Moderate growth – Malaysian exports registered a moderate growth in the first month of 2019, growing +3.1% y-o-y as compared to +5.1% in Dec’18. Meanwhile, imports maintained the same growth as the previous month at +1.0% y-o-y (vs Dec’18:+1.0% y-o-y). Exports exceeded market and our in-house forecasts while import is below market expectation but beat our in-house projection. Exports of goods in Jan’19 were buoyed by stellar exports in manufacturing and mining goods despite sluggish performance in agriculture goods. Besides, imports of goods were underpinned by minor growth in consumption goods. On a monthly basis, exports and imports rebounded from contractions to +2.2% y-o-y and +1.4% y-o-y respectively (vs Dec’18: Exports: -1.5% m-o-m, Imports: -5.7% m-o-m). As such, the country's trade surplus in Jan’19 stood at RM11.5b, registering a growth of +19.1% y-o-y and widened to +7.9% mo-m.

Slower exports momentum by Manufactured goods – Growth of sub-components under Manufacturing goods were slow such as E&E products: +8.2% y-o-y (vs Dec’18: +14.2% y-o-y), Chemicals & chemical products: +16.7% y-o-y (vs Dec’18: +36.6% y-o-y) and Optical & Scientific Equipment: +7.1% y-o-y (vs Dec’18: +14.6% y-o-y). Besides, other sub-components showed a contraction in exports such as Petroleum products: -24.1% y-o-y (vs Dec’18: -16.1%), Machinery, Appliances & Parts: - 1.5% y-o-y (vs Dec’18: +7.4%) and Manufactures of Metal: -0.9% y-o-y (vs Dec’18: +5.5%). All this soothing growth led to slower exports of manufacturing goods in Jan’19 to +2.9% y-o-y (vs Dec’18: +9.2% y-o-y).

Exports in Mining posted double-digit growth despite dismal agriculture goods – Exports in Mining goods posted a double-digit growth to +23.5% y-o-y following stellar growth in LNG products. Exports of LNG rebounded from -2.7% y-o-y to +37.5% y-o-y in Jan’19, thanks to higher Average Unit Value (AUV) and volume. However, exports in Crude petroleum contract -1.1% y-o-y from +7.4% y-o-y in the prior month. Nevertheless, exports of Agriculture remained in the red for a few consecutive months, standing at -13.6% y-o-y on the back of lower palm oil products (-19.5% y-o-y vs Dec’18: -27.2%) and rubber products (-8.1 vs Dec’18: +4.8%)

Steady exports to key trading partners – Exports to ASEAN remains steady with higher exports to Thailand (+17.1% y-o-y vs Dec’18: +9.6%) and was mainly underpinned by exports in E&E products. Besides, exports to China rebounded to +9.1% y-o-y from -0.3% y-o-y in the prior month, backed by higher exports of LNG, chemical products, palm oils products and petroleum products. Import growth came mostly from China (+17.5% y-o-y vs Dec’18: +6.7%) which account for higher imports of E&E products and machinery, equipment and parts.

Dismal imports of Intermediate and Capital goods – Imports grew +1.0% y-o-y in Jan’19. The moderate import growth was due to lower imports of intermediate goods which tumbled -0.7% y-o-y (vs Dec’18: +3.5% y-o-y) following lower imports of electrical machinery, equipment and parts. Besides, imports of capital goods contracted 3.4% y-o-y (vs Dec’18: 22.4%), no thanks to lower imports of aircraft and parts equipment. However, positive growth in consumption goods (+3.3% y-o-y) was underpinned by higher imports of pharmaceutical products.

Envisage softer growth in export and import – 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 - 5 Mar 2019