Shining beacons in 1Q17

KUCHING: Improving signs in Malaysia’s economy led to optimism among analysts of a recovery in cornerstone sectors such as oil and gas, aviation and plantation.

Rising optimism first came when Malaysia’s first quarter of 2017 (1Q17) gross domestic product growth (GDP) growth was above expectations, with most analysts surprised by the numbers.

The Department of Statistics Malaysia (DOSM) saw that the economy remained resilient at 5.6 per cent with a value of RM280.1 billion at constant prices and RM324.6 billion at current prices.

On aye aron year( y-o-y) seasonally adjusted basis, GDP for this quarter grew 0.8 per cent from the 1Q16.

“All sectors on the production side posted a favourable growth except for the mining and quarrying sector. Services, manufacturing and agriculture were the major drivers of the economy,” the department stated.

“On the expenditure side, private final consumption expenditure and gross fixed capital formation were the main catalyst for the growth.”

This was a pleasant surprise for AllianceDBS Research Sdn Bhd ( AllianceDBS Research), while researchers with Affin Hwang Investment Bank Bhd (AffinHwang Research) went so far as to say that the growth recorded came in “way above even the most optimistic expectation.”

“This was driven by gross exports, private consumption and private investment, which support our view of improving earnings momentum going forward.

“That said, weak consumer sentiment and rising inflation could dampen the prospects for domestic- demand driven industries,” AllianceDBS Research said.

Private sector activity continues to drive domestic demand

Bank Negara Malaysia (BNM) stated in a quarterly bulletin that domestic demand growth increased to 7.7 per cent in 1Q17, supported by continued expansion in private sector expenditure and the turnaround in public sector expenditure.

Private final consumption expenditure had grown 6.6 per cent, compared to 6.1 per cent in 4Q16.

According to DOSM, this had been backed by the consumption on food and non- alcoholic beverages, communication and housing, water, electricity, gas and other fuels.

“Household spending remained supported by continued expansion in employment and wage growth,” BNM said.

“The implementation of selected government measures, including the higher amount of Bantuan Rakyat 1Malaysia cash transfers, also provided additional impetus to household spending.”

Meanwhile, BNM reported that private investment grew at a robust pace of 12.9 per cent, compared to 4.9 per cent in 4Q16.

This was due to continued capital spending in the services and manufacturing sectors.

“Investments in machinery and equipment were higher during the quarter, supported by the implementation of several largescale projects in the manufacturing sector,” it said.

As for public investment, BNM highlighted that it registered a higher growth of 3.2 per cent (4Q16: -0.4 per cent), driven mainly by higher spending on fixed assets by public corporations.

Sectors grow at speedier pace

BNM noted that on the supply side, most economic sectors expanded at a faster pace.

“The improvement in the overall growth was contributed primarily by the turnaround in the agriculture sector and higher growth in the manufacturing and services sectors,” it said.

“Growth in the agriculture sector rebounded as crude palm oil yields recovered from the negative impact of El Nino.

“The performance of the sector was also supported by a double-digit expansion in rubber production.”

The central bank went on to note that in the manufacturing sector, growth was driven mainly by the electronics and electrical segment, in line with the continued favourable global demand for semiconductors.

It further noted that the domestic- oriented industries were supported by the continued demand for food-related products and a rebound in the motor vehicle production.

As for the services sector, it expanded at a faster pace in 1Q17, underpinned by growth in subsectors such as wholesale and retail, finance and insurance, and construction.

“Growth in the wholesale and retail sub-sector improved in line with higher household spending,” the bank said.

“The finance and insurance sub- sector also registered higher growth, supported by improvements in loan growth and capital market activity amid higher issuance of initial public offerings (IPOs).

“Growth in the construction sector was stronger, supported by civil engineering activity in the petrochemical, power plant and transportation segments.”

Results meet analyst predictions

With 1Q17 results reporting season having just concluded, most analysts found that earnings were to their satisfaction, with several sectors producing positive earnings surprises.

Expectation of earnings recovery were kept intact by a satisfactory 1Q17 earnings season where 65 per cent of corporates under AllianceDBS Research’s coverage met expectations.

On a positive note, the research house said that financial year 2017 ( FY17) earnings estimate for FBMKLCI has been raised by 0.7 per cent and it now expected growth of 9.1 per cent versus 7.8 per cent a month ago.

“Banks and technology sectors have been churning out positive earnings surprises,” it added.

The 1Q17 performance was also satisfactory for Affin Hwang Research, making up 23.7 per cent of prior full-year forecast.

Generally, the results were within the research firm’s expectations as 1Q is usually the weakest and it was hopeful that 1Q17 would set the tone for better earnings ahead.

“In some way, the 1Q17 results are a relief as it keeps alive the prospects of a full-year recovery in earnings,” the research firm said.

“Of the 20 sectors under coverage, the oil and gas sector reigned supreme with the highest contribution to growth.”

“All sectors on the production side posted a favourable growth except for the mining and quarrying sector. Services, manufacturing and agriculture were the major drivers of the economy.” DOSM