Stronger 2Q09 outlook, but cautious beyond that: CHRT’s Fab 7 appears to be enjoying >85% utilization due to demand from CDMA handsets and China TVs, among others. As utilization for other fabs has also improved, we expect very strong shipments in April. CHRT is likely to enjoy full utilization of its 65nm line but, mindful of the end- demand picture, we do not expect to see follow-through orders in 2H09.

Revised 1Q09 guidance: CHRT increased its 1Q09 gross profit guidance from –US$64MM to –US$44MM at the mid-point of the guidance. The main reason for the revision is improving allocation of fixed costs, which we believe to be due to better-than-expected wafer starts in 12" Fab 7 and 8" Fab 6 in March.

Rights offering, forced dilution: CHRT's choice of price for the rights offering was a clear signal to shareholders that they must participate in the rights issue or face a huge dilution. The market has responded with the stock dropping close to the rights issue price. Because CHRT’s major shareholder, ST Semiconductors, a wholly owned subsidiary of Temasek Holdings, has agreed to be on stand-by to subscribe to 90% of the issue, we can view the issue as done deal and factor the impact into our earnings model. We assume that much of the proceeds will be used to pay back debt worth US$158MM maturing in 2009.

We maintain UW with a new Dec-09 PT of US$0.85: Apart from US$158MM debt maturing in 2009, there is additional debt of US$542MM maturing in 2010. That raises further risk of dilution should CHRT be unable to refinance such debt. However, the valuation is now quite low, following the recent fall; on a post-rights basis, CHRT is now trading at 0.19x 2009E book and 0.23x 2010E book. With the Singapore government willing to back CHRT, the company is likely to stay in business for a while. Our PT is based on 0.2x FTM book, a big discount to book due to continuous losses and what we believe to be an unhealthy financial structure. A key risk: a dramatic change in the global economy.