KSE Weekly Review LAHORE - Average daily turnover at the local equity market dropped by 53 percent to 53 million shares during the outgoing week in the absence of any positive triggers. However, the PPL remained a notable exception after it announced an emergent board meeting, with a possibility of announcing an early cash dividend. Further, key economic data for the May was released, with remittances and exports both registering impressive numbers in May. Overall the index remained flat, with KSE 100 closing at 12,361, down by 0.1 percent. Key macro data was released for May, with remittances and exports both registering impressive growths. Monthly remittances in May crossed $1b (up 39 percent) for the third consecutive month, with cumulative 11MFY11 inflow reaching $10.1b an increase of 25.2 percent from last year. Further, exports for May came in at $2.3bn (up 33 percent) taking the cumulative figure to a record $22.4b. Cumulative imports on the other hand, rose by 16 percent to $36.6b, leading the trade deficit to reach $14.1b (up 1 percent from last year). Lastly, FDI in 11M period dip 30 percent to $1.4b as security situation worsened. MTS investment (as of Thursday) stood at Rs253m with average rate at 17.19 percent. Experts said that volumes at the exchange dropped to a 4 week low, as investors awaited positive news flow. However, PPLs announcement of an emergent board meeting with a possibility of announcing an early dividend led to a flurry of activity in the scrip, helping it gain 1.8 percent. Further, Nishat group offered 10 percent (or 37.3m shares) of its stake in Pakgen Power Limited at Rs19 per share. Ahsan Mehanti, Director, Arif Habib Investments said that limited local and foreign interest, fall in global commodities and Asian capital markets on Greece debt default affected the investors sentiment at KSE. Record Foreign Exchange reserves at $17.5b, dividend announcement of state owned Pakistan Petroleum and expected improvement in OMC margins invited institutional support throughout the trading session, he added. According to, Economic Coordination Committee is considering upward revision of OMC margins on regulated POL products by Rs0.5/ltr for each product (Motor Spirit, High Speed Diesel and Kerosene). Any increase in OMC Margin on Motor Spirit (MS) and High Speed Diesel (HSD) can have significant positive impact on all three listed OMCs. Currently OMC Margins on MS and HSD stand at Rs1.50/ltr and Rs1.35/ltr respectively. All three listed OMCs (PSO, APL and SHEL) derive a significant chunk of their revenues from deregulated products. PSO derives 40 percent of its gross profit from FO sales which yields margins of 3.5 percent while APL derives 45 percent of its gross profit from Asphalt; SHELL, on the other hand, derives 50 percent of its gross profit from Lubes. Nonetheless, EPS sensitivity suggests that SHEL is relatively most exposed to this upside risk in margins for both the products. Change in OMC margin on HSD and MS from current levels of Rs1.35/ltr and Rs1.50/ltr to Rs1.85/ltr and Rs2.00/ltr respectively can increase SHELs CY12E EPS by 30 percent, while under the same scenario 15 percent and 6 percent appreciation in FY12E EPS is expected for PSO and APL respectively. Experts said that with cotton output expected to surpass global consumption after 7-years along with upcoming PTA production capacities in next three years is likely to restrict PTA margins on the lower side. While on the domestic front, despite many deliberations to increase duty protection to regional competitive levels (5-6.5 percent), the new budget FY12 remained silent on this. Thus, considering these events experts have downgraded primary margin assumption by 7-10 percent for 2011 and 2012 along with our stance from 'Buy to Hold. With better fiber prices available to farmers along with higher global crop yields, cotton production is expected to surpass consumption after 7 years. Cotton production is expected to increase by 9 percent to 124.7mn US bales compared to 114.4mn bales seen in FY11. With these better output numbers, the lint prices have started to ease from its peak level of US$2.14/lb to US$1.39/lb (Oct11 contract) thus affecting the demand and prices for its substitute, polyester a product manufactured from PTA. Thus, after witnessing a peak of US$1,525 per ton in the same period of cotton shortages the international PTA prices have now corrected to US$1,185 per ton, a 22 percent decline in last 3 months. Experts believe with higher cotton availability and lower PTA prices compared to last year, demand for PTA would remain under pressure restricting the upside in the primary margins.