• September exports expanded 6.7% y-o-y, while imports fell 2.7%

• Driven by strong growth in O&G and E&E manufactured goods

• We maintain full-year exports growth estimate at 5.5%- 6.0% and 2018 GDP growth forecast of 4.8%

Highlights

In September, Malaysia’s exports picked up 6.7% y-o-y (Aug: -0.3%), however imports declined by 2.7% y-o-y (Aug: +11.2%). As a result, trade surplus expanded to RM15.26bn (Aug: RM1.61bn), highest since 2008.

During the month, exports growth was led by expansion in E&E exports (+6.5%), refined petroleum products (+20.5%), crude petroleum (+54.4%) and LNG (+1.8%). However, this was partly offset by lower exports of palm oil and palm oil-based products (-11.5%).

Meanwhile, the contraction in September imports was due to a reduction in capital goods (- 25.2%), consumption goods (-10.0%) and intermediate goods (-9.3%).

YTD-September, exports and imports grew +6.5% y-o-y and +5.0% y-o-y respectively.

Our comments

Exports growth for September was in line with Bloomberg’s consensus estimate of 6.7% y-o-y.

On a seasonally adjusted m-o-m basis, exports rebounded to 1.1% (Aug: -11.0%). The rebound was mainly attributed to stronger exports of manufactured products (+2.6% m-o-m) and refined petroleum products (+24.9% m-o-m).

Within the manufacturing sector, the E&E subsector registered higher external demand for semiconductor goods. This was in line with the statement by the Semiconductor Industry Association (SIA), stating that September’s global semiconductor sales expanded by 13.8% y-o-y.

However, October’s Nikkei Manufacturing PMI turned bearish, recording a reading of 49.2 (Sept: 51.5), due to lower new orders and sales and a slowdown in employment growth. This may signal a moderating trend within the manufacturing sector as cost pressures rises due to the implementation of Sales and Services Tax (SST) during the month.

Meanwhile, the higher average Brent crude oil price of USD79.1 per barrel in September (Aug: USD73.8) has contributed to a higher average unit value in Crude Petroleum exports, while the depreciation of Ringgit from RM4.09 per USD in August to RM4.14 per USD in September has indirectly improved the attractiveness of Malaysia’s exported goods.

On the other hand, imports declined by 15.5% m-o-m to RM80.2bn during the same month, partly due to lower public consumption of goods and investments in infrastructure, as the tax holiday period ended and SST was implemented on 1st September.

Malaysia’s export-oriented manufacturing sector may benefit over the medium term as multinational corporations choose to diversify their supply chains from countries that are directly impacted by the trade war to neutral countries such as Malaysia.

Overall, exports growth is likely to remain resilient in the remaining months of 2018. Thus, we maintain our 2018 full-year exports growth estimate of 5.5%-6.0% y-o-y. We reiterate our 2018 GDP growth forecast of +4.8% y-o-y (2017: +5.9%).

Source: Alliance Research - 5 Nov 2018