Data Highlights

• Malaysia's Industrial Production Index (IPI) has recorded a notable rise of 2.4% YoY in March 2024, reaching 133.8 points. This growth surpasses the anticipated 1.9% YoY expansion, albeit with a slight moderation compared to previous months. Notably, on a monthly basis, the index exhibited a robust increase of 7.5%.

• The manufacturing component, which makes up a substantial 65.9% share of the IPI, increased by 1.3% YoY during the month (with a MoM increase of 7.9%). Notably, the sustained growth in the sector was driven by the steady performance of export-oriented industries, which rebounded by 0.5% as compared with 0.2% decline previously. Meanwhile domestic-oriented industries increased by 3.1% YoY, albeit moderated slight from February’s reading of 4.1% YoY.
   
  • Export-oriented industries in the country recorded a YoY increase of 0.5%, better than the 0.2% YoY contraction registered previously. The rise was primarily driven by most of the sectors, excluding Manufacture of chemicals and chemical products, and Manufacture of electrical equipment at -4.0% and -3.0%, respectively.
     
  • Domestic-oriented industries rose by 3.1% YoY, vs. 4.1% annual increase previously. Namely, most of the products registered a growth, such as manufacture of motor vehicles, trailers and semitrailers (-10% YoY)
     
  • See Figure 6 for segment performance.

• In accordance with the steady in manufacturing output, the sector posted a higher sales value of RM158.4bn in the latest reporting period, denoting an increase of 1.4% (Feb24: 0.7% YoY). The rise was primarily driven by the Non-metallic mineral products, basic metal & fabricated metal products (9.6% YoY); Wood, furniture, paper products & printing (3.4%); and Electrical & electronics products (2.3% YoY) sub-sectors. On a month-on-month comparison, the sales value improved by 8.3% (Feb24: 4.3% MoM).

• At the same time, the mining output, which constitutes 25.1% of the total IPI, rose by 4.9% YoY in March 2024 (Feb24: 8.1% YoY). The moderation was mainly due to the decline in crude oil production by 0.7% YoY, nonetheless, offset by the rise in natural gas output (8.9% YoY). On a MoM basis, this segment rose by 5.3%. The mining sector encompasses the production of crude oil and natural gas, which accounted for 83.1% of the gross output value and 89.6% of the census value-added of the mining sector in 2015.

• The electricity index, which represents 6.6% of the total IPI, rose by 7.8% YoY (10.4% MoM) during the month (Feb24: 10.9% YoY). Moreover, the increase indicates an increasing momentum in the operations of the businesses. To note, the electricity index refers to the generation, collection, transmission, or distribution of electric energy to households, industrial, or commercial users.

Our Thoughts

• Despite the slowdown in March IPI growth, the overall performance showed significant improvement in the first quarter of the year. Overall output rose by 3.3% YoY in 1Q24, compared to 0.8% YoY in the previous quarter. This positive trend was primarily driven by robust growth in the electricity sector (1Q24: 8.9% YoY; 4Q23: 4.6% YoY) and the mining sector (1Q24: 5.9% YoY; 4Q23: 3.7% YoY). Additionally, the manufacturing sector rebounded by 2.1% YoY during the quarter, following a slight decline in the previous quarter (4Q23: -0.2% YoY). Consequently, both the manufacturing and mining sectors are expected to positively contribute to real GDP growth, indicating an overall positive trajectory in the 1Q24. (Please refer to our GDP preview report for further details.)

• We maintain a positive outlook for 2024, anticipating a recovery in external demand alongside global manufacturing activities that will bolster Malaysia's industrial production. Forecast IPI growth target of 3.9% YoY, a significant increase from 2023's 0.7% YoY.

• The sustained expansion of domestic demand is also expected to contribute to the overall IPI growth this year. Our optimism is also reinforced by the recent stabilization of manufacturing activities, notably highlighted in the latest Purchasing Managers' Index (PMI) report for April. The seasonally adjusted S&P Global Malaysia manufacturing PMI rose to 49.0 in April, up from 48.4 in March, signaling a softer downturn in the country's manufacturing sector. Moreover, as market conditions show signs of recovery, Malaysian manufacturers reported stable employment levels in April, following three consecutive monthly declines and manufacturers will be buoyed by the renewed expansion in new export sales, with the rate of growth the strongest recorded in three years.

Source: TA Research - 13 May 2024