Photronics (Nasdaq: PLAB) has moved from 71 cents on March 25 to an interday high of $3.30 on May 28. In a May 21 upgrade by Merrill Lynch after Photronics reported its F2Q09:
“Merrill notes that although interest expense is increasing in the near term, revenue growth is starting to pick up again and expense cuts already in place increase cash available to service debt. In addition, the total debt level in F3Q drops $30mn when the new lease on the Nanofab takes affect. As PLAB’s financial flexibility increases, valuation multiples should climb toward ongoing concern peer levels. Half the peer P/TBV average would be 0.7x. At that level, PLAB would trade for $4, firm's new PO up from $2.”
Let’s take a look at the market position for Photronics. In our report “Mask Making, Inspection, and Repair: Market Analysis and Strategic Issues”, we note:
“Photronics market share for CY2008 increased to 17.4% of a $1.76 billion market from 16.8% the year earlier. Photronics leads the North American market with a 51.0% share.”
In a separate report, “The TFT-LCD Photomask Market”, we noted:
“Photronics market share for CY2008 increased to 18.5% of a $580 million market from a 16.5% share the year earlier. It is interesting to note that Photronics is a U.S.-based company and there is practically no liquid crystal display (LCD) industry in the U.S.”
One more point to note is that Photronics sells its products to leading semiconductor and FPD manufacturers. The most visible is Samsung Electronics. Samsung led the LCD market for the past several years and in 2008 had a 25.8% revenue share and 22.2% unit share of large size displays. Samsung held a 31.1% share of the DRAM market in Q42008, and has historically been building about one new IC facility (fab) each year.
Both the LCD and IC markets have begun a recovery in my opinion, particularly the LCD market for TVs and notebooks/netbooks. In the IC market, we are in a technology purchase phase whereby companies in an over capacity situation with excess inventory move to devices with smaller dimensions. That means more photomasks needed.
So the stock move by Photronics seems to be driven by fundamentals. The amended credit agreement has shown investors and traders that the company will continue to exist. And in addition, there continue to be those persistent rumors of a Photronics acquisition. Time will tell.
Disclosure: Long on Photronics