OVERVIEW

Total export receipts for June turned out much higher than the market expected, rising by 3.4% YoY compared to the consensus estimate of a 3.7% YoY decline. During the same month, imports rose 8.3% YoY, also growing by more than the market expected. The trade balance widened to RM5.5b from RM3.3b in the previous month. The unexpected increase in exports receipts was due to the resilience of electrical & electronics (E&E) exports despite reduced global appetite for semiconductor and related products. E&E exports in June rose 4.9% YoY (May: 3.2%). Consequently the share of E&E exports to total exports increased to a nine-month high of 36.5%. Commodity exports were down 20.1% YoY and accounted for a severely reduced 12.0% of total exports, down from over 20.0% of total exports before the mid-2014 commodity price crash. By import category, capital goods imports increased 12.8% YoY in June, but for 1H16 still remained down 1.9% YoY. Intermediate imports rose by 5.7% YoY, turning around from big declines earlier in the year. Consumption imports grew at much slower rate of 1.8% YoY after 14 months of double-digit growth. Looking forward, current trends suggest modest export growth in the coming months.. Exports grew just 1.2% YoY in 1H16 and at the current growth trajectory, exports will face a challenging 2H16, due to a higher base for comparison. We therefore lower our full-year 2016 export growth forecast to 1.9% from 2.9% previously and note that downside risks have been increasing.

June exports increased 3.4% YoY, bettering the consensus estimate of a 3.7% decrease and the house estimate of a 1.4% decrease. The unexpected result compares with the May decrease of 0.9% YoY and the April gain of 1.6% YoY.

On a MoM basis, the total value of exports rose by 10.9%. June was only the second month in 1H16 that exports increased on a MoM basis. All other months saw a MoM decrease. After adjustment for seasonal factors, the MoM change in exports in June was a 10.6% increase.

During 1H16 or the first half of the year, exports expanded by 1.2% YoY on average, which compares well with the 3.1% YoY decline in the same period last year. However, the rate of growth in 1H16 is below market expectations.

The ringgit weakened in June from the previous month. The published USDMYR rate averaged 4.0871, with the local currency 8.5% YoY lower against the US dollar compared to 11.0% in May and 6.9% YoY lower in April.

By category, E&E exports in June were up 4.9% YoY (May: 3.2%), performing especially well despite reduced global appetite for semiconductor and related products. Consequently, the share of electrical & electronics (E&E) exports to total exports increased to a nine-month high of 36.5%.

Commodity exports in June were down 20.1% YoY (May: 20.2% YoY) as crude petroleum and natural gas export prices continue to be affected by low prices in international markets.

June imports unexpectedly rose 8.3% YoY, after a 3.1% YoY increase in May. Consensus and house estimates were expecting imports to decline by 0.4% and rise by 1.4% respectively. On a MoM basis, imports increased by 7.5%. After seasonal adjustment the MoM change was an 8.1% expansion.

The growth in consumption imports has slowed significantly to just 1.8% YoY after 14 months of doubledigit growth fuelled by ringgit depreciation.

Imports of intermediate goods in June rose by 5.7% YoY, turning around from big declines earlier in the year. However the share of intermediate goods imports to total imports remains small at 56.9% compared to over 60.0% in 2012. Imports of capital goods increased 12.8% YoY in June, but for 1H16 still remained down by 1.9% YoY.

The trade surplus for June widened to RM5.5b from a 19-month low of RM3.3b in May. The 1H16 trade surplus was a healthy RM41.8b, slightly higher than RM41.7b in the same period last year.

Total trade in June rose 5.7% YoY after rising 1.0% YoY in May. In 1H16, total trade is up 1.3% YoY compared to a contraction of 2.8% in the same period a year ago.

By major export destination, shipments to the United States surged 22.0% YoY (10.6% share) and EU was up 4.1% YoY (9.9% share of total exports). Meanwhile, exports to Japan rose 2.4% YoY (7.4% share). Exports to ASEAN rose 8.5% YoY (30.1% share) but exports to China fell 20.3% (11.6% share).

OUTLOOK

Export performance in 1H16 has been disappointing considering a low-base effect was into play. The modest recovery expected in 2Q16 did not materialise and it appears there is little optimism for an uptrend in shipments of Malaysian goods.

E&E exports which made up a sizable 36.3% share of total exports in June will continue to experience modest growth over the coming months as the sector has proven to be resilient to the downtrend in the global market for E&E products.

Looking forward, current trends suggest modest export growth in the coming months. At the current growth trajectory; exports will face a challenging 2H16, due to a higher base for comparison.

We therefore lower our full-year 2016 export growth forecast to 1.9% from 2.9% previously and note that downside risks have been increasing.

Source: Kenanga Research - 8 Aug 2016