Exports in Dec’18 improved despite slower Imports – Malaysian exports in Dec’18 improved to +4.8% y-o-y (vs Nov’18: +1.6% y-o-y) while imports soothed to +1.0% y-o-y (vs Nov’18: +5.0% y-o-y). Results for exports were below our in-house forecast but above market forecast while imports were below ours and market expectation. The encouraging exports result was due to higher exports in manufacturing goods. Meanwhile, moderate imports performance was due to lower imports of capital goods. On a monthly comparison, both exports and imports growth declined 1.8% m-o-m and 5.7% m-o-m respectively. As such, the nation's trade surplus in Dec’18 stood at RM10.4b after increasing 41.7% y-o-y and 38.1% m-om.

For the full year of 2018, exports grew slower at +6.8% y-o-y (vs 2017: +18.8% y-o-y) while imports grew +4.9% y-o-y (vs 2017: +19.8% y-o-y). Both exports and imports were slightly below our forecast of +7.0% y-o-y and +5.8% y-o-y respectively. The sluggish performance of exports in 2018 was due to contraction in agriculture goods while imports were dented by slow imports of intermediate and capital goods.

Exports supported by Manufactured goods amid a modest mode – Manufacturing goods, which accounted for 83.7% of total exports, expanded +9.1% y-o-y in 2018 (vs 2017: +18.8% y-o-y) to RM69.6b. Exports of manufactured goods was mainly underpinned by E&E products which holds the biggest share of Malaysian export. Higher exports of E&E products were mainly to Hong Kong, Taiwan, China and ASEAN. Besides, manufactured goods were also buoyed by exports in Chemicals & chemical products and Manufacture of Metals. Besides, exports in Mining goods expanded +7.1% y-o-y in 2018 (vs 2017: +23.9% y-o-y) underpinned crude petroleum products despite lower LNG products. Agriculture posted a contraction of 14.2% y-o-y in 2018 (vs 2017: +10.9% y-o-y) due to lower exports of palm oil products which declined 17.3% y-o-y.

Soothing trade with key trading partners – Malaysia’s exports to key trading partners was moderate in this year as exports to ASEAN rose 5% y-o-y (vs 2017: 18% y-o-y). Meanwhile, exports to advanced countries such as China, EU and US also slower to 10.3% y-o-y, 3.5% y-o-y and 2.3% y-o-y as compared to 28% y-o-y, 19.4% y-o-y and 10.5% y-o-y in 2017 respectively. However, exports to Vietnam improved from 16.1% y-o-y in 2017 to 24% y-o-y in 2018.

Disappointing Intermediate and Capital goods weigh on Imports performance – Imports posted a smaller growth of +4.9% y-o-y in 2018 as compared to +19.8% y-o-y last year due to contractions in intermediate and capital goods. Intermediate goods which constitute 52.4% of total imports contracted 3.9% y-o-y due to lower imports of electrical machinery, equipment and parts. Besides, capital goods shrunk 3.2% y-o-y following lower imports machinery and mechanical appliances. However, Consumption goods grew +2.5% y-o-y due to higher imports in pharmaceutical products.

Envisage another mild growth in export and import in 2019 – We reckon that exports and imports in 2019 will grow softly at +3.8% and +4.0% respectively consistent with slowing global economic indicators. We believe overall external trade will remain positive, albeit at a slower pace, driven by the Manufacturing sector which is backed by resilient global trade activities and gradual recovery in commodity prices. However, we opine that the prevailing trade war between the US and China, although halted at the moment, could potentially derail the global trade and hence affecting our export performance for 2019.

Source: JF Apex Securities Research - 31 Jan 2019