Unusual Call Buying in Semi-Equipment Stock Photronics (PLAB)
Photronics (PLAB) strong move on 7/13 closing higher by 4.65% on its highest volume since March 19 and name that caught our eye with over 5,000 calls active, 145X average. Most of the action was concentrated on the December $12.50 calls where 4,450 were bought up to $1.60. Shares have pulled back to trend support off of the September 2020 lows and the 200-MA with room above $13.25 back to $16. The $784M company trades 13X earnings, 1.27X sales, and 30.5X FCF. PLAB makes photomasks that are used in the manufacture of integrated circuits and flat panel displays. Their main customers are foundries and FPD manufacturers. Photomasks are an opaque plate with holes or other transparencies that allow light to work through in a defined or set pattern. They are a critical part of the IC production process. They have seen strong demand for their FPD business as capacity has been sold out as more manufacturers move towards high-value masks. PLAB sees opportunity to grow revenues through multiple avenues. First, the company expects to continue growing their dominant market share in China which has tailwinds from Beijing’s ‘Made in China 2025’ plan which will benefit both businesses. PLAB has built two new plants in the region to capitalize on the opportunity. Second, they expect to drive higher revenues and margin expansion from the shift to more mobile displays in their mix. In May, they discussed the opportunity: “AMOLED panel capacity is growing, especially in China as more mobile displays adopt this technology. This includes not only smartphones, but also laptops and tablets. There’s an increasing proliferation of both manufacturers and products, create a rich environment for new designs and therefore, new masks. We are the recognized leader in AMOLED mask technology, and we will use this position to maintain and expand our market share. This will drive higher revenue and product mix as AMOLED carries some of the best ASPs across our product line.” Finally, the company expects to leverage their scale to reduce costs. Analysts have an average target for shares of $13, albeit limited coverage. Stifel positive on the name given their vast and growing opportunity in China. Short interest is 1.65%.