Above expectations – Malaysia’s Industrial Production Index (IPI) in Apr’18 stood at 108.1, which improved +4.6% y-o-y but declined 3.6% m-o-m (vs Mar’18: +3.1% y-o-y; -0.2% m-o-m). The result exceeds our in-house expectation as well as market expectation of +3.6% and +4.4% respectively. The better-than-expected performance was reinforced by higher growths in all main indexes.

Massive growth in Manufacturing sector – The manufacturing sector in Apr’18 soared +5.3% y-o-y as compared to +4.1% y-o-y in Mar’18. The steady growth in this index was underpinned by Transport Equipment and other Manufacturers: +6.8% y-o-y (vs Mar’18: +5.2%), Non-metallic Mineral Products, Basic Material & Fabricated Metal Products: +4.7% y-o-y (vs Mar’18: +4.5%), Petroleum, Chemical, Rubber & Plastic: +3.0% y-o-y (vs Mar’18: +1.4%) as well as Textile, Wearing Apparel, Leather & Footwear: +4.0% y-o-y (vs Mar’18: +3.5%). However, index of Manufacturing sector softened on monthly basis, widening its contraction to -2.1% m-o-m in Apr’18 (vs Mar’18:-1.0%)

….as well as Manufacturing sales – Manufacturing sales in Apr’18 reached RM65.5b, soaring +8.2% yo-y as compared to +3.9% y-o-y in last month. The strong expansion in Manufacturing sales was mainly buoyed by higher growths in most of sub-sectors such as Transport Equipment and other Manufacturers: +5.5% y-o-y (vs Mar’18: -2.1%), Food, Beverage & Tobacco: +6.4% y-o-y (vs Mar’18: 5.0%) and Petroleum, Chemical, Rubber & Plastic: +6.3% y-o-y (vs Mar’18: -0.9%).

Higher E&E products – E&E products grew stronger in Apr’18, elevating +6.6% y-o- (vs Mar’18: +5.8%). Besides, sales of E&E product also spiked up to +13.9% y-o-y in Apr’18 (vs Mar’18: +10.5%). This was in tandem with the findings of Semiconductor Industry Association (SIA) as global semiconductor sales reached $37.6b which surged strongly by +20.2% y-o-y and +1.4% m-o-m in Apr’18.

Robust Electricity index – The electricity index registered a robust growth in Apr’18, +5.8% y-o-y as compared to +4.4% in Mar’18. However, on monthly basis, the reading turned to negative growth of -1.2% m-o-m (vs Mar’18: +0.2%).

Hike in Mining sector – The mining sector registered a growth of +1.8% y-o-y in Apr’18 despite a contraction of 8.1% m-o-m on monthly basis (vs Mar’18: 0.0% y-o-y; -0.2% m-o-m). The mining sector was mainly driven by higher crude oil (+4.4% y-o-y vs Mar’18: +1.1% y-o-y).

IPI is expected to grow higher in May’18 – We envisage IPI to grow stronger in the following month, still underpinned by growth in manufacturing index (mainly E&E products). We believe demand for E&E products to remain healthy as 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. However, we opine that prevailing trade war between US and China/Europe could derail the global trade thus affecting our IPI performance.

Source: JF Apex Securities Research - 12 Jun 2018