Exports rebounded but imports slipped into contraction – Malaysia’s export growth soared +6.7% y-o-y in Sept’18 (vs Aug’18: -0.3% y-o-y) despite contraction in imports by 2.7% y-o-y (vs Aug’18: +11.2% y-o-y). Exports result was slightly below our forecast but within market expectation. Nevertheless, September’s import was substantially below our in-house and market’s forecasts. Better performance in exports was underpinned higher exports of manufacturing and mining goods meanwhile subdued imports growth was due to negative growth in all components. On a monthly basis, exports elevated +1.5% m-o-m while imports dropped 15.5% m-o-m in Sept’18 (vs Aug’18: Exports: +5.0% m-o-m; Imports: +3.1% m-om)

As such, the nation's trade surplus posted a double digit growth in Sept’18, standing at RM15.3b after rising +86.0% y-o-y and +848.6% m-o-m.

Manufacturing and Mining sectors remain steady – Manufacturing goods which accounted for 84.7% of total exports, grew +7.9% y-o-y as compared to +1.8% y-o-y in Aug’18. Steady manufacturing growth during the month was underpinned by higher growth in E&E products: +6.5% y-o-y (vs Aug’18: +3.2% yo-y), Chemicals & chemical products: +31.7% y-o-y (vs Aug’18: +22.6% y-o-y) and Machinery, Appliances & Parts: +1.8% y-o-y (vs Aug’18: +22.6% y-o-y). Despite higher exports of E&E products, the Semiconductor Industry Association announced that Sept’18 global semiconductor sales was slightly below from Aug’18 to +13.8% y-o-y (vs Aug’18: +14.9% y-o-y). Besides that, exports in Mining goods rose higher +17.0% y-o-y (vs Aug’18: +5.5% y-o-y), mainly buoyed by LNG products: +1.8% y-o-y (vs Aug’18: -22.5% y-o-y), Petroleum products: +6.8% y-o-y (vs Aug’18: -3.3% y-o-y) and Crude petroleum: +54.5% y-o-y (vs Aug’18: +64.9% y-o-y). However, Agriculture sector contracted 10.7% y-oy (vs Aug’18: -20.8% y-o-y) due to lower export of palm oil products: -16.5% y-o-y (vs Aug’18: -27.0% y-o-y)

Exports to key partner lead by Hong Kong while China contracted slightly – Exports to key countries in this month was led by Hong Kong (+48.7% y-o-y vs Aug’18: +55.8% y-o-y), followed by Singapore (+8.7% y-o-y vs Aug’18: -2.2% y-o-y), and Thailand (+7.6% y-o-y vs Aug’18: +15.6% y-o-y). However, exports to China was slightly lower at -0.6% y-o-y (vs Aug’18: +4.5% y-o-y) due to lower exports of E&E products and other Agriculture products such as palm oil & palm oil based products as well as rubber products. For imports, imports to key countries was mainly from USA (+8.6% y-o-y), Singapore (+7.6% y-o-y) and Taiwan (+2.6% y-o-y).

Imports grew at slower pace – Imports in Sept’18 grew at slower pace to -2.7% y-o-y (vs Aug’18: +11.2% y-o-y) in view of slower growth in intermediate, capital and consumption goods. Intermediate goods which cover 52.8% of total imports contracted 9.3% y-o-y in Sept’28 (vs Aug’18: +4.1% y-o-y) following lower growth in import of electrical machinery, equipment and parts. Other than that, capital growth tumbled 25.2% y-o-y this month as compared to +28.2% y-o-y in the previous month due to lower imports of ships, boats and floating structure. Lastly, intermediate goods decreased 10% y-o-y (vs Aug’18: +14.3% y-o-y) after taking into account lower import of knitted or crocheted apparel and closing accessories.

Expecting a gentle growth for export and import in Oct’18 – We anticipate exports and imports to grow softly next month as we believe escalating trade tension to be felt during the period amid high base in 2H17. Therefore, we maintain exports and imports for 2018 to grow +7.0% and +7.8% respectively (from 2017: +18.8% and+19.2% respectively). 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 - 7 Nov 2018