Exports and imports expanded at faster pace – Malaysian exports and imports surged +7.6% y-o-y and +14.9% y-o-y respectively in June’18 as compared to May’18 (Exports: +3.4% y-o-y; Imports: +0.1% y-o-y). Both export and import marginally exceeded our in-house expectation and market expectation. The soaring performance of exports and imports were mainly underpinned by better trade with key trading countries. However, on a monthly basis, export growth contracted -4.2% m-o-m (vs May’18:-2.5% m-o-m) while imports slowed to 1.9% m-o-m (vs May’18:+4.0% m-o-m). As such, the nation's trade surplus in June’18 stood at RM6b after depleted by -38.9% y-o-y and -25.6% m-o-m.

Soothing exports and imports in 1H18 – Exports in 1H18 moderated to +7% y-o-y (vs 1H17: +21% yo-y) due to higher base. 1H18’s exports growth was mainly supported by export of manufactured goods and mining goods. Similarly, imports recorded a subdued growth of +3.4% y-o-y as compared to 1H17 with +9.4% y-o-y due to contraction in all main components.

Manufactured products were major exports in June’18 – Manufacturing goods which accounted for 86.1% of total exports rose sharply to +12.7% y-o-y in June’18 (vs May’18: +3.2% y-o-y) supported by higher exports of E&E products (+6.9% y-o-y vs May’18: +2.1%), petroleum products (+33.9% y-o-y vs May’18: +1.7%), as well as chemicals and chemical products (+31.6% y-o-y vs May’18: +14.6%). However, exports Mining and Agriculture goods were sluggish, dented by LNG (-31.2% y-o-y vs May’18: +61%) as well as palm oil-based products (-26.8% y-o-y vs May’18: -24.7%).

Trade performance with main partners remains steady – Meanwhile, trade performance in June’18 remains steady with key trading countries such exports to China (RM11.4b;+16.9% y-o-y vs May’18: +7.4% y-o-y) and Hong Kong SAR (RM6.1b;+64.4% y-o-y vs May’18: +34.8% y-o-y) and imports to China (RM15.4b;+18.8% y-o-y vs May’18: +7.8% y-o-y) and Singapore (RM8b;+25.6% y-o-y vs May’18: +13.5% y-o-y). As for 1H18, trade with ASEAN, China and Europe expanded +4.2% y-o-y, +17.9% y-o-y and +9.7% y-o-y respectively. Meanwhile, trade with USA and Japan recorded contractions of 6.8% y-o-y and 2.3% y-o-y respectively during this period.

Rebound in Import components – Imports in June’18 posted a double-digit growth of +14.9% y-o-y after a flat growth of +0.1% y-o-y in the previous month. The sturdy import performance was buoyed by greater performance of all import components. Capital and consumption goods rebounded from negative figures and accelerated to +14.1% y-o-y and +4.9% y-o-y respectively (vs May’18: Capital:-0.7% y-o-y; Consumption: -10.2% y-o-y) mainly supported by higher imports of machinery & mechanical appliances, as well as semi-precious stone and metal. Besides, intermediate goods improved +3.1% y-o-y (vs May’18: - 5.3% y-o-y) due to higher imports of processed industrial supplies mainly iron and steel. In 1H18, imports were slow due to poor performance of all main components.

Expecting a gentle growth for both export and import in 2H18 – We anticipate exports and imports to grow softer in 2H18 as we believe escalation from trade tension to be felt during the period amid high base in 2H17. Therefore, we reckon that exports and imports would grow at +9.1% and +8.6% respectively in 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 Aug 2018