2Q09 to see strong sequential rebound. We expect Singapore tech companies to report positive, if not stronger than expected, numbers this upcoming result season. Excluding Chartered, which is expected to narrow losses to US$48m in 2Q09 from US$101m in 1Q09, we expect earnings growth of 13% q-o-q although still a contraction of 47% y-o-y. Operating margins should also get a q-o-q boost, even if minor, as the cyclical rebound coincides with benefits of extensive cost reductions since last year end.

Further growth expected in 3Q09 albeit slower; 2H09 >1H09. Taking cue from Intel, we expect companies to guide positively for 3Q09 and with higher conviction into the second half, as customers¨ build up plans reflect ramping ahead of the buying season and continued strength in China. As the economic recovery continues, tech companies are likely to see, by 4Q09, the first quarter of y-o-y growth, considering the low base in 4Q08.

Risk is weaker than expected sellthrough in 3Q09, which would then result in a drop in orders for 4Q09. However, as long as device makers remain cautious in their seasonal buildup considering fragility of economic recovery, the chance of a massive inventory glut is low.

Scope for catalysts and cheap valuations. Besides reasonably good upsides to our fair value target of S$3.50 (67% upside) and S$9.40 (17%), Chartered has an M&A catalyst from market talk that Abu Dhabi is eyeing Temasek¨s 62% stake in Chartered whereas Venture has an added bonus from a probable CDO writeback at year end, which enhances the likelihood of a special dividend on top of the usual 50ct DPS. For small caps, we like Meiban (6 P/E, 0.6x P/B, 8% yield) and Broadway (>4x P/E, 0.4xP/B, 5% yield) for their compelling valuations.

Chartered (Buy, TP: S$3.50) is a good proxy for early tech recovery. We are positive on Chartered Semiconductor in anticipation of positive quarterly results and it is also the cheapest among top three foundries globally. There is also an added M&A bonus for Chartered; it is rumoured that Temasek is considering a takeover bid for its 62% stake from Abu Dhabi.

Venture (Buy, TP: S$9.40) remains a champion for solid quality long term growth. Unlike its typical EMS peers, Venture’s focus on the ODM business, which accounts for 35% of FY08 sales from 25% in FY07, enables it to post above-industry margins. Although near term profitability has taken a hit as Venture undertakes full configuration for its key customer, it is not a sign that the company’s focus on margin has gone astray. Rather, full turnkey is the “last mile” solution necessary to complete the total value chain management, which would then enable Venture to strengthen customer alliances and stickiness in the long haul. Meanwhile, Venture persists to expand its ODM offerings and has embarked on new ODM platforms with strategic customers. We are confident Venture’s relentless pursuit of high value business will eventually drive core net margins to long term target of 6-8%, compared to industry average of 1-3%.

Hi-P (Buy, S$0.79) still riding high on smartphone but 2Q09 would be subdued. We expect Hi-P’s operating performance in Q2 to be lower q-o-q because some wireless products have reached end-of-line, but new platform is not ramping until 3Q09. Beyond Q2, new orders from RIM, Apple and HTC in the coming months would boost 2H09 results. We are positive on Hi-P’s medium term prospects, considering a rationalized cost structure and its smartphone exposure. We have revised TP to S$0.79 as we roll over our valuation peg to 9x PER ( vs previous peg of –1SD valuation of 7x PER) on blended FY09/10 earnings. Our new target price translates to 22% upside. Maintain Buy.

Meiban (Buy, S$0.35) is an undervalued gem @ 0.6x book with 8% yield. Current valuation of 6x FY09 P/E will be lowered to only 3x if ex-cash per share of S$0.12. Operationally, Meiban expects strong restocking bounce in 2Q and further margin expansion. Thanks to very early streamlining and careful cost management since mid 08, the company’s bottomline is less affected during this downturn. This is evident in 1Q09 results where net profit shrank 18% even though revenue collapsed 40% from a year ago. Our TP of S$0.35 is pegged to mid cycle valuation of 8x FY09/10 earnings.

Creative (Fully Valued, S$3.40) faces a double whammy of losing market share in a downward market. Notwithstanding several new chipsets and video conferencing products, Creative lacks a killer application to differentiate itself in a challenging market. Furthermore, the company continues to lose market share to Apple and Microsoft in the personal digital entertainment market. We do not believe that Creative will return to profitability in FY10, since revenues are unlikely to reach breakeven point. However, with improved working capital management in FY09 and restructuring costs mostly out of the way, we are more positive about Creative’s balance sheet position, going forward. Based on our net cash/ share projection at the end of FY10, we revise our target price to S$3.40 and upgrade the counter to FULLY VALUED.