BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Thursday, 12 April 2012

Economics

ECONOMICS

Jump in IPI Growth to a 20-Month High Not a Signal of An Imminent Recovery

Festivity related distortions continue. In line with expectations, production at factories, electricity companies and mines rose 7.5% YoY in February 2012, the fastest pace since June 2010 compared to our initial estimate of 7.1% YoY and market consensus of 5% YoY. At the same time, industrial output growth in January 2012 was also revised slightly upwards to show a 0.3% YoY gain versus +0.2% YoY previously. Nonetheless, we remain wary to conclude the sharp improvement of industrial production index (IPI) numbers in February 2012 as a precursor that the economy is back on a recovery track since this technical rebound emanated mainly from a higher number of working days in February 2012 compared to a year ago since: the Lunar Chinese New Year (CNY) fell in February 2011 as opposed to January in 2012; and another one additional business day in February 2012 as 2012 is a Leap Year

Slowdown risks linger. Although recent signs of improvement in the US and stabilisation in the Euro zone may have reinforced global growth prospects to a certain extent, the key takeaway of a moderating economy remains very much intact, a good reminder that we should wait for March 2012 data to see economic statistics relatively free from temporary distortions that could provide more conclusive underlying trends. For example, even if the Euro zones turmoil has eased somewhat, Spains apparent struggle to check its finances could reignite the sovereign debt crisis fears while growing evidence of a soft landing in China of late could reverberate across Asia including Malaysia. As such, we would not rule out the possibility of a slew of discouraging data in the coming months at least until the turn of the 2H2012. Industrial output growth may moderate from March 2012 onwards as the widely anticipated global slowdown is likely to weigh on export demand for Malaysian goods and services in particular electrical & electronics products before signs of a gradual pick-up in global demand emerge in the 2H2012. Broad-based growth for all IPI components, mining output reverses its slide of 19 consecutive months. Unsurprisingly, YoY growth was broad-based for all 3 major IPI components in February 2012, led by electricity generation (+11.3%) and followed closely by the manufacturing sub-index (+9.4%). Even the mining sector grew 1.9% YoY, turning positive for the first time since June 2010 thanks to increases in production of crude oil (+1.4% YoY) and natural gas (+2.8% YoY). Strong gains in Food Products, Beverages & Tobacco (+12.7% YoY); Radio, Television & Communication Equipment & Apparatus (+11.3% YoY) and

The Research Team research@bimbsec.com.my 03-26918887 ext 111

|1

Economics
Petroleum, Chemical, Rubber & Plastics Products (+8.9% YoY) were among the major drivers of the manufacturing sectors high single-digit growth in Feb 2012.

IPI numbers all higher MoM on a seasonally adjusted basis. The IPI readings on a seasonally adjusted month-on-month basis were all in positive territory in nd February 2012, the 2 month of such a release to strip out seasonal effects in the original data series, a stark contrast to the performance in January 2012: overall IPI (+9.1% MoM), manufacturing (+11.0% MoM), electricity (+8.5% MoM) and mining (+5.1% MoM). Still, the acceleration in February 2012 IPI expansion should translate into a rather reasonable showing for the Gross Domestic Product (GDP) in the 1Q2012 since the industrial sector accounts for over 35% of the Malaysian GDP.

Index Levels of IPI and Its Components in February 2012

IPI Manufacturing Sub-Index Electricity Sub-Index Mining Sub-Index Original Index Seasonally Adjusted Index 108.4 117.7 117.0 129.1 121.4 135.8 88.2 92.7

Source: Statistics Department, BIMB Securities

Growth of IPI and Its Components (% YoY)

30.00

20.00

10.00

0.00
Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

Nov-07

Nov-08

Nov-09

Nov-10

Nov-11

May-07

May-08

May-09

May-10

May-11

Jul-07

Jul-08

Jul-09

Jul-10

Jul-11

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

-10.00

-20.00

-30.00
Overall Industrial Output Manufacturing Output Power Generation Mining Output

Source: Statistics Department, BIMB Securities

www.bimbsec.com.my

|2

Economics
DEFINITION OF RATINGS BIMB Securities uses the following rating system: STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months. TRADING BUY Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain. NEUTRAL Share price may fall within the range of +/- 10% over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15% in the next 3 months. SELL Share price may fall by more than 10% over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB securities Sdn Bhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this and are subject to change without notice. BIMB Securities Sdn Bhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

www.bimbsec.com.my

|3