OVERVIEW

● April exports growth rebounded by 1.1% YoY (Mar: -0.5%) to RM85.2b, beating Bloomberg’s consensus of -2.1% and a tad above house estimate of 0.8%. On a MoM basis, it grew by 1.4% (Mar: +26.2%). The better than expected exports performance was driven by larger exports to key trading partner and increased export value for petroleum products, liquefied natural gas (LNG) and electrical & electronic products (E&E). Similarly, imports rebounded sharply by 4.4% (Mar: -0.1%) far exceeding consensus and house forecast of -0.3% and 1.4% respectively. Though growth in imports outpaced those of exports, the trade balance remains in surplus but narrowed to a four-month low of RM10.9b (Mar: RM14.4b). Year-to-date, trade performance worsened, with exports contracting by 0.2% (Jan-Apr 2018: 7.5%), while imports growth was even lower by 0.7% (Jan-Apr 2018: 1.7%). However, YTD trade surplus widens to RM47.8b (Jan-Apr: RM46.4b) indicating a healthy current account surplus.

● By product, shipments of petroleum products, LNG and E&E registered positive growth. Exports of petroleum products and LNG continued its uptrend for two consecutive months to 1.4% and 0.9% YoY respectively (Mar: 0.8% and 0.7% respectively). This is supported by higher average Brent crude oil price in April at USD71.2/barrel versus USD66.1/barrel in the preceding month or an increase of 7.7% MoM. The oil price has rallied to its highest in five months on the back of reports of declining oil inventory and heightened market perceptions of oil supply risk in particular to sanction-hit Iran and Venezuela as well as output restraint by top exporter Saudi Arabia. As oil price remained firm in May, we expect it to lend some support to the value of exports going forward. Meanwhile, exports of E&E rebounded by 1.5% YoY (Mar: -0.7%), driven by higher shipments of electronic integrated circuits (1.1%; Mar: 0.7%).

● By destination, demand for Malaysia’s exports to major destinations rebounded particularly to Singapore (11.3%; Mar: -6.9%), Japan (7.7%; Mar: -11.3%) and the US (3.1%; Mar: -3.6%). Collectively, exports to the three countries contributed 2.2 percentage points (ppt) to the overall export growth (Mar: -2.1 ppt). Meanwhile, exports to China and the European Union (EU) fell by 6.9% and 8.6% YoY respectively (Mar: 11.8% and -5.0% respectively). With the USChina trade tension continues to escalate, we expect external demand to remain subdued in the coming months.

● Imports rebounded to 4.4% YoY (Mar: -0.1%) the highest in five months. Improvements were seen across the board, boosted by upswing in imports of intermediate goods (20.3%; Mar: 3.2%) followed by consumption goods (18.9%; Mar: 10.5%) and capital goods (5.7%; Mar: -11.9%).

● Overall, we retain our view that trade performance would remain relatively subdued going forward evident by weak YTD trade performance and heightened downside risk concerning the on-going trade war and growth moderation in the major markets, especially China, the EU and the US. This was also backed by the weak manufacturing PMI data in May which further descended to 48.4 from 49.4 in the preceding month, remaining in contraction mode for the eighth straight month. Against this backdrop, we maintain our exports growth forecast of 1.0-2.0% for 2019 (2018: 6.8%). Along with an expectation of slower domestic demand, GDP growth will likely extend its slowdown into the 2Q19 to 4.2% from 4.5% in 1Q19, adding to our whole year projection of slower growth of 4.5% (2018: 4.7%).

Source: Kenanga Research - 4 Jun 2019