Substantially below expectations – Malaysia’s Industrial Production Index (IPI) during Apr’20 slumped by -32.0% y-o-y after contracting -4.9% y-o-y in the prior month in view of outputs’ deterioration across sub-indexes following lockdown during Covid-19 pandemic. The results were substantially below our inhouse and market expectation. Besides, monthly IPI also tumbled by -30.4% m-o-m in Apr’20 from +0.1% m-o-m in Mar’20. On the same note, Malaysia’s manufacturing Purchasing Managers’ Index (PMI) during Apr’20 dropped heavily to 31.3 (from 48.4 during Mar’20), impacted from COVID-19, as the enforcement of Movement Control Order (MCO) starting from 18 Mar’20 has led to some businesses to operate below full capacity.

Disappointing export and domestic oriented outputs weighed down Manufacturing index – Manufacturing sector which was the major contributor to overall production contract -37.2% y-o-y (vs Mar’20: -4.2% y-o-y). All of domestic-oriented outputs showing negative productions such as Food beverage & tobacco (-9.0% y-o-y vs Mar’20: -9.8% y-o-y), Non-metallic mineral products (-62.7% y-o-y vs Mar’20: -9.8% y-o-y) and Transport equipment & other manufacturers (-69.3% y-o-y vs Mar’20: -10.2% yo-y). Moreover, exports-oriented outputs also experienced massive contraction namely E&E products (- 34.1% y-o-y vs Mar’20: -4.9% y-o-y), Woods products, furniture, paper products & printing (-68.4% y-o-y vs Mar’20: -6.1% y-o-y), and Textiles, wearing apparel, leather & footwear printing (-73.8% y-o-y vs Mar’20: -1.2% y-o-y) as well as Petroleum, chemical, rubber & plastic products (-21.4% y-o-y vs Mar’20: +3.6% y-o-y).

Electricity and Mining outputs also shrank further – Electricity outputs extended their contraction to -19.3% y-o-y in Apr’20 from -7.0% y-o-y. Besides, Mining production also registered double-digit contraction to -19.6% y-o-y during Apr’20 (vs Mar’20:-6.5% y-o-y) arising from sharp decline in both crude oil & condensate (-20.2% y-o-y vs Feb’20: -7.1% y-o-y) as well as natural gas (-19.0% y-o-y vs Feb’20: - 6.0% y-o-y).

Subdued Manufacturing sales – Manufacturing sub-sectors performance also fell -33.0% y-o-y during Apr’20 from -3.0% y-o-y due to lockdown. All of sub-sectors sales encountered major contractions such as Food, beverages and tobacco (-2.1% y-o-y vs Mar’20: -5.9% y-o-y), Textiles, Wearing Apparel, Leather & Footwear (-59.7% y-o-y vs Mar’20: -5.0% y-o-y), Wood Furniture, Paper Products & Printing (-70.4% y-o-y vs Mar’20: -5.8% y-o-y), Petroleum, Chemical, Rubber & Plastic (-9.8% y-o-y vs Mar’20: +4.9% y-o-y), Non-metallic mineral (-39.6% y-o-y vs Mar’20: -5.7% y-o-y) and Transport Equipment & Other Manufacturers (-39.6% y-o-y vs Mar’20: -5.7% y-o-y).

Expecting a subdued IPI for 2020 –– For the following month, we expect IPI to narrow its negative growth in view of recovery in business outputs as most business activities started to operate and ran at full capacity after government had eased the movement control order (MCO). For full year 2020, we foresee IPI to grow at a negative growth as we expect production activities to be dampened by the prevailing Covid-19 coronavirus outbreak. We expect minimal growth of industrial production as the outbreak will affect global activities as well as our export-oriented outputs. However, we believe the introduction of stimulus package by government could ease the industry burden and marginally support the production growth. Overall, we cut our 2020 IPI forecast to -3.3% y-o-y (from -2.2% y-o-y previously) as global markets have suffered significant macroeconomic headwinds pursuant to the pandemic. Other downside risk includes lower commodity prices especially the crude oil and CPO.

Source: JF Apex Securities Research - 12 Jun 2020