● Industrial Production Index (IPI) spiked to a 30-month high in February, beating expectation (5.8% YoY; house estimate: 0.9%; consensus: 0.9%; Jan: 0.6%)

- Solely due to a low base a year ago.

- 3-mma: edged up to highest in seven months (2.4%; Jan: 1.3%).

- MoM: sharpest decline in a year (-7.0%; Jan: 0.6%), reflecting supply chain disruptions andtepid demand amid the worsening COVID-19 pandemic.

● Manufacturing index growth accelerated to a 25-monthhigh (5.6%; Jan: 2.2%), similar to the pickupin manufacturing sales (7.0%; Jan: 2.4%)

- Led by a rebound in production of food, beverages & tobacco (4.5%; Jan: -5.5%) and petroleum, chemical, rubber & plastic products (6.3%; Jan: 3.6%). Output of electrical & electronic products (E&E) also registered higher growth (5.1%; Jan: 3.2%).

- 3-mma: fastest expansion in six months (3.7%; Jan: 2.8%).

- MoM: steepest fall in one year (-7.1%; Jan: 0.4%).

● Mining index surged to a 30-month high (6.1%; Jan: -3.9%), after two months of contraction

- Broad-based improvement, steered by a positive turnaround in the extraction of crude oil and natural gas (6.1%;Jan:-3.9%). As low base effect dissipates, we expect the mining output to contract on weakness in oil prices, as the recently agreed OPEC+ production cut of 9.7m barrels per day in May and June is deemed insufficient to offset the plunge in global oil demand.

- MoM: worst contraction in seven months (-7.5; Jan: 0.8%).

● Electricity index increased to 6.8% (Jan: 0.0%), a 13-month high.

- Expected to ease in the near term due to widespread factory closure and limited operating capacity during the implementation of Movement Control Order (MCO), which has now been extended until 28 April.

● Industrial production to deteriorate in the immediate term reflecting adverse spillovers from the health crisis

- Operating capacity to remain pressured by the prolonged MCO, which has disrupted supply chains, resulting in difficulties to source for inputs, and damaged demand conditions due to instable income flow. Utilised capacity may have dropped to as low as 50-60%. With similar movement restriction measures adopted across major trading partners, production of exportoriented goods is set to endure further downturn.

- As such, the manufacturing IPI is projected to contract by 7.7% in 2020 (2019: +3.6%) in tandem with the expected decline in GDP (-1.9%; 2019: 4.3%).

Source: Kenanga Research - 14 Apr 2020