Substantially below expectation – Both exports and imports fell into the red in June’19 after posting positive growths since Apr’19. Exports contracted to -3.1% y-o-y after growing +2.5% y-o-y in May’19. Besides that, imports also tumbled to -9.2% y-o-y from +1.5% y-o-y in the previous month. Both exports and imports were marginally below our in-house and market forecast. Subdued exports were due to sluggish trade performance in manufacturing and agriculture sectors. Meanwhile, imports growth was bogged down by moderate imports in all sub-components. However, the nation's trade surplus in June’19 registered a double-digit growth to RM10.3b from RM9.1b in May’19, after rising +69.9% y-o-y and +12.95 m-o-m.

Disappointing trade performance in 1H19 – As for 6M19, exports dropped slightly to -0.2% y-o-y while imports diminished to -1.8% y-o-y. Nevertheless, the nation's trade surplus in 1H19 stood at RM67.1b after expanding +10.9% y-o-y. Disheartened export during this period was due to lower exports of agriculture goods despite steady exports in manufacturing and mining goods. Moreover, imports growth was dragged down by lower imports of capital goods.

Slower export of manufactured goods after trending upwards for three consecutive months – Export of Manufacturing goods, which constitutes 83.7% of total exports, dropped -5.0% y-o-y in June’19 (VS May’19: +3.1% y-o-y). Most of the exports components were lower such as E&E products: - 6.0% y-o-y (vs May’19: +0.6% y-o-y), Petroleum products: -2.4% y-o-y (vs May’19: -15.1% y-o-y), Machinery, Appliances & Parts: -10.9 % y-o-y y (vs May’19: +14.9% y-o-y), Manufacture of metal: -15.7% y-o-y (vs May’19: -6.8% y-o-y) and Optical & Scientific Equipment: -4.9% y-o-y (vs May’19: +3.8% y-o-y). However, Chemicals & chemical products registered a positive growth of +1.3% y-o-y albeit at a modest mode (vs May’19: +7.7% y-o-y). In 1H19, export of manufacturing goods increased slightly by +0.3% y-oy, driven by higher exports of E&E products, chemical & chemical products, and iron & steel products.

Exports of mining goods surged while agriculture goods back into red – Contraction in Mining outputs halted in June’19 after growing +15.4% y-o-y (vs May’19: -10.9% y-o-y). Previously, exports of mining were subdued after posting a contraction for four consecutive months. Encouraging exports of mining goods were supported by higher exports of LNG products: +5.5% y-o-y (vs May’19: -5.2% y-o-y) as well as crude petroleum products: +31.7% y-o-y (vs May’19: -20.0% y-o-y). However, exports of Agriculture outputs returned into contraction and was little changed at -0.8% y-o-y as compared to +15.3% y-o-y in May’19, no thanks to moderate exports growth of Palm oil products at +3.0% y-o-y (vs May’19: +17.5% y-o-y). In 1H19, exports of mining were up by +2.1% y-o-y but exports of agriculture were down by -5.8% y-o-y.

Slower exports and imports to key trading partners – Exports and imports to key trading partners were slower: Singapore (Exports:-0.9% y-o-y, Imports: -14.3% y-o-y), China (Exports:-12.0% y-o-y, Imports: -12.6% y-o-y), USA (Exports:+8.8% y-o-y, Imports: +1.7% y-o-y) and Japan (Exports:-13.53% y-o-y, Imports: -7.1% y-o-y). Exports in June’19 were led by Taiwan with +26.7% y-o-y growths while imports were dominated by India with +11.1% y-o-y growths. During 1H19, most of the trade with key trading partners shrank especially ASEAN (-1.9% y-o-y), China (-0.3% y-o-y), EU (-3.0% y-o-y) and Japan (-3.3% y-o-y). However, trade with the US was substantially higher at +5.2% y-o-y during this period.

Imports fell into the red – Imports returned into the red at -9.2% (vs May’19: +1.5% y-o-y) y-o-y, after posting positive growth for a couple of months, due to slower imports of all components. Intermediate goods which constitute 58.3% of total imports, were down to -2.5% y-o-y from +6.4% y-o-y in the prior month due to slower imports of iron & steel. Besides, Consumption goods declined -5.4% y-o-y (vs May’19: +10.9% y-o-y), no thanks to lower imports of apparel & clothing accessories. Other than that, Capital goods widened its contraction to -23.6% y-o-y from -5.7% y-o-y in last month due to lower imports of machinery & mechanical appliances.

Expecting a mild growth for both export and import in 2H19 – We anticipate exports and imports to grow softer in 2H19 as we believe escalation from trade tension to continue and consistent with slowing global economic indicators. We cut both exports and imports in 2019 to +2.8% and +2.4% respectively from +3.8% and +3.4% to account for softer trade performance in 2H19. 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 Aug 2019