Mild growths in exports….. – Malaysian exports registered a mild growth of +3.4% y-o-y in May’18 after soaring +14.0% y-o-y in previous month. The result was marginally below our in-house expectation and consensus. The soft performance of export in this month was mainly supported by better exports in manufacturing and mining goods despite slowdown in agriculture goods. Besides, on a monthly basis, export growth contracted by -2.5% m-o-m (vs Apr’18:-0.3%).

…as well as imports – Imports in May’18 grew marginally at +0.1% y-o-y (vs Apr’18: +9.1%). The result was also below our in-house and market expectations. The soothing performance was underpinned by contraction in capital and intermediate goods as well as consumption goods. Meanwhile, on a monthly basis, imports in May’18 grew moderately by +4.0% m-o-m as compared to +2.0% m-o-m in the previous month.

As such, the nation's trade surplus in May’18 stood at RM8.12b, increasing +47.1% y-o-y but narrowing 37.9% m-o-m.

Agricultural products dragged exports to single-digit growth – Agricultural goods which accounted for 6.6% of total exports contracted 21.9% y-o-y in May’18 due to slowdown in palm oil and palm oil-based products (widened its contraction to -24.7% y-o-y vs Apr’18: -0.8%). However, exports in Manufacturing and Mining goods continue to surge, spurred by Manufacturing of metals (+44.7% y-o-y vs Apr’18: +42.9%), LNG (+61% y-o-y vs Apr’18: -12.5%) as well as Crude petroleum (+45.8% y-o-y vs Apr’18: +22.7%).

Subdued exports to main destinations - Meanwhile, exports to key countries slowed down in May’18, as shown below:

• China: RM11.5 billion (+7.4% y-o-y vs Apr’18: +22%)

• USA: RM7.0 billion (-5.6% y-o-y vs Apr’18: +1.7%)

• Singapore: RM11.1 billion (-9.8% y-o-y vs Apr’18: +3.7%)

Disappointing import growth – Imports in May’18 were little changed, +0.1% y-o-y after chalking up +9.1% in the previous month. The flattish import performance was dented by slumbering performance of all import components. Capital goods registered a negative growth of -0.7% y-o-y (vs Apr’18: +4.7%), mainly due to lower imports of capital goods such as electrical machinery and equipment & parts. Besides, consumption goods tumbled -10.2% y-o-y (vs Apr’18: -1.6%) due to lower imports in semi-durables goods mainly articles of plastics. However, intermediate goods narrowed its contraction to -5.3% y-o-y (vs Apr’18: -11.9%).

Envisage export and import performance to remain tepid in June’18 – We anticipate exports and imports to show another soft growth in the following month in view of mild exports and imports performance in all of the main components. Therefore, we reckon that exports and imports would grow at +9.1% and +8.6% respectively for 2018 (vs +18.9% and +19.9% for 2017). We believe overall external trade will maintain its positive momentum, albeit at a slower pace, driven by manufacturing sector which is backed by strong global trade activities and meaningful recovery in commodity prices. However, we opine that the prevailing trader war between the US and China could derail the global trade and hence affecting our export performance.

Source: JF Apex Securities Research - 6 Jul 2018