Total export receipts rebounded in March from seasonal weakness in the Lunar New Year month of February, increasing by 17.4% MoM. However this translated into a YoY gain of just 0.2% due to a high base effect from a pre-GST surge in exports in the same month last year. Compared to the consensus estimate, exports performed better than expected. Combined with a steep 5.5% YoY decline in imports, two-way trade in March resulted in a larger surplus of RM11.2b (Feb: RM7.4b). By export category, electrical & electronics (E&E) held up well despite reduced global appetite for semiconductor and related products, increasing 0.4% YoY, while commodities sustained a 21.4% YoY decline from lower crude petroleum and natural gas prices. By import category, capital and intermediate goods saw declines of 22.2% and 8.3% YoY respectively while consumption goods saw a 21.9% gain. Do not be alarmed by the declining share of capital goods imports, which fell to 13.4% of total imports in March from 14.0% of total imports in February as it is due to a high base effect from a pre-GST surge in capital goods imports last year. Looking forward, current trends suggest that export growth in the coming months will continue to remain weak. Due to increasing downside risks on the external sector and slightly disappointing 1Q16 export growth of 1.0% YoY, we lower our full-year 2016 export growth forecast to a more modest 2.9% from 4.3% previously (2015: 1.9%). Exports in 2Q16 will benefit from a low-base effect and relatively weak local currency which could result in growth of over 4.0% YoY but 2H16 growth rates will be far more modest.

• March exports inched up 0.2% YoY, bettering the consensus estimate of a 1.0% YoY decline but below the house estimate of a 2.1% YoY gain. The increase compares with a 6.7% YoY increase in February and decrease of 2.8% YoY in January.
• On a MoM basis, the total value of exports jumped 17.4%, which is a fairly big turnaround following seasonal weakness in the Lunar New Year Month of January and February which contracted 9.4% and 8.3% respectively. After adjustment for seasonal factors, the MoM change was a 0.9% increase.
• Over the 1Q16 quarter, exports grew a modest 1.0% YoY, which although slightly under earlier expectations is a better performance than the 2.5% YoY decline in exports in 1Q15. It was, however, a sharp deceleration from the 8.1% growth in 4Q15.
• Currency translation gains from a weak ringgit, which has powered much of the improvement in export growth in 2H15, had less of an influence in 1Q16 and especially in March due to ringgit appreciation. The published USDMYR rate averaged 4.0768 in March, with the local currency now just 9.7% YoY lower against the dollar compared to 14.2% YoY lower in February.
• By category, Electrical & Electronics (E&E) exports in March were up 0.4% YoY (February: 8.9%) while commodity exports were down by 21.4% YoY (February: -17.8%). Commodity exports continue to be affected by low crude oil and natural gas prices in international markets.
• Worldwide semiconductor shipments as reported by Semiconductor Industry Association fell 5.8% YoY in March and has been in contraction for three consecutive quarters. The Malaysian E&E sector has however managed to maintain enviable growth through a combination of a favourable exchange rate and an intrinsic position in the global supply chain.
• March imports were down 5.5% YoY, which was an unexpected change as the consensus and house estimates were looking for a 0.3% decline and 1.4% increase respectively. On a MoM basis, imports increased by 12.2%. After seasonal adjustment the MoM change was a 7.0% contraction. Imports suffered a 0.4% YoY decline in 1Q16.
• The growth in consumption imports remained stubbornly high at 21.9% YoY in March but lower compared to 17.9% in February. This made it the twelfth consecutive month of double-digit growth for the category. Imports of finished goods have been the most susceptible to ringgit depreciation.
• Imports of intermediate goods fell 8.3% YoY in March compared to 6.3% YoY (revised from 6.6%) in February. The share of intermediate goods exports rose to 57.0% of total imports from 55.7% (revised from 55.5%) in the previous month.
• Imports of capital goods were down 22.2% YoY in March, which is a huge amount caused by a high base effect from a pre-GST surge in capital goods imports last year.
• The trade surplus for March widened to RM11.2b from RM7.4b in February as a result of a sharp YoY decline in imports despite exports only making a slight gain. The 1Q16 trade balance was a larger RM23.9b compared to RM21.3b in the same quarter last year but smaller than RM30.6b in the preceding quarter.
• Total trade in March fell 2.5% YoY after an increase of 4.2% in February due to the steep decline in imports. Total trade in 1Q16 was up a modest 0.4% YoY compared to a bigger 5.9% increase in the preceding quarter.
• By major exports destinations, shipments to the EU was up 6.5% YoY (10.1% share of total exports) and up 11.8% YoY to the United States (10.2% share). Meanwhile exports to Japan fell sharply by 15.1% YoY (9.3% share). Exports to China were down 5.9% YoY (11.7% share). Exports to ASEAN rose 5.6% YoY (28.8% share).

Source: Kenanga Research - 9 May 2016