Below expectation – Malaysia’s Industrial Production Index (IPI) in Oct’17 slipped to +3.4% y-o-y (vs Sept’17: +4.7% y-o-y). The result was below our in-house expectation of +4.5% and market consensus of +4.1%. The lower-than-expected result was mainly impelled by slower growth in Manufacturing index as well as Mining index. However, on a monthly basis, IPI rebounded from negative growth of -0.1% m-o-m in Sept’17 to +2.7% m-o-m in Oct’17.

Softer growth in Manufacturing sector – The manufacturing sector eased to +4.2% y-o-y in Oct’17 (vs Sept’17: +5.7% y-o-y). The softer trend was dragged by its main components, i.e Food, beverage and tobacco: +7.0% y-o-y (vs Sept’17: +8.0%), and Petroleum, chemical, rubber & plastic products: +2.21% y-o-y (vs Sept’17: +4.9%). However, on a monthly basis, the manufacturing sector marginally inched up by +1.6% m-o-m (vs Sept’17: +1.0%).

E&E products continued to slip – E&E products continued to slip in Oct’17 to +5.9% y-o-y as compared to +6.6% y-o-y in previous month. This was in contrast with global semiconductor sales which was +21.9% y-o-y higher in Oct’17 and climbed +3.2% m-o-m amid higher demand for memory products. We believe the subdued performance of E&E products in this month was affected by Penang floods as most of manufacturing and services business are located in Penang.

Encouraging growth in Electricity index – The electricity index surged to +4.7% y-o-y this month as compared to +2.2% in Sept’17. Similarly, compared to the previous month, the reading increased +6.0% m-o-m. (vs Sept’17: -6.5%).

Flattish growth in Mining sector – The mining sector posted a minimal growth of +0.2% y-o-y (vs Sept’17: +2.1%), however it showed greater change on a monthly basis with +5.3% m-o-m (vs Sept’17: - 1.8%). The slow growth performance in the mining sector was due to small growth in Natural Gas index of +1.4% (vs Sept’17: +3.9%).

Estimate further growth in Nov’17 IPI– We expect IPI will expand further in Nov’17 following recovery in manufacturing sector from interference of Penang floods. We believe IPI expansion this year still be strong amid uptick in commodity prices as well as sustainable global semiconductor sales. Thus, we expect our IPI growth forecast of 4.7% for 2017.

Source: JF Apex Securities Research - 13 Dec 2017