Sharp drop in exports and imports – Malaysian exports recorded a disappointing growth in Sept’17, tapering to +14.8% y-o-y (vs Aug’17: +21.5%). The result is below our expectation and market consensus of +24% and +20.0% respectively. The lower-than-expected result is attributed to slow exports of main products including Liquefied natural gas (LNG) products, Crude Petroleum products as well as Chemicals & Chemicals products. Besides, imports in Sept’17 failed to maintain its growth trajectory, by posting +15.2% y-o-y (vs Aug’17: +22.4%). The result was once again below our house expectation of +24.5% and market consensus of +20%. The lower-than-expected import figure is dented by weaker performance of major products. As compared on a monthly basis, both exports and imports dropped to negative growth of -4.8% m-o-m (vs Aug’17:+4.6%) and -3.8% m-o-m (vs Aug’17:+2.5%) respectively.

As such, the country's trade surplus in Sept’17 stood at RM8.6b, expanding +13.9% y-o-y but narrowing -12.8% m-o-m.

Limited export growth – Most of the main components in exports showed a limited growth in this month as compared to previous month. However, exports in Sept’17 was mainly underpinned by growth in Electrical & Electronic (E&E) products (+17.1% y-o-y) and Manufactures of Metal products (+24.2% y-o-y).

Moderate exports to main partners – Exports to main partners were moderately lower in this month as compared to previous month due to weaker demand.

• Singapore : (Sept’17: +RM11.2 billion) vs (Aug’17: +RM12.1 billion)

• China : (Sept’17: +RM11.4 billion) vs (Aug’17: +RM11.3 billion)

• USA : (Sept’17: +RM7.7 billion) vs (Aug’17: +RM7.9 billion)

• Japan : (Sept’17: +RM5.8 billion) vs (Aug’17: +RM6.2 billion)

Soft E&E products expansion – E&E products, which contributed 39.4% of total export, recording a softer growth of +17.7% y-o-y (vs Aug’17: +20.2%). Meanwhile, according to Semiconductor Industry Association (SIA), global semiconductor sales were 22.2% y-o-y higher in Sept’17 while increasing 2.8% mo-m with most regional markets and semiconductor product categories contributing to the gains.

Lack of strength in import components – Imports in July’17 recorded a slumbering growth of +15.2% y-o-y (vs Aug’17:+22.4%) mainly caused by limited growth in its main component – capital goods (13.3% contribution to total import) which grew +10.4% y-o-y (vs Aug’17: +12.7%), import of consumption goods grew by +5.6% (vs Aug’17: +17.8%) and intermediate goods increased by +13.7% y-o-y (vs Aug’17: +25.5%). Notably, all the main import components showed unpleasant growths as compared to previous months due to sluggishness in imports of capital goods.

Envisage further slowdown in export and import – We reckon that export and import will continue to experience slow growths of +13.5% y-o-y and +13% y-o-y respectively in Oct’17 partly due to the sluggish trade performance for the main products. However, we believe overall external trade will maintain its positive growth, albeit at a slower pace, driven by manufacturing sector which is backed by strong global demand and meaningful recovery in commodity prices.

Source: JF Apex Securities Research - 6 Nov 2017