OVERVIEW

? Exports rebounds sharply. January’s exports accelerated to the fastest growth recorded in three months at 17.9% YoY (Dec: 4.7%), above house’s estimate of 16.1% and consensus’ 13.0%.

? E&E boosted overall exports growth, expanding 27.1% (Dec: 6.3%). Growth was broad-based across all manufactured goods, which surged 20.4% YoY.

? Palm and LNG lends additional support. Growth in palm and LNG exports lent additional support to the headline exports figures, and helped overall commodities exports’ growth turnaround of 7.6% YoY (Dec: -1.5%).

? Imports rebounds on higher consumption goods. Imports expanded to 11.6% YoY (Dec: 7.9%) after two consecutive months of slowdown. The expansion was led by imports of consumption goods (+9.8%).

? Trade surplus widens to RM9.7b (Dec: RM7.3b) after narrowing the past two months as exports outpaces imports. Meanwhile, total trade grew the fastest in three months at 14.9% YoY (Dec: 6.2% YoY).

? Lagging behind an upturn? Local exports appear to be lagging the global uptrend as Malaysia’s February PMI came in lower than its global counterparts. Along with sluggish commodity prices during the month, we expect February’s trade to moderate from January’s strong rebound.

? Minimal impact from US steel tariff hike. We see the Trump’s administration recent tariff hike on the aluminium and steel imports to have a minimal impact as exports of both related metals only represent a fraction of Malaysia’s total exports (est. 0.14%) and approximately 2.0% are exported to the US. Though we remain wary of further implications from Trump’s anti free trade policies, we retain our 2018 export growth forecast at 7.0-10.0% (2017: 18.9%).

January’s exports rebounds strongly. Exports growth accelerated in January to 17.9% YoY (Dec: 4.7%), the fastest growth recorded in three months and the highest growth recorded for the month of January since 2010. January’s exports came above Bloomberg’s median estimates of 13.0% but not far off house estimate of 16.1%. On a MoM basis, exports growth quickened to 4.4% (Dec: - 5.0%). While the YoY surge in growth was primarily due to a low base effect, the better-than-expected figures and broadbased recovery also suggests that exports growth momentum is still holding up.

E&E boosted exports growth after surging to the highest in six months at 27.1% (Dec: 6.3%). On a MoM basis, E&E rebounded sharply by 10.2% (Dec: -9.4%). Hence, E&E’s share of total exports ticked up to 38.2% (Dec: 36.2%), while its contribution to the month’s YoY headline export growth expanded sharply to 9.6 percentage points (ppts) (Dec: 2.2 ppts). Growth was similarly higher on a MoM basis at 10.2% (Dec: -9.4%).

Broad-based manufacturing uptick. According to the Ministry of International Trade and Industry, growth of exports receipts was broad-based across all manufactured goods as on aggregate it surged 20.4% YoY. Apart from E&E, other manufactured-goods similarly registered robust growth during the month i.e. chemicals and chemical products (23.4%) iron and steel products (60.9%), optical and scientific equipment (18%), manufactures of metal (14.8%) as well as transport equipment (32%).

Palm and LNG lends additional support. Growth in palm and liquefied natural gas (LNG) exports lent additional support to the headline exports figures. Palm oil and palm-based products, which makes up 7.9% of total exports, also rebounded strongly at 10.4% (Dec: -0.4%), contributing 0.9 ppts to the month’s headline exports growth (Dec: 0.0 ppts), partly due to January’s removal of Malaysia’s palm oil export tax. Meanwhile, LNG, which makes up 4.5% of total exports grew by 14.0% (Dec: 4.8%), contributing 0.7 ppts to the month’s exports growth. (Dec: 0.2 ppts). This brings the overall growth in January’s exports of commodities to 7.6% YoY, a sharp turnaround from December’s -1.5%. Other notable commodities exports growth includes petroleum products, which grew by 2.1% YoY (Dec: -6.2%), contributing 0.2 ppts to the headline exports growth (Dec: -0.4 ppts). Tin and sawn timber, similarly registered stronger growth, up 89.8% YoY (Dec: 11.6%) and 12.8% YoY (Dec: 1.3%) respectively, and contributed 0.1% respectively to the headline exports growth (Dec: 0.0%). However, despite global crude prices trending higher during the month, crude petroleum exports slowed to 0.1% YoY (Dec: 6.9%).

Higher consumption goods charge led imports gain. Imports expanded to 11.6% YoY in January after two consecutive months of slowdown (Dec: 7.9% YoY). This was slightly above the house and Bloomberg’s median forecast of 10.7% and 11.0% respectively. Similarly, on MoM basis imports rebounded by 1.5% after a contraction of 2.0% in December. The stronger imports growth was attributed to increase in consumption goods which grew 9.8% YoY (Dec: -2.5%), contributing 0.9 ppts to the month’s imports growth (Dec: -0.2 ppts). Imports of consumption goods were at its highest in three months. Meanwhile, imports of intermediate goods fell for the second consecutive month at -1.7% (Dec: -0.4%), while capital goods contracted by -3.1% (Dec: 34.0%), its slowest in six months.

Trade surplus widens to RM 9.7b (RM7.3b) after narrowing the previous two months as exports outpaced imports in spite of a relatively stronger Ringgit. On combined growth for exports and imports, total trade for the month more than doubled to 14.9% YoY (Dec: 6.2% YoY), the fastest YoY expansion in three months.

Ringgit appreciated further against most major currencies in January, averaging MYR3.958/USD (Dec: MYR4.078/USD). Likewise, it appreciated against the British Pound, Euro Dollar and Singapore Dollar.

OUTLOOK

Lagging behind global production upturn? Global PMI came in strong in February, with the second highest reading since February 2011. Most notably, new export orders, a key gauge of international trade flows, rose to its highest since early 2011. However, Malaysia’s sluggish February PMI indicates Malaysian exports could possibly have lagged behind from the month’s global uptrend. Malaysia’s PMI came in below the 50.0 threshold in February at 49.9 as weaker demand, particularly from the export-oriented sector weighed on new orders. Additionally, with commodities prices trending lower during the month, we expect exports to contract marginally in February. Brent crude oil averaged at USD66.33/barrel in February after surging to USD69.05/barrel in January. Furthermore, while we expect Malaysia’s three months suspension of palm oil export tax to continue supporting the commodities exports, the February festive season is expected to moderate production and demand from January’s high. Along with last year’s higher base effect, we expect February’s trade as well as production growth to moderate.

Minimal impact from US steel tariffs. We see the Trump’s administration recent tariff hike on the aluminium and steel imports to have a minimal impact on the local steel industry. The fourth largest steel consumer in ASEAN, Malaysia has increasingly turned into a net importer of steel related products over the years. According to the International Steel Administration, Malaysia’s steel trade deficit has increasingly widened between 2009 and 2016 from -944k metric tons to - 7.6m metric tons, a 700% increase. Additionally, in 2017, steel related products only accounted for about 0.14% of total exports, of which a mere 2.0% are destined for the US market. Similarly, we do not expect any significant risk from potential retaliation by China as the bulk of Malaysia’s steel exports (41.0%) are currently destined to other Asean countries. While Trump’s administration’s tariffs may lead Chinese steelmakers to resort to other venues to dump its cheap steel exports, including Malaysia, we expect the Malaysian government’s recent efforts in clamping down cheap imports from China to curb further dumping activities from China. Though we remain wary of further implications from Trump’s anti free trade policies, we retain our 2018 export growth forecast at 7.0-10.0% (2017: 18.9%).

Source: Kenanga Research - 6 Mar 2018