Within our expectation – Malaysia’s Industrial Production Index (IPI) registered +3.0% y-o-y growth in Jan’18 (vs Dec’17: +2.8% y-o-y). The result was within our in-house expectation of +3.0% while below market consensus of +6.8%. The result was mainly aided by positive growths shown in all indices. However, on a monthly basis, IPI posted a negative growth, declining -4.5% m-o-m as compared to positive monthly growth posted in last month (+2.2% m-o-m).

Softer growth in Manufacturing sector– The manufacturing sector softened to +4.8% y-o-y in Jan’18 (vs Dec’17: +5.4% y-o-y). The slower growth in the manufacturing index was dented by small growth in major sub-sector such as Petroleum Products, Chemicals, Rubber & Plastic (2.1% y-o-y vs Dec’17: +3.6% y-o-y) and Food, Beverage & Tobacco Products (14.4% y-o-y vs Dec’17: +17.0% y-o-y). Besides, on a monthly basis, the manufacturing returned to a negative growth of -5.8% m-o-m growth (vs Dec’17: +2.2% y-o-y).

Flattish growth for E&E products – E&E products grew flat in Jan’18 at +4.0% y-o-y as compared to +4.1% y-o-y in the previous month. However, it was in contrast with global semiconductor sales which grew +22.7% y-o-y in Jan’17 but down -1.0% m-o-m (vs Dec’17: +22.5% y-o-y, + 5.7 m-o-m). The marginal decline in monthly global semiconductor sales was in line with monthly growth in E&E products which dropped -8.1% m-o-m in Jan’18 (vs Dec’17: +1.0% m-o-m).

Higher Electricity index – Electricity’s output growth reached +4.3% y-o-y in Jan’18 as compared to +3.9% y-o-y in previous month. However, as compared on monthly basis, Jan 18’s IPI returned to negative m-o-m growth of -1.6% m-o-m (vs Dec’17: +1.7% y-o-y).

Rebound of Mining sector – The mining sector rebounded from negative growth recorded in last month by inching up +1.5 y-o-y in Jan’18. The higher growth in mining this month was spurred by rebound in crude petroleum (+1.8% y-oy vs Dec’17: -5.0%) and natural gas (+1.5% y-oy vs Dec’17: -3.2%). However, on a monthly basis, the manufacturing sector remained unchanged with +2.4% m-o-m growth (vs Dec’17: +2.4% y-o-y).

Expect IPI to remain soft in Feb’18 – We expect IPI to remain tepid in the following month, still underpinned by growth in Manufacturing index (mainly E&E products). We believe demand for E&E products remain encouraging supported by strong global demand. Therefore, we maintain our IPI forecast at 4.0% for 2018. The resilient performance for IPI will be spurred by uptick in commodity prices as well as sustainable global semiconductor sales.

Source: JF Apex Securities Research - 14 Mar 2018