Below expectations. Excluding a tax benefit of US$8.8m, Chartered’s 2Q09 net loss of US$48.2m (loss of US$6.1m in 2Q08 excluding tax benefit) was slightly lower than consensus forecast of US$52.6m, but wider than our loss forecast of US$45.7m, on higher-than-expected opex. Interim core net loss of US$148.1m forms about 75% of consensus and our full-year forecasts.

Sales contracted 24% yoy but improved 43% qoq to US$349m as the company, like its peers, TSMC, UMC, and SMIC, benefited from a resumption of orders from March after heavy de-stocking by OEMs in late 2008/early 2009. Including SMP, Chartered shipped 385.1k 8” equivalent wafers in the quarter vs. 548.5k a year ago. Weighted ASP (including SMP) was US$910/wafer, up from US$860 in 2Q08 due to greater contributions from leading-edge technologies.

EBITDA margins improved 8% pts yoy to 23.9%, on a better sales mix and operating efficiency improvements. Reported net loss was US$39.4m (after allocating US$2.1m for a non-controlling interest in CSP and US$8.8m tax benefit) vs. a profit of US$43.4m a year ago (including tax benefit of US$49.5m). Net gearing improved to 0.65x from 0.99x as at end-March due largely to funds raised from its rights issue, a larger equity base, and improvements in operating cash flow.

Guidance slightly ahead. Chartered guided for 3Q09 revenue of US$382m-394m, suggesting 9-13% qoq improvements. Wafer shipments are expected to improve 16% qoq on seasonal demand and new product introductions by several customers. Loss guidance was US$17m-27m, below our earlier assumption of US$29m due to better-than-expected margins and sales. Although its 4Q outlook remains unclear, Chartered is on track to lower its breakeven utilisation to 75% by year-end. As expected, it raised its capex budget from US$375m to US$500m.

Lowering loss assumptions; upgrade to Trading Buy. We have lowered our net loss estimates for FY09-10 by 14-31% to adjust for higher gross margin assumptions. We have also lifted our FY11 profit forecast by 2% for the same reasons. As the company climbs out of the bottom of the cycle, we now apply a higher P/BV of 1x (0.75x previously), raising our target price from S$1.92 to S$2.55. Upgrade to Trading Buy from Underperform as we see trading interest in semiconductor companies as we enter the seasonally stronger half. Key risk is a slower-than-expected sell-through in 3Q causing a weak 4Q as in 2008.