Healthy growth shown by exports despite softening imports growth – Malaysian exports trended higher in May’19 to +2.5% y-o-y (vs Apr’19: +1.1% y-o-y) while imports soothed to +1.5% y-o-y from +4.4% y-o-y in the prior month. On a monthly basis, exports turned to contraction to +1.2% m-o-m (vs Apr’19: +1.4% y-o-y) and imports seemed flattish, +1.0% m-o-m (vs Apr’19: +6.7% y-o-y). May’19 trade performances were substantially below our in-house forecast but slightly above market forecast. Exports growth was buoyed by strong rebound in agriculture sector coupled with exports growth in manufacturing sector. On the other hand, slower imports growth was due to moderate imports in all of sub-components. As such, the nation's trade surplus in May’19 increased to RM9.1b, surging +11.9% y-o-y but narrowing 16.2% m-o-m.

Export of manufactured goods continued trending upwards – Export of Manufacturing goods, which constitutes 84.2% of total exports, trending upwards for three consecutive months to +3.1% y-o-y from +2.7% y-o-y in Apr’19. Stellar demands for manufactured goods were mainly from Chemicals & chemical products: +7.7% y-o-y (vs Apr’19:+3.9% y-o-y) and Machinery, Appliances & Parts: +14.9% y-oy (vs Apr’19:+0.8% y-o-y). Other exports of manufactured outputs such as E&E products (+0.5% y-o-y vs Apr’19:+0.9% y-o-y), Petroleum products (-14.9% y-o-y vs Apr’19:+10.3% y-o-y), Manufacture of metal (- 6.8% y-o-y vs Apr’19:-23% y-o-y) and Optical & Scientific Equipment (+3.8% y-o-y vs Apr’19:+19.5% y-oy) were slightly down during the month. Moreover, subdued E&E products were in tandem with global semiconductor sales reported by Semiconductor Industry Association (SIA) which contracted 14.6% y-o-y but slightly improved +1.9% m-o-m.

Robust exports growth in agriculture despite massive contraction in mining – Demand for Agriculture outputs spiked up in May’19 to +15.3% y-o-y (vs Apr’19: -9.3% y-o-y) after posting contraction since Feb’18, thanks to rebound in exports of Palm oil products: +17.5% y-o-y (vs Apr’19: - 16.7% y-o-y). Besides, exports in rubber products also improved from +1.7% y-o-y in Apr’19 to +7.5% yo-y in May’19. Nevertheless, severe contraction from Mining outputs recorded in May’19. Exports in mining deteriorated due to massive slowdown in exports of crude petroleum products: -20% y-o-y (vs Apr’19:- 34.6% y-o-y) as well as LNG products: -5.2% y-o-y (vs Apr’19: +26.3% y-o-y).

Broad based exports growth to India while strong imports growth from US – Exports of goods were higher to India: +43.1% y-o-y (vs Apr’19: +6.7% y-o-y) as the country was the main export destination of palm oil products. Besides exports to other countries also remained steady such as USA (+11.7% y-o-y vs Apr’19: +3.1 y-o-y), Japan (+7.5% y-o-y vs Apr’19: +7.7 y-o-y), Hong Kong SAR (+3.4% y-o-y vs Apr’19: +0.1 y-o-y) and Thailand (+7.4% y-o-y vs Apr’19: +1.2 y-o-y). Imports wise, it was led by the USA with +35.6% y-o-y from+4.7% y-o-y in last month.

Soothing imports – Imports moderated during the month due to subdued imports from all of its components. Intermediate goods, the main contributor to imports components, easing to +6.4% y-o-y from stellar +20.4% y-o-y from the previous month. Besides, Consumption goods grew +10.9% y-o-y as compared to +18.9% y-o-y in Apr’19. Meanwhile, Capital goods returned to contraction, -5.7% y-o-y after returning into the black in the previous month (vs Apr’19: +5.7% y-o-y).

Envisaging softer growth in both exports and imports – We reckon that exports and imports in 2019 could grow softer 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 could potentially derail the global trade and hence affecting our export performance for 2019.

Source: JF Apex Securities Research - 5 Jul 2019