Above expectations. Chartered Semiconductor reported a set of 1Q09 results that were above consensus and our expectations. Revenue of US$243.9m came in at high end of its mid-quarter guidance of US$232-244m, while its net loss of US$98.8m was significantly lower than its projected US$122-132m. The 37.2% YoY decline (-30.6% QoQ) in revenue was primarily due to significant fall in semiconductor demand across all markets, with largest fall coming from computer sector (-46.2% QoQ). Included in the results was a positive impact of US$29.8m (US$18.1m in 4Q08) resulting from a change in depreciation policy and an improvement in ASP per wafer to US$928 (US$909 in 4Q08) due to favourable product mix. Together with the adoption of FAS160 effective from start 2009, which allocates a US$15.5m loss to the non-controlling interest in CSP (Fab 6), net loss of US$98.8m was thus lower than expected. Results form 23.7% of our FY09F sales and 20.3% of our projected earnings (after preference share accretion).

Guides better 2Q09, maintains capex expectation. As Chartered progresses into 2Q09, it is seeing a significant increase in orders, mainly from its leading-edge 65nm technology node followed by 0.11 and 0.18-micron nodes. This, it said, may be driven by the introduction of new products and, to a lesser extent, inventory re-stocking. As such, the group is guiding revenue to improve ~32-37% QoQ to US$321-333m, while its net loss to narrow to US$54-64m for 2Q09. In line with strength seen at leading-edge technologies, Chartered is also expecting revenue from its 65nm-and-below technologies to increase ~72% QoQ and represent ~30% of its total 2Q09 sales. However, due to the challenging macroeconomic conditions, the group notes that it has limited visibility beyond 2Q09. On the operational front, the group is maintaining its FY09 capex expectation of US$375m and also its breakdown point of 75% utilization rate by 4Q09.

Reiterate SELL. In view of the better-than-expected results and recent ramp-up seen among the foundry players, we have readjusted our FY09 forecasts to reflect an 11.9% improvement in revenue and a narrower loss of US$299.8m from our previous projections. Our fair value estimate is in turn raised to S$0.08 (S$0.06 previously, still based on 4x FY09F NTA) for the same reasons. Despite this, we note that Chartered may not be able to return to sustainable profitability in FY10 and that its re-financing issues continue to be a concern. Seeing a sharp rebound in the share price lately, we believe significant downside risks lurks. Maintain SELL.