June’20 exports rebounded amid minimal contraction in imports – June’20 exports soared +8.8% y-o-y after registering massive contraction for three consecutive months (vs May’20:-25.5% y-o-y). The result was marginally better than our in-house and market forecasts of -2.0% y-o-y and -10.0% y-o-y respectively. Rebound in June’20 exports was buoyed by robust exports in Manufacturing and Agriculture outputs which offset diminishing exports of Mining outputs. Nevertheless, imports growth was slightly below our in-house expectation but substantially higher than market expectation. Imports in June’20 contracted -5.6% y-o-y as compared to -30.4% y-o-y in May’20. Minimal contraction recorded was attributable to less contraction in Intermediate goods as well as strong imports of Capital and Consumption goods. Thus, trade surplus stood at RM20.9b, growing +98.7% y-o-y. Moreover, on monthly basis, both exports and imports grew +32.2% m-o-m and +18.6% m-o-m respectively (vs May’20: Exports: -3.5% mo-m; Imports: -23.6% m-o-m). As for 1H20, exports and imports tumbled -6.8% y-o-y and -7.2% y-o-y respectively, in view of contraction in all of export and import sub-components.

Exports of manufacturing outputs getting better – Export of Manufacturing outputs which constituted 87.5% of total exports rise +13.7% y-o-y during June’20 after showing contraction for three consecutive months (vs May’20: -23.5% y-o-y). Better-than-expected exports of manufacturing goods were spurred by higher exports in E&E products (+15.9% y-o-y vs May’20:-19.3% y-o-y), Machinery, equipment & parts (+29.4% y-o-y vs May’20:-29.6% y-o-y), Manufactures of metal (+9.4% y-o-y vs May’20:-35.4% y-o-y), Optical & scientific equipment (+35.6% y-o-y vs May’20:-11.4% y-o-y) as well as robust Rubber products (+101.0% y-o-y vs May’20:+20.5% y-o-y). As for 1H20, exports of manufacturing outputs declined -5.0% y-o-y, no thanks to fewer exports of E&E products (-8.0% y-o-y), Manufactures of metal (- 15.3% y-o-y), Chemicals & chemical products (-10.0% y-o-y), as well as Petroleum products (-1.3% y-oy).

Rebound in exports of agriculture; whilst mining remained lackluster – Export of Mining remained sluggish, contracting -45.6% y-o-y in June’20 (vs May’20:-49.1% y-o-y) dented by slumbering growth in LNG (-24.5% y-o-y vs May’20:-30.7% y-o-y) as well as crude petroleum. Nevertheless, exports of agriculture elevated +30.0% y-o-y (vs May’20:-21.3% y-o-y) buoyed by stellar exports in palm oil and palm oil-based agriculture products (+45.4% y-o-y vs May’20:-15.6% y-o-y). For 1H20, both exports of agriculture and mining goods contracted -1.4% y-o-y and -25.5% y-o-y respectively due to poor exports in sawn timber & moulding as well as crude petroleum and LNG.

Stellar trade performances with China and USA – Both exports and imports with China and USA registered stellar performances as exports and imports rose significantly (China: Exports: +46.8% y-o-y, Imports: +3.4% y-o-y; USA: Exports: +27.6% y-o-y, Imports: +9.9% y-o-y). As for 1H20, exports to China and USA grew +8.3% y-o-y and +2.4% y-o-y respectively arising from higher exports of iron & steels to China while wood and rubber products to USA. Moreover, exports to ASEAN also improved as exports grew +1.3% y-o-y despite disappointing imports which declined -13.8% y-o-y. Exports to ASEAN was buoyed by stellar exports to Singapore (+3.7% y-o-y), Vietnam (+21.7% y-o-y) and Myanmar (+17.5% y-o-y) following higher exports of E&E products (Singapore) and Petroleum products (Vietnam and Myanmar).

Imports narrowed its contraction, led by Intermediate goods – Imports narrowed its contraction, - 5.6% y-o-y (vs May’20: -30.4% y-o-y). During this period, intermediate goods contracted -10.8% y-o-y (vs May’20: -27.8% y-o-y) in view of lower imports of copper and articles. Nevertheless, imports of capital and consumption outputs registered positive growths, growing +7.3% y-o-y and +6.1% y-o-y respectively stemming from higher imports of electrical machinery, equipment & parts coupled with cereals.

Subdued trade growth for 2020 – We expect trade activities for 2H20 to improve further amid resumption in economic and social activities since recovery mandatory control order (RMCO). Still, for 2020, we expect trade performance remains challenging as it is being dampened by Covid-19 virus outbreak in the worldwide. We foresee global supply disruption and dampened demand no thanks to the pandemic, thus lowering global growth activities and affecting our nation’s trade performance.

Source: JF Apex Securities Research - 29 Jul 2020