IPI growth strengthened to +4.0% YoY in April (Mar: +3.1% YoY), exceeding the consensus estimate of +2.5% YoY. The growth was driven by stronger manufacturing (+4.3% YoY; Mar: +4.1% YoY) and electricity production (+5.8% YoY; Mar: +4.8% YoY), as well as rebound in mining production (+2.3% YoY; Mar: -0.2% YoY). Nevertheless, in the immediate term, we anticipate manufacturing production to remain subdued following re-intensification of US China trade tension in May.

DATA HIGHLIGHTS

IPI registered a stronger growth of +4.0% YoY in April (Mar: +3.1% YoY), exceeding the +2.5% YoY consensus estimate. The growth was attributed to stronger manufacturing (+4.3% YoY; Mar: +4.1% YoY) and electricity production (+5.8% YoY; Mar: +4.8% YoY) alongside a rebound in mining production (+2.3% YoY; Mar: -0.2% YoY) (refer to Figure #1).

Growth in the manufacturing sector was driven by stronger export-oriented sector which offset the moderation in the domestic-oriented sector. The domestic-oriented sector moderated to +4.9% YoY (Mar: +5.3% YoY), dragged by the slower growth in ‘food, beverages & tobacco’ production (+4.2% YoY; Mar: +6.8% YoY). This offset the stronger growth in transport equipment production (+7.2% YoY; Mar: +6.1% YoY). Vehicle production rebounded by +24.5% YoY in April following a contraction in the previous month (Mar: -0.3% YoY), partly in anticipation of higher demand ahead of the Hari Raya festive season.

The export-oriented sector grew at a faster pace of +4.0% YoY (Mar: +3.5% YoY), which was in line with the improved export performance during the month (+1.1% YoY; Mar: -0.5% YoY). Growth was driven by higher production of ‘electrical and electronics’ (+4.1% YoY; Mar: +2.7% YoY). In particular products such as consumer electronics, computers which are being taxed in the US-China trade war saw strong increase which could indicate some trade diversion into Malaysia. Other products such as ‘wood products, furniture, paper products, printing’ (+5.2% YoY; Mar: +5.0% YoY) and ‘textiles, wearing apparel, leather products and footwear’ (+5.7% YoY; Mar: +4.9% YoY) also saw an increase which offset the slight moderation in ‘petroleum, chemical, rubber and plastic products’ production (+3.6% YoY; Mar: +3.7% YoY).

The mining sector saw a rebound of +2.3% YoY (Mar: -0.2% YoY), driven by an acceleration in natural gas production (+6.1% YoY; Mar: +1.4% YoY) which offset the decline in crude petroleum production, albeit at a slower pace (-1.9% YoY; Mar: -2.0% YoY). The faster growth in LNG production may be attributed to the recovery in production following the unplanned shutdown caused by a fire in the Bintulu LNG plant.

HLIB’s VIEW

Malaysia’s stronger IPI was reflected by higher manufacturing sales (+6.8% YoY; Mar: +5.7% YoY), despite the moderation in manufacturing wages (+4.4% YoY; Mar: +5.1% YoY) and employees engaged (+1.7% YoY; Mar: +1.8% YoY). The stronger IPI was also largely in line with the regional trend, except Korea. However, recent re intensification of trade spat between US and China in May and weaker global sentiment since then has increased downside risks. Global manufacturing PMI fell into contractionary territory (49.8; Apr: 50.4), the lowest reading since October 2012. In the immediate term, we anticipate manufacturing production to remain subdued following the re-escalation of US-China trade tensions that is anticipated to affect overall business confidence and pullback in investment and trade activities.

Source: Hong Leong Investment Bank Research - 12 Jun 2019