Softer trade momentum in Dec’17 – Malaysian exports in Dec’17 registered a softer growth of +4.7% y-o-y as compared to +14.4% y-o-y last month. The result was below our in-house expectation of +12.0% and market consensus of +12.7%. The result was dented by slower exports in main components such as E&E products, LNG products, Chemical products, Palm oil & Palm oil-based agriculture products as well as Rubber products. Meanwhile, imports in Dec’17 stood at RM72.1b, increasing +7.9% y-o-y (vs Nov’17: +15.2%). The lower import growth was below our in-house expectation of +12.4% and market consensus of +13.6%. The sluggish performance of imports in Dec’17 was due to lower imports in Intermediate goods and consumption goods. On a monthly basis, both export and import registered declines of 5.1% m-o-m and 2.0% m-o-m respectively. As such, the country's trade surplus in Dec’17 stood at RM7.3b, narrowing -19.2% y-o-y and -27.3% m-o-m. However, as for whole year 2017, export posted a stellar performance by reaching a new high of RM935.4b (+18.95 y-o-y, vs 2016: +0.6%). Besides, import chalked up the highest value of RM838.14b (+19.9 y-o-y, vs 2016: +1.9%) while trade surplus widened by +10.3% y-o-y to RM97.3b, the largest surplus registered since 2012.

Strong expansion in Manufacturing sector lifted export growth in 2017 – Manufacturing goods, which accounted for 82.1% of total exports, expanded by +18.9% y-o-y to RM767.64b. The main component in manufacturing goods which is E&E products, registered a growth of +19.2% y-o-y, supported by robust growth in electronic integrated circuits, computers and data processing equipment, as well as parts and accessories for office machines. Besides, other manufactured products that contributed to the growth in 2017’s exports are Petroleum products (increased RM17.3b to RM72b), Chemicals and chemical products (increased RM9.5b to RM68.6b) and Rubber products (increased RM6.5b to RM26.3b). Besides that, export of Mining goods posted a higher growth of +23.9% y-o-y to RM80.6b. It was supported by higher export of LNG products and Crude petroleum products with +23.7 y-o-y and +25.3% y-o-y growths respectively. Meanwhile, exports in Agriculture goods expanded +10.9%, supported by higher growth in Palm and palm oil based product and Natural rubber products.

Exports to main partner lead by ASEAN market, while China for imports – ASEAN market become our main partner in exports by taking up 27.5% of Malaysia’s total trade in 2017. Export to ASEAN registered RM272.8b, growing +18% while import to ASEAN grew +25%. The main components which are exported and imported to ASEAN are E&E products, Petroleum products, Chemical and chemical products transport equipment and machinery, equipment and parts. Singapore is the largest export market in ASEAN followed by Thailand, Cambodia, Laos, Myammar and Vietnam. Besides that, export and import to China also marked a higher growth of +28% and +15.5% respectively. Import to China is the Malaysia’s largest import sources which accounted for 19.6% of total import in 2017.

Higher import in 2017 pushed by Intermediate and Capital goods – Imports in year 2017 grew strongly at +19.9% y-o-y (vs 2016:+10.8%) mainly reinforced by strong growth in intermediate and consumption goods. Intermediate goods with a total value of RM478.8b recorded a higher growth of +20% y-o-y was supported by higher import growth in electrical machinery as well as equipment & parts components. Besides, capital goods with a total value of RM115.73b expanded +15.4% y-o-y after being mainly lifted by higher imports in machinery and mechanical appliances.

Envisage softer growth in export and import – We reckon that export and import growths will soften to +8.9% and +9.2% in 2018 amid high base recorded last year. 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 trade activities and meaningful recovery in commodity prices.

Source: JF Apex Securities Research - 8 Feb 2018