Below expectation – Exports fell into the red at -0.8% y-o-y in Aug’19 compared to July’19 (+1.7% y-oy). Meanwhile, imports extended its contraction to –12.5% y-o-y in Aug’19 as compared to -5.9% y-o-y during July’19. Both export and import were marginally below our in-house and market consensus. The disappointing export growth was due to sluggish exports of mining outputs which offset higher exports of agriculture and manufacturing outputs. Besides, imports were dragged down by all of import components such as Intermediate, Capital and Consumption goods. As such, the nation's trade surplus in Aug’19 dropped to RM10.9b from RM14.3b in July’19, rising +578.9% y-o-y and +23.6% m-o-m.

Minor export growth of manufacturing outputs – Export of Manufacturing goods, which account for 84.4% of total exports, registered little growth at +0.8% y-o-y in Aug’19 compared to +3.8% y-o-y in the prior month. Growth in manufacturing exports was buoyed by Petroleum products (+7.0% y-o-y vs July’19: +3.5% y-o-y) and Machinery, Appliances & Parts (+7.6% y-o-y vs July’19: +6.0% y-o-y). Besides, Manufacture of metal rebounded from a contraction after showing negative growth for nine consecutive months, growing to +19.2% y-o-y in Aug’19 from -4.1% y-o-y last month. However, minor export growth of manufacturing outputs was offset by slower growth in E&E products (-7.4% y-o-y vs July’19: +4.5% y-oy), Chemicals & chemical products (-4.5% y-o-y vs July’19: +1.9% y-o-y) and of Optical & Scientific Equipment (-11.5% y-o-y vs July’19: -2.3% y-o-y).

Exports of agriculture goods soared; mining goods widened its contraction – Exports of Agriculture outputs soared +13% y-o-y in Aug’19 (vs July’19: -9.3% y-o-y) and halted its contraction of two consecutive months. Massive export of agriculture products was underpinned by stellar export of Palm oil products which grew +23.3% y-0-y (vs July’19: -13.2% y-o-y) despite lower outputs in Rubber products (-2.5% y-o-y vs July’19: -10.9% y-o-y). Nevertheless, Exports of Mining outputs remained sluggish after widening its contraction to -20.7% y-o-y in Aug’19 against -11.6% y-o-y in July’19, no thanks to disappointing exports of both LNG products (-11.2% y-o-y vs July’19: +31.3% y-o-y) and Crude petroleum products (-40% y-o-y vs July’19: -45.7% y-o-y).

Soothing trade performance with key countries – Exports to ASEAN were down to -1.2% y-o-y while imports from ASEAN tumbled 16.9% y-o-y during Aug’19 following slower trade with Singapore (Exports: - 7.2% y-o-y; Imports: -18.1% y-o-y), Thailand (Exports: -8.3% y-o-y; Imports: -19.3% y-o-y). However, trade with Vietnam slightly improved as exports grew +24.7% y-o-y. Other than that, trade with China also slowed as both exports and imports were down -2.8% y-o-y and -11.5% y-o-y respectively. However, exports to USA and Japan rose +6.8% y-o-y and +2.4% y-o-y respectively. Meanwhile, imports from USA were flattish at +0.07% y-o-y while Japan declined 4.7% y-o-y during Aug’19.

Imports still in the red – Import widened its contraction to -12.5% y-o-y as compared to -5.9% y-o-y in July’19 due to lower import of all components. Import of intermediate goods which are major import items, depleted -13.9% y-o-y (vs July’19: -3.4% y-o-y) due to slower import of processed industrial supply especially non-monetary gold. Besides, consumption import registered a massive decline, down to -30.8% y-o-y (vs July’19: -13.9% y-o-y) no thanks to slower import of parts of machinery and mechanical appliances. Other than that, Consumption goods dropped to -12.8% y-o-y from -5.0% y-o-y in the prior month caused by lower imports of knitted apparel and clothing accessories.

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 the trade tension will continue in line with slowing global economic indicators. Following the subdued trade performance during eight months 2019, we cut exports and imports growth to 1.2% and 0.4% respectively in 2019 from +2.8% and +2.4% respectively. 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 - 7 Oct 2019