Below expectations – Malaysia’s Industrial Production Index (IPI) in Sept’17 dropped to +4.7% y-o-y (vs Aug’17: +6.8% y-o-y). The result is below our house expectation and market consensus of +6.5% and +6.3% respectively. The poor result was dented by slow growth in all main indexes. Besides, as compared to the previous month, IPI was little change by posting -0.1% m-o-m against -0.2% m-o-m in Aug’17.

Manufacturing sector trended lower for 3rd consecutive months – The manufacturing sector in Sept’’17 recorded another weaker growth for 3rd consecutive months by posting +5.7% y-o-y as compared to +7.6% y-o-y in the previous month. The soft trend was driven by its main components, i.e. Construction Materials: +4.5% y-o-y (vs Aug’17: +7.1%), Food, beverage and tobacco: +8.0% y-o-y (vs Aug’17: +9.4%), as well as Transport equipment: +8.2% y-o-y (vs Aug’17: +9.9%). However, on a monthly basis, the manufacturing sector marginally inched up by +1.0% m-o-m (vs Aug’17: +0.5%).

Subdued growth in E&E products – E&E products recorded another softer growth in Sept’17, decelerating to +6.6% y-o- (vs Aug’17: +8.6%). However, this was against the findings of Semiconductor Industry Association (SIA) as global semiconductor sales surged strongly by 22.2% y-o-y and 2.8% m-o-m in Sept’17.

Electricity index went downhill – The electricity index posted another decline in growth for this month, only up +2.2% y-o-y as compared to +3.0% in Aug’17. Besides, as compared to the previous month, the reading slumped to negative growth of -6.5% m-o-m (vs Aug’17: 1.1%).

Mining sector tapered off – The mining sector fell to +2.1% y-o-y growth (vs Aug’17: +5.3%) and little change m-o-m, -1.8% m-o-m (vs Aug’17: -2.6%). The performance was dented by spiral decrease in Natural Gas index of +3.9% (vs Aug’17: +14.6%).

Reckon slower growth in Oct’17 IPI– We expect IPI expansion in the following month will be slower as interference from Penang floods which affect the manufacturing growth. However, impact will be temporary and manufacturing activities will recover shortly. We believe IPI expansion this year still be strong amid 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 - 10 Nov 2017