Exports beat expectations – Malaysian exports in July’18 improved to +9.4% y-o-y as compared to +7.6% y-o-y in the previous month. The result exceeds our in-house forecast and market forecast of +9.0% y-o-y and +4.7% y-o-y respectively. The sturdy performance was underpinned by positive export growths shown by all main sub-sectors coupled with better trade with key trading nations. On a monthly basis, exports rebounded to positive trajectory, +9.6% m-o-m after showing contraction for three consecutive months.

Imports exceed market expectation but below ours – Malaysian imports grew +10.3% y-o-y in July’18 (vs June’18: +14.9% y-o-y), eminently exceeding market expectation of +5.3% y-o-y but marginally below our estimate of +16% y-o-y. Imports growth in July’18 was mainly supported by higher growth in Capital and Consumption goods despite contraction in Intermediate goods. Besides, on a monthly basis, imports also rebounded to positive trajectory of +7.2% m-o-m compared with -1.9% m-o-m in June’18.

As such, the nation's trade surplus in July’18 stood at RM8.3b, chalking up growths of +1.7% y-o-y and +37.3% m-o-m. 

Massive demand in Manufacturing and Mining products but lower in commodities goods – Manufacturing goods which accounted for 84.6% of total exports grew +12.6 y-o-y in July’18 (vs June’18: +12.7% y-o-y) supported by higher exports in manufacturing goods mainly E&E products (+23.6% y-o-y vs June’18: +6.9% y-o-y). The greater export growth in E&E products was in tandem with Global Semiconductor Sales for the month of July’18 which was improved +17.4% y-o-y and +0.4% m-o-m. Besides, exports of Mining and Agriculture goods rebounded from negative trajectory to +7.1% y-o-y in July’18 (vs June’18: -10.9% y-o-y), buoyed by strong demand in crude petroleum products (+90.1% y-o-y vs June’18: +25.3% y-o-y). However, exports in Agriculture products remained sluggish, which tumbled - 14.5% y-o-y as compared to -18.7% y-o-y in the previous month due to lower palm oil product, -23.1% yo-y (vs June’18: -26.8% y-o-y)

Pleasant trade performance with key partners – Exports performance in July18 remained steady, with key trading countries led by Hong Kong SAR (RM6.5b;+80.8% y-o-y vs June’18: +64.4% y-o-y), China (RM12.9b;+37.5% y-o-y vs June’18: +16.9% y-o-y), India (RM3.6b;+16.3% y-o-y vs June’18: -7.9% y-oy) and USA (7.7b;+6.7% y-o-y vs June’18: -1.9% y-o-y). Meanwhile, imports from key partners were driven by Indonesia and USA, which improved +32.1% y-o-y and 7.5% y-o-y respectively.

Import components propelled by Capital and Consumption goods – Imports in July’18 maintained its double-digit growth of +10.3% y-o-y (vs June’18: +14.9% y-o-y). The sturdy imports performance was underpinned by greater performance in capital and consumption goods. Capital goods softened to +4.7% y-o-y (vs June’18: +14.1% y-o-y), mainly led by imports in industrial transport mainly aircraft and parts. Meanwhile, consumption goods improved +11.1% y-o-y (vs June’18: +4.9% y-o-y) driven by higher imports in semi-durables particularly apparel and clothing. However, intermediate goods contracted 0.1% y-o-y (vs June’18: +3.1% y-o-y) due to lower imports in electrical machinery, equipment and parts.

Expecting a gentle growth for both export and import – We anticipate exports and imports to grow softer in 2H18 as we believe escalating 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 Sept 2018