Sharp rebound in Q2. Corresponding to the rising momentum amongst upstream players and the resulting incremental improvement in business, Chartered raised Q2 sales forecast to US$343m (+41% q-o-q) compared to previous expectation of US$327m (+35% q-o-q). Consequently, net loss is expected to narrow by US$10m to US$49m vs previous guidance of US$59m. Wafer shipment is expected to surge 60% from Q1, largely from mature technologies.

Further growth expected in Q3 albeit at a slower pace. Taking cue from the multiple upgrades in earnings guidance of Broadcom, Qualcomm and Marvell, we are optimistic on the near term outlook of Chartered and see upsides coming from the wireless & PC-related space. We believe utilization will continue to improve due to the usual seasonal strength but overall sequential growth would be at a slower pace compared to Q2.

Below mid-cycle valuation with an M&A kick. Chartered currently trades at 0.8x P/B, which is still -1SD from average. Considering the still robust improvement in the industry, we believe the stock could continue to re-rate toward its mid cycle valuation of 1.3x P/B or our TP of S$3.50. Furthermore, there is an added M&A bonus as it was speculated in the market that Temasek has received a bid for its 62% stake in Chartered. Maintain BUY.