IPI quickened to +3.4% YoY (Nov: +2.6% YoY), higher than the +2.7% YoY consensus estimate. The acceleration was driven by faster growth in manufacturing production (+4.4% YoY; Nov: +3.7% YoY) and rebound in mining production (+1.0% YoY; Nov: -0.7% YoY) that offset the moderation in electricity production (+2.7% YoY; Nov: +3.2% YoY). On a quarterly basis, IPI recorded faster growth mainly due to rebound in mining production. We maintain our 4Q18 GDP forecast at 4.5% YoY (3Q18: 4.4% YoY), premised on the assumption that constraints on commodity production abate. Nevertheless, we expect GDP to be affected by moderation in services and lower import duties following lower tax collection.

DATA HIGHLIGHTS

IPI quickened to +3.4% YoY from previous growth of +2.7% YoY. The acceleration was driven by rebound in mining activity (+1.0% YoY; Nov: -0.7% YoY) and stronger growth in manufacturing production (+4.4% YoY; Nov: +3.7% YoY) that offset the deceleration in electricity production (+2.7% YoY; Nov: +3.2% YoY). (refer to Figure #1).

On a seasonally adjusted basis, IPI declined by -1.6% MoM (Nov: +0.2% MoM).

The faster growth in manufacturing sector was driven by stronger growth in the export-oriented sector (+5.3% YoY; Nov: +4.2% YoY) amid moderation in domestic oriented sector (+2.6% YoY; Nov: +2.8% YoY). In the domestic sector, there was a decline in ‘food, beverages & tobacco’ production albeit at a slower pace (-1.1% YoY; Nov: -1.7% YoY) and continued moderation in transport equipment (+7.0% YoY; Nov: +8.3% YoY) amid steady growth in ‘non-metallic mineral products, basic metal and & fabricated metal’ products (+4.1% YoY; Nov: +4.1% YoY).

Export-oriented sector accelerated to +5.3% YoY (Nov: +4.2% YoY). This was consistent with the stronger export performance in December (+4.8% YoY; Nov: +1.6% YoY). The export-oriented sector quickened on account of faster production in ‘electrical and electronic’ production (+7.2% YoY; Nov: +5.3% YoY) and further increase in ‘petroleum, chemical, rubber and plastic products’ (+3.6% YoY Nov: +3.4% YoY), wood (+5.5% YoY; Nov: +3.7% YoY) and furniture production (+8.2% YoY; Nov: +2.1% YoY). Meanwhile, textile production moderated slightly (+2.2% YoY; Nov: +2.3% YoY).

The mining sector rebounded as natural gas production declined at a slower pace (- 0.2% YoY; Nov: -1.8% YoY) while crude petroleum pick up further (+2.5% YoY; Nov: +0.6% YoY). LNG production is expected to pick up further in 2019 as the disruption caused by the associated pipeline gas leak is anticipated to recover. According to Petronas, production at the Kebabangan gas field in Sabah was expected to return to full capacity by August 2019.

HLIB’s VIEW

On a quarterly basis, industrial production grew at a faster pace of +3.5% YoY (3Q18: +2.4% YoY) driven mainly by rebound in mining production (+0.6% YoY; 3Q18: -5.6% YoY) amid moderation in manufacturing production (+4.5% YoY; 3Q18: +4.8% YoY) and electricity production (2.9% YoY; 3Q18: +4.2% YoY). We maintain our 4Q18 GDP forecast at 4.5% YoY (3Q18: 4.4% YoY), premised on the assumption that agriculture and mining production constraints abate. Nevertheless, we expect GDP to be negatively affected by moderation in services and lower import duties following lower tax collection (4Q18: RM14.5bn; Sep-Dec 18: RM5.4bn).

Source: Hong Leong Investment Bank Research - 12 Feb 2019