Within market expectations – Malaysian Industrial Production Index (IPI) was little changed in Sept’18, +2.3% y-o-y (vs +2.2% y-o-y in Aug’18). The result was within market forecast of +2.3% while below our in-house forecast of +2.8%. Sept’18 IPI growth was underpinned by better performance in Manufacturing and Electricity indexes. On a monthly basis, IPI narrowed its losses from -0.9% m-o-m in Aug’18 to -0.3% m-o-m in Sept’18.

Food sub-sectors uplifted Manufacturing index growth – Manufacturing sector in Sept’18 improved in Sept’18 to +4.8% y-o-y as compared to +4.3% y-o-y in the previous month. The encouraging performance on manufacturing index was spurred by Food, beverages & tobacco: +6.9% y-o-y (vs Aug’18: +2.1% y-o-y), E&E products: +5.5% y-o-y (vs Aug’18: +4.5% y-o-y), Woods products, furniture, paper products & printing: +6.4 % y-o-y (vs Aug’18: +6.3% y-o-y) and Petroleum, chemical, rubber & plastic: +3.8 % y-o-y (vs Aug’18: +3.5% y-o-y). However, some of the sub-sectors slipped in their growth such as Non-metallic mineral products, basic metal & fabricated metal products: +4.6 % y-o-y (vs Aug’18: +4.9% y-o-y), Transport equipment & other manufacturer: +2.3 % y-o-y (vs Aug’18: +7.4% y-o-y) and Textile, wearing apparel, leather & footwear: +2.2 % y-o-y (vs Aug’18: +2.9% y-o-y). On a flip side, manufacturing index on a monthly basis rebounded from negative trajectory to +1.1% m-o-m from -1.0% m-o-m.

Electricity index inched up– The Electricity index elevated to +4.2% y-o-y in this month as compared to +4.0% in the last month. Besides, on a monthly basis, electricity index slipped to -6.3% m-o-m for this month (vs Aug’18: +0.7% m-o-m).

Mining sector widened its losses – Mining sector remained sluggish in this month, widening its losses to -6.2% y-o-y against -4.6% y-o-y in last month due to disappointing growths in both crude oil and natural gas. Crude oil expanded its losses to -6.3% y-o-y in Sept’18 from -0.6% y-o-y in Aug’18 while natural gas narrowed its losses for 2nd consecutive months from -8.0% y-o-y in Aug’18 to -6.2% y-o-y in Sept’18. Besides, on a monthly comparison, Mining sector slumbered to -3.2% m-o-m (vs Aug’18: -0.7% m-o-m).

Higher Manufacturing sales – In tandem with the sturdy growth in manufacturing sector, industrial sales stood at RM70.8b in Sept’18, which elevated to +8.2% y-o-y (vs Aug’18: +8.1% y-o-y). Expansion of manufacturing sales in this month was mainly buoyed by Petroleum, Chemical, Rubber & Plastic: +10.4 % y-o-y (vs Aug’18: +7.7% y-o-y) and followed by Food, beverages & tobacco: +5.7% y-o-y (vs Aug’18: +5.3% y-o-y) and Textile, wearing apparel, leather & footwear: +5.7 % y-o-y (vs Aug’18: +4.2% y-o-y).

Reckon another moderate growth in Oct’18 IPI–– We envisage IPI to grow at a slower pace in the following month amid easing growths in most indexes. However, we believe the demand for E&E products to remain healthy as supported by strong global demand. We maintain our IPI forecast of 3.5% for 2018. The performance for IPI will be driven by uptick in commodity prices as well as sustainable global semiconductor sales. However, we opine that prevailing trade war between the US and China could derail the global trade thus affecting our IPI performance.

Source: JF Apex Securities Research - 12 Nov 2018