +3.6% yoy). Meanwhile, E&E production continued its trend of moderation for the third consecutive month (+6.7% yoy; Aug: +8.7% yoy; Jul: +10.5% yoy). This is in line with slower E&E export growth. Textiles and wood products also slowed in the month (+8.6% yoy and +1.3% yoy respectively; Aug: +9.0% yoy and +2.0% yoy respectively).

• Mining sector remained choppy as growth cooled to +2.1% yoy (Aug: +5.4% yoy). Crude oil output grew at a marginal rate of +0.7% yoy after contracting in the previous two months, while natural gas production decelerated sharply to +3.9% yoy (Aug: +14.6%). In the fourth quarter, we expect mining sector to moderate as the base effect from commissioning of new facilities (LNG Train 9 and PETRONAS’ FLNG Satu) wanes. Crude oil output is also expected to remain volatile in the near-term following Petronas commitment to reduce 20,000bpd in line with OPEC and non-OPEC action to curtail output.

• Near-term outlook for manufacturing IPI remains in expansionary mode as indicated by forward indicators (i.e. global PMIs, world chip sales, and business confidence). Downside risks have diminished as global growth has become more synchronized across key economies.

• We retain our GDP growth projection of 5.4% for 2017.

Source: Hong Leong Investment Bank Research - 10 Nov 2017