Chartered raised its 2Q09 expectations in its mid-quarter guidance last Friday. It now expects sales of US$333m-348m, up from its earlier guidance of US$321m-333m. It also expects its net loss to narrow to US$45m to US$53m vs. US$54m to US$64m forecast earlier. Business has improved marginally, coming mainly from mature technologies.

Raising forecasts and target price; maintain Underperform. The higher guidance does not come as a surprise as industry peers like TSMC and UMC have been suggesting positive underlying demand for the June quarter. Comments by both indicate that the outlook for early 3Q remains healthy.

We have narrowed our loss expectations for FY09-10 by 24% and 82%, and raised our FY11 profit forecast by 95% to factor in higher sales and gross margin assumptions. We also apply a higher P/BV of 0.75x instead of 0.5x (still at a discount to its previous low) as we believe the trough period for the semiconductor industry may be over. Accordingly, our target price rises from S$1.35 to S$1.92. Nevertheless, maintain Underperform as Chartered would remain loss-making for the next two years.