Below expectation – Malaysia’s Industrial Production Index (IPI) in Dec’17 slipped to +2.8% y-o-y (vs Nov’17: +5.0% y-o-y). The result was below our in-house expectation and market consensus. The tepid performance was mainly dented by negative growth in the Mining index as well as slower growth in Manufacturing index. However, on a monthly basis, IPI returned to positive monthly growth, by posting +2.2% m-o-m as compared to negative monthly growth posted in last month (-1.4% m-o-m). As for whole year 2017, IPI stood at 131.9, growing +4.5% y-o-y in 2017 (vs 2016: +4.1%). The result was slightly below our in house expectation of +4.8%. The better performance in this year was mainly supported by steady growth in Manufacturing index with +6.1% y-o-y growth (vs 2016: 4.3%)

Moderate growth in Manufacturing sector– The manufacturing sector moderated to +5.3% y-o-y in Dec’17 (vs Nov’17: +6.7% y-o-y). The passive growth in the manufacturing index was dented by its main components such as Petroleum, chemical, rubber & plastic products: +3.6% y-o-y (vs Nov’17: +7.5%). Besides, on a monthly basis, the manufacturing sector inched up to +2.2% m-o-m against -1.7% m-o-m in Nov’17.

Softening of E&E products – E&E products grew softly in Dec’17 at +4.1% y-o-y as compared to +6.9% y-o-y in the previous month. However, it was in contrast with global semiconductor sales which grew +22.5% y-o-y in Dec’17 and climbed +5.7% m-o-m (vs Nov’17: +21.5% y-o-y, + 1.6 m-o-m). As such, annual semiconductor sales increase 21.6% y-o-y, reaching more than $400b for first time.

Flattish Electricity index – The electricity index posted an unchanged growth of +3.9% y-o-y this month (vs Nov’17: +3.9%). However, as compared to the previous month, Dec 17’s IPI rebounded from negative m-o-m growth by registered +1.7% m-o-m vs -4.3% in previous month.

Negative growth in Mining sector – The mining sector posted a negative growth of -4.1% y-o-y (vs Nov’17: +0.2%), mainly due to lower production of crude petroleum and drop off in natural gas. Besides, on a monthly basis, the Mining widened its growth by posting +2.4% m-o-m as compared to +0.2% in previous month.

Expect IPI to be moderate this year – We expect IPI to expand moderately in 2018 underpinned by higher growth in Manufacturing index. The resilient performance of IPI is due to uptick in commodity prices as well as sustainable global semiconductor sales. Thus, we estimate IPI to grow at 4.0% for 2018.

Source: JF Apex Securities Research - 12 Feb 2018