Above expectations – Malaysian export and import posted minimal contractions of 0.5% y-o-y and 0.1% y-o-y respectively in Mar’19 (vs Feb’19, Exports: -5.3% y-o-y; Imports: -9.5% y-o-y). Both export and import were slightly better than our in-house and market expectations. Export performance was underpinned by positive growth in manufactured goods despite subdued exports in mining and agriculture goods. While for import, it was buoyed by higher import of intermediate and capital goods. As such, the country's trade surplus in Mar’19 stood at RM14.4b, falling 2.2% y-o-y but improved +29.5% m-o-m. For the first quarter of 2019, exports dropped 0.7% y-o-y while imports tumbled 2.5% y-o-y (vs 1Q18 - Exports: +5.8% y-o-y; Imports: -0.8% y-o-y) due to subdued export of agriculture goods despite higherthan-expected export of manufactured and mining goods.

Export of manufactured goods rebounded – Export of Manufacturing goods which consists 83.8% of total exports rebounded to +1.5% y-o-y from a contraction of 4.3% y-o-y in the previous month, mainly aided by higher growth in Chemicals & chemical products: +4.7% y-o-y (vs Feb’19: -4.2% y-o-y), Petroleum products: +26.2% y-o-y (vs Feb’19: -32.7% y-o-y), and Optical & Scientific Equipment: +19.2% y-o-y (vs Feb’19: -17.4% y-o-y). However, E&E products slipped to by 1.9% y-o-y from +4.9% y-o-y in Feb’19 as well as Machinery, Appliances & Parts ( -9.0% y-o-y vs Feb’19: -6.6% y-o-y). For the first quarter of 2019, export of manufactured goods grew +0.3% y-o-y as compared to +8.2% y-o-y in first quarter of 2018 due to higher export base.

Exports of mining and agriculture goods remain subdued – Export of Mining products saw its contraction widened to -7.4% y-o-y from -5.5% in Feb’19 mainly due to major contraction in Crude petroleum: (-33.5% y-o-y vs Feb’19: -21.8% y-o-y) despite higher export of LNG products: (+17.2% y-o-y vs Feb’19: +5.3% y-o-y). Besides, export of Agriculture goods narrowed its contraction to -10.4% y-o-y from -13.7% y-o-y amid lower export of palm oil products (-13.7% y-o-y vs Feb’19: -16.9% y-o-y) and decline in rubber products (-0.4 y-o-y vs Feb’18: +0.6% y-o-y).

Exports to ASEAN countries improved – Exports to ASEAN which account for 26.7% of total exports, expanded vigorously in Mar’19 led by Thailand: +15.6% y-o-y (vs Feb’19: -4.1% y-o-y) and Vietnam: +16.7% y-o-y (vs Feb’19: -20.5% y-o-y). However, export to Singapore deteriorated further to -6.9% y-o-y from -2.9% y-o-y in the prior month. Besides ASEAN, export to China also improved by +11.8% y-o-y in Feb’19 as compared to -1.6% y-o-y in Feb’19. For 1Q19, exports to ASEAN countries declined to -4.5% y-oy from +2.2% y-o-y due to lower exports of some manufactured goods such as petroleum products. However, export to China edged higher during this quarter, expanding +4.5% y-o-y (vs 1Q18: +0.3% y-oy), thanks to higher exports of LNG products, chemicals & chemical products, petroleum products, manufacture of metals and palm oil products. Import-wise, imports to main countries such as China and USA improved by +15.1% y-o-y and +10.6% y-o-y respectively while imports to Singapore and Japan dropped by -6.7% y-o-y and -11.6% y-o-y respectively.

Flattish imports – Imports narrowed its contraction, thanks to intermediate goods which rebounded to +3.2% y-o-y mainly underpinned by higher imports of mineral fuel and oils. Besides, import of consumption goods increased +10.5% y-o-y (vs Feb’19: -11.7% y-o-y) amid higher import of jewellery. However, import of capital goods dropped -11.7% y-o-y (vs Feb’19: -14.6% y-o-y) due to lower imports of ships, boats and floating structures.

Envisage softer growth in exports and imports – 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 halted at the moment, could potentially derail the global trade and hence affecting our export performance for 2019.

Source: JF Apex Securities Research - 6 May 2019