IPI registered a marginal increase of +2.3% YoY (Aug: +2.2% YoY), matching the median estimate. The pickup stemmed from a rise in manufacturing (+4.8% YoY; Aug: +4.3% YoY) and electricity production (+4.2% YoY; Aug: +4.0% YoY) which offset the faster decline in mining production (-6.2% YoY; Aug: -4.6% YoY).

DATA HIGHLIGHTS

IPI registered a marginal increase of +2.3% YoY (Aug: +2.2% YoY), matching the median estimate. This was attributed to a rise in manufacturing (+4.8% YoY; Aug: +4.3% YoY) and electricity production (+4.2% YoY; Aug: +4.0% YoY) which offset the faster decline in mining production (-6.2% YoY; Aug: -4.6% YoY) (refer to Figure #1).

On a seasonally adjusted basis, IPI decreased at a slower pace of -0.3% MoM (Aug: - 0.8%).

The stronger growth in manufacturing sector was supported by a rise in both the domestic-oriented sector (+4.9% YoY; Aug: +4.4% YoY) and export-oriented sector (+4.7% YoY; Aug: +4.2% YoY) which was consistent with September’s rebound in export performance (+6.7% YoY; Aug: -0.3% YoY). The domestic-oriented sector’s growth was supported by a surge in ‘food and beverage’ production (+6.9% YoY; Aug: +2.1% YoY) which offset the moderation in ‘non-metallic mineral products, basic metal and & fabricated metal’ products (+4.6% YoY; Aug: +4.9% YoY). While vehicle car sales declined by -23.7% YoY (Aug: +26.8% YoY) as the tax-holiday period ended, ‘transport equipment and other manufacturers’ production continued to grow, albeit at a more modest pace (+2.3% YoY; Aug: +7.4% YoY) as car manufacturers continued to clear backlog orders.

The export-oriented sector’s growth was driven by stronger E&E production (+5.5% YoY; Aug: +4.6% YoY) which was in line with stronger E&E exports (+6.5% YoY; Aug: +3.2% YoY). Similarly, ‘petroleum, chemical, rubber and plastic products’ (+3.8% YoY; Aug: +3.5% YoY) and wood production (+6.4% YoY; Aug: +6.3% YoY) rose while textile production slowed (+2.2% YoY; Aug: +2.9% YoY).

The mining sector experienced a faster decline of -6.2% YoY (Aug: -4.6% YoY) dragged by a further decline in crude petroleum production (-6.3% YoY; Aug: -0.6% YoY) and slower contraction in natural gas production (-6.2% YoY; Aug: -8.0% YoY) due to supply constraints.

HLIB’s VIEW

Quarterly IPI data moderated to +2.4% YoY (2Q 2018: +2.8% YoY) due to contraction in mining production (-5.6% YoY; 2Q18: -2.7% YoY) that offset the slight increase in manufacturing production (+4.8% YoY; 2Q18: +4.7% YoY) and faster growth in electricity production (+4.2% YoY; 2Q18: +3.8% YoY). On the global front, global PMI recorded a slower growth in output (52.1; Aug: 52.2) due to slower rise in new orders amid weaker global demand. While we expect continued growth in manufacturing sector, the presence of downside risks remains. Any further escalations in trade tensions could dampen sentiment and investment activity. Meanwhile, mining sector continues to be volatile due to ongoing supply constraints.

Source: Hong Leong Investment Bank Research - 12 Nov 2018