Below expectations – Malaysian exports deteriorated to -5.3% y-o-y (vs Jan’19: +3.1% y-o-y) in Feb’19 while imports slumped to -9.5% y-o-y (vs Jan’19: +1.0% y-o-y). Both exports and imports results were substantial below our in-house and market forecast. Exports performance was bogged down by contraction in all manufactured, mining and agriculture goods while imports were fazed by intermediate, capital and consumptions goods. On monthly basis, exports and imports fell, contracting to -22.0% m-o-m and -24.9% m-o-m respectively in Feb’19 from +2.2% m-o-m and +1.4% m-o-m in Jan’19, due to shorter working month and long public holiday during Chinese New Year. As such, the country's trade surplus in Feb’19 stood at RM11.1b, registering a growth of +23.1% y-o-y but shrinking -3.6% m-o-m.

Positive growth shown by E&E products despite declining in other manufactured goods – Exports of Manufacturing goods (consist of 83.8% from total exports) tumbled -4.3% y-o-y from +2.9% y-o-y in previous month. The discouraging result was due to dismal exports in most of manufactures goods except for E&E products. Growth of sub-components under manufacturing goods were slow such as Chemicals & chemical products: -4.2% y-o-y (vs Jan’19: +16.5% y-o-y), Petroleum products: -32.6% y-o-y (vs Jan’19: -24.1% y-o-y), Machinery, Appliances & Parts: -6.6% y-o-y (vs Jan’19: -1.6% y-o-y), Manufactures of Metal: -19.0% y-o-y (vs Jan’19: -0.9% y-o-y) and Optical & Scientific Equipment: -17.4% y-o-y (vs Jan’19: +6.9% y-o-y). However, E&E products able to posted a positive growth of +4.9% y-o-y albeit in a modest mode (vs Jan’19: +8.2% y-o-y).

Exports in Mining contracted after posting double-digit growth while Agriculture remained in the red – Exports in Mining contracted to -5.5% in Feb’19 after registering a double digit growth of +23.5% y-o-y in the prior month. Sluggish exports in mining outputs was dented by lower exports of Crude petroleum which tumbled -21.8% y-o-y (Jan’19: -1.1% y-o-y) due to lower Average Unit Value (AUV) and volume. However, exports of LNG outputs registered minor growth to +5.3% y-o-y from +37.5% which attributes to higher AUV. On the same note, exports of Agriculture remained in the and widened to - 13.7% y-o-y from -13.6% y-o-y following lower palm oil products (-16.9% y-o-y vs Jan’19: -19.5% y-o-y) and rubber products (-4.1 y-o-y vs Dec’18: -8.1% y-o-y).

Sluggish trade to key trading partners – Exports to ASEAN which account for 26.9% from total exports, dropped -8.2% y-o-y mainly due to lower exports to Myanmar: -36.6%, Indonesia: -24.7% Vietnam: -20.5%, Thailand: -4.1% and Singapore -2.9%. Besides, exports to China also declined by - 16.7% due to lower exports of some manufactured goods such as optical & scientific equipment and petroleum products. Import wise, imports to main countries also declined as China: -27.0% y-o-y (vs Jan’19: +17.5% y-o-y), Singapore: -17.2% y-o-y (vs Jan’19: -16.4% y-o-y). However, imports to USA and Japan improved by +6.4% y-o-y and +1.5% y-o-y respectively in Feb’19.

Dismal imports of sub-components – All imports components dropped in Feb’19. The lower import growth was due to lower imports of intermediate goods which deteriorated further to -2.9% y-o-y (vs Jan’19: -0.7% y-o-y) on the back of lower imports of iron and steel. Besides, imports of capital goods declined -14.9% y-o-y (vs Jan’19: -3.4% y-o-y), no thanks to lower imports of aircraft and parts equipment. Meanwhile, consumption goods tumbled -11.6% y-o-y (vs Jan’19: +3.3% y-o-y) albeit lower imports of room furniture.

Envisage softer growth in export and import – We reckon that exports and imports in 2019 could grow softly at +3.8% and +3.4% respectively, which is 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 halt at the moment, could potentially derail the global trade and hence affecting our export performance for 2019.

Source: JF Apex Securities Research - 5 Apr 2019