Data Highlights

• Malaysia's Industrial Production Index (IPI) recorded a notable YoY increase of 6.1% in April 2024 (compared to 2.4% YoY in March 2024), reaching 123.7 points. However, this growth fell short of the 6.5% YoY expansion projected by consensus estimates. The steady gain can be attributed to the lower base effect, as the overall IPI decreased during the same month last year. Notably, on a MoM basis, the index contracted by 7.6%. Trend-wise, the three-month moving average rose by 3.9% YoY.
   
• The manufacturing component, which makes up a substantial 65.9% share of the IPI, increased by 4.9% YoY during the month (with a MoM decrease of 8.2%). Notably, the growth in the sector was driven by the performance of both domestic and export-oriented industries.
   
  • Export-oriented industries in the country recorded a YoY increase of 9.5%, significantly higher than the previous 3.1% YoY gain. This rise was primarily driven by most sectors, excluding the manufacture of electrical equipment (-1.7% YoY) and the manufacture of computer, electronics, and optical products (-1.4% YoY). Notably, the manufacture of rubber products saw strong growth, increasing by 7.7% YoY, and the manufacture of plastics products also showed an improvement, rising by 6.1% YoY.
     
  • Domestic-oriented industries rose by 9.5% YoY, vs. 3.1% annual increase previously. Namely, most of the products registered a growth, such as Manufacture of motor vehicles, trailers and semi-trailers (20.2% YoY); followed by Manufacture of fabricated metal products, except machinery and equipment (12.8% YoY); and Manufacture of other non-metallic mineral products (11.2% YoY)
     
  • See Figure 6 for sub-segment performance.
     
• In accordance with the steady growth in manufacturing output, the sector posted a higher growth of sales value at 5.7% YoY to RM153.2bn in the latest reporting period, better than an increase of 1.4% YoY registered in March 2024 (RM158.4bn). The increase was mainly propelled by sales in the subsectors of Transport equipment & other manufactures (16.9% YoY); Non-metallic mineral products, basic metal & fabricated metal products (12.8% YoY); and Electrical & electronics products (2.7% YoY). Nonetheless, the Manufacturing sector sales value contracted by 3.3% from RM158.4bn registered in the preceding month.
   
• At the same time, the mining output, which constitutes 25.1% of the total IPI, rose by 10% YoY in April 2024 (Mar24: 4.9% YoY). The resilient growth was mainly due to the increase in natural gas production by 14.9% YoY as well as the rebound in crude oil output (3.5% YoY). On a MoM basis, this segment declined by 6.3%. 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 7.6% YoY (-4.1% MoM) during the month (Mar24: 8.5% YoY). The increase indicates a sustaining momentum in the operations of the businesses as compared to a year before. To note, the electricity index refers to the generation, collection, transmission, or distribution of electric energy to households, industrial, or commercial users.

Our Thoughts

• In the first four months of 2024 (4M24), overall output rose by 3.9% YoY, compared to 3.3% YoY in the previous quarter, and significantly better than the 1.3% YoY gain in the first four months of 2023 (4M23). This positive trend was primarily driven by robust growth in the electricity sector (4M24: 8.8% YoY; 1Q24: 9.2% YoY; 4M23: -0.6% YoY), the mining sector (4M24: 6.9% YoY; 1Q24: 5.9% YoY; 4M23: -0.1% YoY), and the manufacturing sector (4M24: 2.8% YoY; 1Q24: 2.1% YoY; 4M23: 1.8% YoY).

• We maintain a positive outlook for 2024, anticipating a recovery in external demand alongside global manufacturing activities, which will bolster Malaysia's industrial production. The stabilisation of manufacturing activities is a crucial element in the projected improvement of the IPI. The latest Purchasing Managers' Index (PMI) report for May indicates a positive trend in the manufacturing sector. The seasonally adjusted S&P Global Malaysia manufacturing PMI breached the 50-threshold, rising to 50.2 in May from 49.0 in April. This shift signals a rebound in the country's manufacturing sector, suggesting that manufacturing activities are stabilising and even expanding. Such a rebound is expected to contribute significantly to the overall growth of the IPI.

• Moreover, the recovery in global demand is a significant factor contributing to the expected rise in Malaysia's IPI. As global economies gradually rebound from the disruptions caused by the COVID- 19 pandemic, there is an anticipated increase in demand for Malaysian exports. Key sectors such as electric and electronics are likely to benefit from this resurgence in global demand. The heightened demand for these products will drive production levels higher, positively impacting the overall IPI. We maintain our forecast an IPI to grow by 3.9%, a substantial increase from 2023's 0.7% growth.

Source: TA Research - 11 Jun 2024