● Exports’ YoY growth turned negative (-9.9%) after a brief rebound in June (2.1%) but far better than market expectation (consensus: -16.7%)

− MoM: it grew for the second straight month (14.3%; Jun: 14.9%) to USD13.7b, albeit at a slightly slower pace.

● Broad-based slowdown and weaker demand from top trading partners

− Non-oil & gas (-5.9%; Jun: 3.5%): fell sharply after a quick turnaround in June, attributable to a steep decline in exports of mining (-31.0%; Jun: -18.9%), followed by manufacturing (-2.0%; Jun: -2.1%). Meanwhile, agriculture exports moderated sharply for the second straight month (11.5%; Jun: 35.6%). By destination, shipment to its top trading partners slowed sharply led by China (10.8%; Jun: 34.1%) and the US (1.3%; Jun: 27.4%), while exports to Japan fell (-13.6%; Jun: -3.4%).

− Oil & gas (-49.7%; Jun: -20.3%): fell even sharper than the previous month due to a sharply higher decline in O&G mining (- 52.1%; Jun: -25.9%) and O&G manufacturing based products (-38.3%; Jun: 0.1%).

● Steep fall in imports, larger than market expectation (-32.6%; consensus: -22.5%; Jun: -6.4%) on broad-based declinesin non-oil & gas (-30.9%; Jun: 3.1%) and oil & gas product (-45.2%; Jun: -60.5%)

− By segments, the weak performance was attributable to a sharp drop in import of raw materials (-34.5%; Jun: -13.3%) followed by capital goods (-29.2%; Jun: 2.6%) and consumer goods (-24.1%; Jun: 36.7%).

− MoM: fell (-2.7%; Jun: 27.5%) to USD10.5b, reflecting a weak demand momentum going forward.

● Trade balance remained in a surplus for the third straight month. It widened to USD3.3b (consensus: USD0.7b; Jun: USD1.3b), a nine-year high as a result of a sharper contraction in imports. Meanwhile, total trade fell sharply (-21.3%; Jun: -2.1%).

● 2020 exports forecast maintained (-5.0% to -2.0%; 2019: -7.0%) on the expectation that external demand to remain weak

− Year-to-date, exports fell by 5.0% YoY (Jan-Jun 2020: -4.9%) matching our lower-end target, weighed by the continuous weakness in global trade amid the impact of COVID-19 pandemic.

− Nevertheless, we expect export growth to gradually improve slightly in the following months due to the gradual reopening of the economy and growth recovery among the trading partners, though we remain cautious of a 2nd wave surge in COVID-19 cases.

Source: Kenanga Research - 19 Aug 2020