Data Highlights

• Malaysia's Industrial Production Index (IPI) recorded a moderate YoY increase of 2.4% in May 2024 (compared to 6.1% YoY in April 2024), reaching 124.1 points. The moderate gain can be attributed to the high base effect, as the overall IPI rebounded by 4.7% YoY during the same month last year (Apr23: -3.7% YoY). Notably, on a MoM basis, the index rose by 3.5%. Trend-wise, the three-month moving average rose by 3.6% YoY, easing slightly from April’s 3.9% YoY.

• The manufacturing component, which makes up a substantial 65.9% share of the IPI, increased by 4.6% YoY during the month (with a MoM decrease of 6.7%). In April, this segment grew by 4.9% YoY. 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 3.7%, higher than the previous 2.6% YoY gain. This rise was primarily driven by most sectors, excluding the manufacture of coke and refined petroleum products (-5.5% YoY). Notably, the manufacture of computer, electronics and optical products saw strong growth, increasing by 8.4% YoY, and the manufacture of textiles also showed an improvement, rising by 8.0% YoY.
     
  • Domestic-oriented industries rose by 6.4% YoY, vs. 9.5% annual increase previously. Namely, most of the products registered a growth, such as manufacture of motor vehicles, trailers and semi-trailers (10.3% YoY); followed by Manufacture of other non-metallic mineral products (9.8% YoY); and Printing and reproduction of recorded media (7.9% YoY). See Figure 6 for sub-segment performance.
     
• In accordance with the steady growth in manufacturing output, the sector posted the same trend, registering a slightly lower growth of sales value at 5.5% YoY to RM154.9bn in the latest reporting period, versus an increase of 5.7% YoY registered in the previous month. The increase was mainly underpinned by double-digit growth in the electrical & electronics products (12.2%) sub-sector; followed by non-metallic mineral products, basic metal & fabricated metal products (8.9%); and food, beverages & tobacco (7.7%) sub-sectors. In comparison with the preceding month, the sales value expanded by 1.1% YoY (Apr24: -3.3% MoM).
   
• At the same time, the mining output, which constitutes 25.1% of the total IPI, plunged by 6.9% YoY in May 2024 (Apr24: 10% YoY). The decline was mainly due to the decrease in natural gas and crude oil production by 10.3% and 1.9% YoY, respectively. On a MoM basis, this segment declined by 8.9%. 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 4.2% YoY (5.6% MoM) during the month (Apr24: 7.8% 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

• Despite the slowdown, we still believe that the overall performance of the IPI has shown steady improvement in the second quarter. Quarter-to-date (April-May), overall output rose by 4.2% YoY, compared to 3.3% YoY in the first quarter. This positive trend was primarily driven by robust growth in the electricity sector (QTD: 5.9% YoY; 1Q24: 9.2% YoY), the manufacturing sector (QTD: 4.8% YoY; 1Q24: 2.1% YoY), and the mining sector (QTD: 1.3% YoY; 1Q24: 5.9% 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 stabilization of manufacturing activities is a crucial element in the projected improvement of the industrial output. The latest Purchasing Managers' Index (PMI) report for June indicates a still healthy trend in the manufacturing sector. Despite the latest data returning to a contraction pace (below the 50- threshold), it suggests largely stable business conditions throughout the month. This indicates that manufacturing activities are stabilising, and we may see the momentum in manufacturing production continue in June.

• We maintain our forecast an IPI to grow by 3.9% YoY (YTD: 3.6% YoY), a substantial increase from 2023's 0.9% YoY growth.

Source: TA Research - 15 Jul 2024