PP 7767/09/2010(025354)

Malaysia
Economic Highlights
ïMARKET DATELINE

9 September 2010

Manufacturing Sales Slowed Down In July

◆ Manufacturing sales grew at a slower pace of 9.3% yoy in July, compared with +14.1% in June and a high
of +26.4% in March. This was the slowest pace of increase in eight months, indicating that manufacturing sales
have softened further, in line with a slowdown in exports.

◆ Consequently, manufacturers turned cautious in recruitment and the number of workers recruited by
manufacturers eased to 5,358 in July, the third straight month of easing and from 5,995 in June.

◆ Going forward, we envisage the global economy to slow down in 2H 2010 and in 2011, as worldwide stimulus
spending dissipates and austerity measures in some European countries to address fiscal deficit and debt problems
begin to bite. This will likely be compounded by the policy normalisation and tightening measures introduced in
some countries, particularly in Asia. Despite the weakness, we do not expect the global economy to fall into
a double dip even though there is a risk of a sharper-than-expected slowdown. As a whole, in tandem
with a more moderate growth in the global economy, we expect the country’s exports and manufacturing sales
to slow down in 2H 2010, after picking up strongly in the 1H.

Manufacturing sales grew at a slower pace of Table 1

9.3% yoy in July, compared with +14.1% in June Manufacturing Sales
and a high of +26.4% in March (see Table 1). This
Total Sales/ Salaries/
was the slowest pace of increase in eight months,
sales worker worker
indicating that manufacturing sales have softened
RMbn % yoy RM'000 % yoy RM % yoy
further, in line with a slowdown in exports. Indeed,
the exports of manufactured goods eased for the fourth 2008 579.3 10.7 572.5 19.9 24,296.8 8.9
consecutive month to an estimate of 10.8% yoy in 2009 469.6 -19.0 497.1 -13.2 24,901.8 2.5
July, from +14.9% in June and a high of +36.7% in
2010 May 44.2 20.1 45.2 14.5 2,224.9 10.8
March. Stripping out seasonal factors and measured
Jun 45.0 14.1 45.8 8.4 2,245.5 5.6
on a 3-month moving average basis, manufacturing
July 45.7 9.3 46.2 3.5 2,237.3 4.5
sales eased to 14.4% yoy in July, from +18.0% in
June and a high of +24.0% in March (see Table 2), 2009 (Jan-July) 258.3 -25.4 272.3 -19.3 14,036.7 0.8

suggesting that manufacturing sales are losing 2010 (Jan-July) 307.5 19.0 317.5 16.6 15,767.2 1 2 . 3

momentum.

Mom, manufacturing sales moderated to 1.5% in July, from +1.8% in June. This was in contrast with a pick-up in the
exports of manufactured goods, which grew at a faster pace of 5.8% mom in July, compared with +2.3% in June, pointing
to a weakness in domestic sales.

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

A comprehensive range of market research reports by award-winning economists and analysts are Page 1 of 2
exclusively available for download from www.rhbinvest.com
 9 September 2010
Consequently, manufacturers turned cautious in Table 2
recruitment, in line with a slowdown in manufacturing sales Manufacturing Sales
and the risk of a sharper slowdown in global economic growth % mom

in the months ahead. As it stands, the number of workers Total Sales/ Wages/
recruited by manufacturers eased to 5,358 in July, the third Sales employee employee
straight month of easing and from 5,995 in June and the
‘10 May 2.8 2.1 -0.6
peak of 10,811 in April. Yoy, total employment in the Jun 1.8 1.2 0.9
manufacturing sector, however, strengthened to 5.8% in July, July 1.5 1.0 -0.4
from +5.4% in June. Meanwhile, the manufacturing sector’s
(3-month moving average)
productivity (measured by sales value of manufactured % mom % yoy
products per employee) weakened to 3.5% yoy in July, from
Total sales/ wages/ Total sales/ wages/
+8.4% in June and a high of +25.7% in March, suggesting
Sales emp. emp. Sales emp. emp.
that manufacturers will likely slow down their recruitment
‘10 May 3.1 2.3 -0.7 May 22.1 18.9 14.6
going forward. Similarly, wages per employee eased to 4.5%
Jun -0.8 -1.6 -0.6 Jun 18.0 13.0 10.3
yoy in July, from +5.6% in June and a high of +18.4% in
July 2.0 1.4 0.0 July 14.4 8.6 6.9
March.

Going forward, we envisage the global economy to slow down in 2H 2010 and in 2011, as worldwide stimulus
spending dissipates and austerity measures in some European countries to address fiscal deficit and debt problems begin
to bite. This will likely be compounded by the policy normalisation and tightening measures introduced in some countries,
particularly in Asia. As it stands, signs of a slowdown in the global economy are becoming more apparent. Indeed, global
manufacturing activities softened for the fourth consecutive month in August, the slowest pace of increase in nine months,
while global services activities expanded at the slowest pace in six months during the month. In the same vein, the OECD
composite leading indicator’s 12-month rate of change is likely to have peaked in March, after moderating for three straight
months to 6.7% in June and from +8.3% in May, pointing to slowing OECD economies in the months ahead. Despite the
weakness, we do not expect the global economy to fall into a double dip even though there is a risk of a
sharper-than-expected slowdown, given that policy normalisation and tightening remain gradual. Furthermore, the
US Fed has shifted its policy towards a loosening bias on its quantitative easing, prompted by weakness in incoming
economic data. In addition, the sovereign debt problems in Euroland will likely be manageable, following the announcement
of an emergency stabilisation loan of €750bn and the €110bn rescue package for Greece. As a whole, in tandem with a
more moderate growth in the global economy, we expect the country’s exports and manufacturing sales to slow
down in 2H 2010, after picking up strongly in the 1H.

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB
Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances
as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be
reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB
Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy
or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no
reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may
from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial
circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI
recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of
a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and
objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out
of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing
activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking
and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its
own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the
respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking
or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this
report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and
may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking
personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received
compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm
revenues.

A comprehensive range of market research reports by award-winning economists and analysts are Page 2 of 2
exclusively available for download from www.rhbinvest.com