Malaysia Industrial Production - Up 4.4% YoY in November on sustained manufacturing uptrend & rebound in mining

Production in November expanded by 4.4% YoY, after posting a 1.8% increase previously. This is due to a rebound in the mining sector as well as continuous annual growth in manufacturing. Compared to the previous month however, production declined by 1.4% MoM, a historical norm for the month of November as factories wind down production, but the 3-month moving average (3mma), used to smoothen out seasonal factors, saw production gaining 2.3% YoY (October: 1.8%). On a year-to-date basis, industrial production posted a 2.6% gain compared to 4.5% in the same period in 2012.

The manufacturing sector rose by 4.1% YoY, outpacing the previous month’s 3.3% but the monthly comparison saw a fall of 3.9% MoM. It slightly moderated on a 3mma basis at 3.3% from 3.6% in October. Year-to-date manufacturing production increased by 2.9% compared to 5.1% in the same period in 2012.

Upon further scrutiny, at 23% of total manufacturing, the production of petroleum, chemical, rubber & plastic products subsector gained 1.6% YoY after falling by 0.4% previously. Measured on a MoM-basis it fell 2.9%. The manufacturing of E&E goods (21% share of total manufacturing) grew at a slower annual pace of 7.8% compared to 14.3% previously. As the trend goes, monthly production contracted 8.2% MoM.

The transportation equipment & other manufactures sub-sector continues to expand at a steady pace, posting a double-digit annual growth of 15.0% (October: 15.3%). With the exception of the textiles, wearing apparel, leather products and footwear subsector (+14.7% YoY, 1.0% MoM), this sector saw a monthly increase, albeit a small growth of 1.9% MoM. Though we expect growth in this subsector too gradually taper off due to a high base effect and plateauing of major projects under the ETP, we reckon growth trajectory ought to remain on the moderate upside coming from projects proposed in the 2014 Budget, as well as to fulfil demand for transportation related equipment from overseas, which is expected to expand further on improved global economic conditions.

On another note, manufacturing sales in November increased by 4.4% YoY following a revised 1.6% growth (1.5%) in October. Compared to the previous month, sales declined by 1.7% MoM.

The mining sector rebounded in November, expanding by 4.8% YoY after three consecutive months of annual contraction. This is due to strong production of LNG, which rose by 17.4% YoY. The crude oil index fell by a smaller degree of 1.7% (October: -11.9%). On a monthly comparison, overall mining expanded by 7.0% MoM, on a 9.6% and 3.0% growth in the crude oil and natural gas indices respectively.

Electricity production grew by 6.1% YoY (October: 4.8%) but fell by 3.8% MoM, in line with the trajectory seen in mining and manufacturing.

Though we expect the 4Q13 to be the best quarter, there was some overall monthly growth tapering, more than initially predicted, which is why we are revising our 4Q13 growth to 5.6% from 6.3%. Similarly, growth in 2013 was seesaw at best, affecting manufacturing on a higher degree then we had hoped as Malaysia remains susceptible to fluctuations in external demand in spite of a sustainable growth in domestic demand. Hence, we are revising our full-year 2013 estimate for GDP growth to 4.8% from 5.0%. However, our outlook for 2014 remains the same - further improvement on the global economic front in the next 6-12 months. However, uncertainty may prevail again in the domestic front in the 2H14 ahead of the implementation of the GST in April 2015. On that basis, we are projecting the GDP growth to expand between 5.0% and 5.5% in 2014.

Source: Kenanga