Intel Corporation (INTC) & More: Is This Photomasks Manufacturer a Buy at Its Current Price?

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nine suppliers for Apple’s iPhone 5 were Photronics’ customers. Intel Corporation (NASDAQ:INTC) is also one of Photronics’ customers. The agreement of the two companies dated back to September 2009. Both companies agreed to work together to share technical and operations information of Photronic’s mask manufacturing lines, and the alignment of mask making toolsets of the two companies. As Intel has cut back its inventory recently, from $5.3 billion in Sept 2012 to $4.73 billion in Dec 2012, it would reduce its production level. Thus, the sales of Photronics to Intel Corporation (NASDAQ:INTC) will be impacted somewhat.

Peer comparison

DAI NIPPON PRINTING (NASDAQOTH:DNPCF), at $9.70 per share, has a total market cap of around $6.25 billion. It is valued quite cheaply, at only 3.64 times EV/EBITDA. However, it is still more expensive than Photronics as it has an EV multiple of only 3. With $7 per share, Photronics is worth only $425 million on the market.

In terms of profitability, Photronics seems to be more profitable than DAI NIPPON PRINTING (NASDAQOTH:DNPCF) with higher operating margin and return on equity. While Photronics generated a 9.4% operating margin and a 4.8% return on equity, Dai Nippon Printing had only a 2.35% operating margin and a negative return on equity of -1.3%.

The Foolish take

Photronics seems to be a decent pick at its current trading price due to its strong balance sheet, high operating margin, and low valuation. However, I do not think Photronics could be a stock for the long run due to its customer concentration. Although most of Photronics’ customers are big companies, a cutback in orders of one customer might affect Photronics’ operating performance significantly.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel.

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