Above expectation – Malaysia’s Industrial Production Index (IPI) in Aug’17 posted another month of growth at +6.8% y-o-y after a +6.1% y-o-y in July’17. The result was above our expectation and market consensus of +5.8% y-o-y. The higher-than-expected result was supported by Mining Index. In contrast, as compared to the previous month, IPI was down -0.2% m-o-m against -0.3% m-o-m in July’17.

Soft growth in manufacturing sector – The manufacturing sector in Aug’17 posted a slower growth of +7.6% y-o-y as compared to +8.0% y-o-y in July’17 as manufacturing sales recorded a growth of +16.5% y-o-y in August compared to +22.2% y-o-y in July. The moderate performance in the manufacturing index was dented by undesirable growth in major sub-sectors such as:

• Woods Products, Furniture, Paper Products: (+2.0% y-o-y) (vs July’17: +3.9% y-o-y)

• Food, Beverages and Tobacco: (+9.4% y-o-y) (vs July’17: +19.4% y-o-y)

• Textiles, Wearing Apparel, Leather Products: (+9.0% y-o-y) (vs July’17: 9.6% y-o-y) Besides, E&E products also recorded a softer growth this month after posting +9.6% y-o-y in Aug’17 (vs July’17: +10.6%). According to the Semiconductor Industry Association (SIA), global semiconductor sales were +23.5% y-o-y higher in Aug’17 while increasing 4% m-o-m, mainly boosted by the American market.

Unpleasant growth for Electricity index – In tandem with the softer growth in manufacturing sector, the electricity index posted a decline in Aug’17 after recording +3.0% y-o-y as compared to +7.9% in July’17. Similarly, compared to the previous month, the reading drop to +1.1% m-o-m (vs July’17: 5.3%).

Uptrend in Mining sector – In Aug’17, the Mining sector recorded higher growth after increasing +5.3% y-o-y (v.s July’17: +0.2%), supported by increase in Natural Gas by +14.6% y-o-y. However, on a monthly basis, the Mining index widened its negative growth to -2.6% m-o-m in Aug’17 from -1.3% m-o-m in the previous month.

Estimate soft growth in Sept’17 IPI– We expect IPI to soften in the following month amid healthy trade performance recorded in Aug’17, uptick in commodity prices as well as sustainable global semiconductor sales. Therefore, we maintain our IPI growth forecast of 5.2% for 2017.

Source: JF Apex Securities Research - 13 Oct 2017