• IPI expanded by 3.1% in March, compared to 1.7% growth in February

• Mainly due to steady manufacturing sector growth and smaller contraction within the mining sector

• 1Q GDP is expected to grow by 4.5%, thus maintaining 2019 growth at 4.5%

Highlights

Malaysia’s Industrial Production Index (IPI) accelerated to 3.1% y-o-y in March, from 1.7% yo-y in February.

This was mainly attributed to expansion in Electricity (+4.8% y-o-y) and Manufacturing (+4.1% y-o-y). However, the Mining sector registered a softer contraction of 0.2% (February: -5.0% y-o-y).

Within the Manufacturing sector (68.25% index weightage), growth was seen in most subsectors. Food, Beverages and Tobacco Products grew 6.8% y-o-y; Transport Equipment and Other Manufacturer expanded 6.1% y-o-y; Petroleum, Chemical, Rubber and Plastic Products rose by 3.7% y-o-y and E&E Products expanded 2.7% y-o-y

However, the Mining sector contracted due to the decline in the extraction of Crude Oil & Condensates (-2.0% y-o-y). However, extraction of Natural Gas inched up to 1.4% y-o-y.

In 1Q19, IPI growth expanded by 2.7% y-o-y (1Q18: +3.4%).

Our comments

Overall, March IPI growth came in above Bloomberg consensus estimate of 2.3%.

On a m-o-m basis, IPI growth expanded by 11.4% (Feb: -11.6% m-o-m), mainly due to a strong growth across all segments: Mining (+16.4%), Electricity (+14.0%) and Manufacturing (+9.6%), as production reverts back to business as usual following the Chinese New Year festivities in the previous month.

However, the 3-months moving average decreased to 2.7% y-o-y in March (Feb: +2.8% vs Jan: +3.1%), suggesting the underlying growth trend is indeed still in moderating trend. This is consistent with the trend of exports during the same month.

Nevertheless, the Manufacturing sector’s output continued to be supported by E&E production, which grew 2.7% y-o-y in March (Feb: +3.1%) as Malaysian E&E manufactured goods remained attractive for the export markets.

Meanwhile, total manufacturing sales remained strong, expanding by 5.7% y-o-y in March (Feb: +5.5%) to RM72.4m from RM68.5m in the preceding year. Nevertheless, March sales were mainly contributed by sales of manufactured refined petroleum products (RM11.6m – 16.0% of total manufacturing sales) and manufactured electronic components and semiconductor products (RM15.6m – 21.5% of total manufacturing sales).

On a side note, the Nikkei Malaysia Manufacturing PMI increased to 49.4 in April (Mar: 47.2) – the highest since September 2018. This was mainly attributed to an expansion in new export orders with demand mainly coming from Europe, the US, Singapore and Japan.

Overall, we expect our 1Q19 GDP growth at 4.5% y-o-y, while maintaining our full-year forecast of 4.5% in 2019.

Source: Alliance Research - 16 May 2019