2Q09 earnings revision — Chartered revised its 2Q09 guidance marginally upwards and now expects US$49mn loss (vs. US$59mn loss earlier) on stronger demand for mature technologies. With evidence of a seasonal demand pick up in 3Q09 and partly driven by new product introduction, guidance for 3Q09 will likely surprise on the upside.

...mid cycle correction likely – Our regional foundry analyst Andrew Lu believe mid cycle correction will begin in 4Q09-1Q10 and degree of correction could be ~10%, higher than consensus expectation of 5-10% qoq sales decline. In such a scenario, CHRT losses would deepen and price appreciation would be further capped. To mitigate risks of a prolonged downturn, CHRT would need to demonstrate its ability to achieve its break-even utilization target of 70%.

M&A catalyst – Chartered has denied receiving a bid from ATIC, the Abu Dhabi investment arm, to buy Temasek’s ~60% stake for ~US$1.7bn (or S$2.40-2.60 per share) but we do not rule out this possibility. ATIC had been perceived as a potential buyer as Chartered’s footprint and technology and customer base fits in well with Global Foundries, which is ~66% owned by ATIC. A potential bid for CHRT will be a strong catalyst for the stock.

Maintain Sell – We raise our estimates by 6-8% and revise our target price to S$1.20 (from S$1.10) based on 0.3-0.5x 2010E P/BV, as we incorporate management’s revised 2Q09 guidance. Chartered reports 2Q09 earnings and 3Q09 guidance on 24-Jul-09 (Fri) morning, Singapore time.