• Despite less than impressive export performance which saw May exports fall 6.7% YoY and 4.7% yearto- date, manufacturing output held up better than expected. The manufacturing component index was up 3.2% YoY in May, a seven-month low but better than our estimate of 2.9%.
• The three-month moving average of manufacturing output was up 4.6% YoY and this was the slowest pace of growth in six-months, indicating that manufacturing output is moderating.
• On a MoM basis, manufacturing was up 2.7% in May after a 3.8 % decline in April. The seasonally adjusted increase was 0.4% MoM, which is another sign of slowing growth in manufacturing output.
• Going by manufacturing sectors, Electrical & Electronic (E&E) Products, the biggest export earner, was up 4.0% YoY in May, which is the same pace as in April. Petroleum, Chemical, Rubber and Plastic Products was up 3.8% YoY, 0.1 ppt higher than in April and Non-metallic Mineral Products, Basic Metal and Fabricated Metal Products was up 2.8% YoY from 3.4% in April.
• Reported manufacturing sales for May was down 4.2% YoY to RM50.8b. The biggest decrease in sales value was seen in the Manufacture of Measuring, Testing, Navigating and Control Equipment, down 35.2% YoY and Manufacture of Refined Petroleum Products down 26.1%, consistent with lower crude oil prices.
• Mining output continued to stay in positive YoY growth territory in April for the tenth consequtive month. The volitile sector grew 9.0% YoY after slower April growth of 3.9% YoY. Year-to-date growth of 8.1% YoY is suppported by more activity in the upstream oil & gas sector. Mining activity grew at an slower average rate of 6.1% in 2014. We expect continued growth in mining output as new Petronas LNG production facilities begin operations in early-2016.
• Electricity output, which has the smallest weightage in the IPI, grew 1.2% YoY (Apr: 3.0%).

Outlook

• Slowing global demand and the impact of GST could lead to IPI growth moderating over the next few months to average 4.6% for the full year, below the 5.3% average for 2014. This is reflective of slowing GDP growth which we forecast at 5.1% for 2015 compared with 6.0% in 2014.

Source: Kenanga Research - 13 Jul 2015