Robust Exports – Malaysian exports in Oct’18 surpassed the RM90b mark for the first time, hitting RM93.4b after having soared 17.7% y-o-y and 16.1% m-o-m (vs Sept’18: +6.7% y-o-y, +1.5% m-o-m). The result was substantially above our in-house forecast as well as market consensus of +14% and +5.8% respectively. The robust improvement in exports growth was mainly buoyed by higher exports of Manufacturing and Mining goods to key trading partners such as Vietnam, China, Thailand and Singapore.

Imports turnaround – Besides, Imports rebounded from a negative trajectory in the previous month to +11.4% y-o-y and +18.1% m-o-m this month (vs Sept’18: -2.7% y-o-y, -15.5% m-o-m), thanks to higher import of Intermediate goods and Consumption goods. Imports growth was above market expectation of +3.3%, however slightly below our forecast of +13%.

As such, the nation's trade surplus recorded its highest value ever at RM16.3b in Oct’18 after rising +63.1% y-o-y and +6.9% m-o-m.

Manufacturing and Mining at all time high – Manufacturing goods which accounted for 84% of total exports improved 19.9% y-o-y as compared to +7.0% y-o-y in Sept’18. Export of manufacturing goods was underpinned by strong demand in Chemicals & chemical products: +36.5% y-o-y (vs Sept’18: +31.7% y-oy), Manufacturer of metal: +29% y-o-y (vs Sept’18: -2.2% y-o-y), E&E products: +23.3% y-o-y (vs Sept’18: +6.5% y-o-y) and Machinery, Appliances & Parts: +4.2% y-o-y (vs Sept’18: +1.8% y-o-y). Despite higher exports of E&E products, global semiconductor sales however were slightly lower at +12.7% y-o-y and +1.0% m-o-m in Oct’18 (vs Sept’18: +13.8% y-o-y, +2.0% m-o-m). Likewise, exports in Mining goods rose +29.6% y-o-y in Oct’18 (vs Sept’18: +17.0% y-o-y), spurred by higher demand in LNG products and Petroleum product which grew +38.0% y-o-y and +31.2% y-o-y respectively (vs Sept’18: +1.8% y-o-y, +5.5% y-o-y). Agriculture’s demand however, which remained negative in the past few months, contracted once again to -12.3% y-o-y in Oct’18. The subdued growth in Agriculture goods was due to lower exports in palm oil products: -17.3% y-o-y (vs Aug’18: -16.5% y-o-y).

Export to key partners led by ASEAN, while Imports from China turned around – Exports to key countries in this month was led ASEAN countries such as Vietnam: +36.3% y-o-y (vs Sept’18: +7.5% y-oy), Thailand: +20.8% y-o-y (vs Sept’18: +7.6% y-o-y) and Singapore: +18.3% y-o-y (vs Sept’18: +7.9% y-o-y), thanks to higher exports of manufactured goods. Imports wise, imports from China rebounded to +7.6% y-o-y from -1.2% y-o-y in last month. Besides, imports from other countries edged up as well such as Singapore: +11.8% y-o-y (vs Sept’18: +7.6% y-o-y), USA: +9.0% y-o-y (vs Sept’18: +8.1% y-o-y) and Taiwan: +33.4% y-o-y (vs Sept’18: +2.6% y-o-y).

Massive Import growth – Import growth in Oct’18 rebounded to +11.4% y-o-y this month as compared to -2.7% y-o-y in last month, mainly aided by higher import of intermediate and capital goods. Intermediate goods which cover 49.1% of total imports turned around to +1.0% y-o-y (vs Sept’18: -9.4% y-o-y) in view of higher import of fuel and lubricants components. Besides, consumption growth also rebounded to +7.6% y-o-y from -10.0% y-o-y in Sept’18 following higher import of non-durable goods such as pharmaceutical products. Meanwhile, capital goods narrowed its contraction to -1.6% y-o-y from - 21.3% y-o-y in the previous month. Lower import of capital goods was mainly due to decreased import of machinery and mechanical appliances.

Envisage export and import to soften in Nov’18 – We reckon that export and import will experience a softer growth next month amid moderate growth in 4Q18 due to adverse base effect. We maintain exports and imports forecast for 2018 with growths of +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 trade war between the US and China, though halted at the moment, could potentially derail the global trade and hence affecting our export performance.

Source: JF Apex Securities Research - 6 Dec 2018