Published February 3, 2009

CIMB-GK still upbeat on Chartered shares

Its outperform call contrasts with other houses' more cautious outlook

By OH BOON PING

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TAKING a contrarian view, CIMB-GK has maintained its 'outperform' call on the stock of Chartered Semiconductor following news of the chipmaker's US$114 million fourth-quarter net loss and its plans to cut its worldwide staff by about 600 workers or 8 per cent.

Falling orders: Chartered is guiding for Q1 2009 revenue to drop about 37-40 per cent year-on-year and 31-34 per cent quarter-on-quarter

Full-year 2008 loss, which came amid falling global demand for semiconductor chips, was US$92.6 million.

CIMB analyst Jonathan Ng said that the brokerage maintained its 'outperform' call because 'we believe the share price will react positively on signs of a recovery in the semiconductor sector expected at end-2009'. CIMB's target share price for Chartered is 30 cents, compared with the closing price of 23 cents yesterday.

For FY09, CIMB has raised its net loss estimate by 158 per cent to US$473.6 million to factor in lower sales and margins. CIMB also expects Chartered to lose US$233 million in 2010 against its earlier assumption of a US$24 million profit.

CIMB's optimistic call was in contrast to other houses' more cautious note on Chartered's business prospects.

Deutsche Bank, Citigroup and OCBC Investment Research have called for a 'sell' on the stock, with price targets of 18 cents, 20 cents and 11 cents respectively.

Both Daiwa and BNP Paribas have recommended a 'hold', while Nomura is 'neutral' on the stock.

In a report, OCBC's Kevin Tan noted that the company expects the negative macroeconomic environment and difficult end-market conditions to continue to affect the foundry industry and its business significantly.

'In particular, it believes that its customers may be cutting orders more aggressively in view of the worsening visibility in the market place and rising inventories.'

This being so, Chartered is guiding for Q1 2009 revenue to drop about 37-40 per cent year-on-year and 31-34 per cent quarter-on-quarter to US$232-244 million, and its net loss to deteriorate to between US$142 million and US$152 million, Mr Tan added.

'The dreary quarterly results and guidance reinforce our view that Chartered may continue to sustain losses in FY09 and FY10. Based on our revised forecasts, the group may hit a record loss of over US$500 million in FY09 and US$300 million in FY10 in view of the still-weak market conditions.'

Early last month, Chartered was the subject of a takeover speculation as some market watchers said that parent Temasek Holdings, which had a 59 per cent stake as at March 31, 2008, was in talks with suitors regarding a sale.

Some analysts had felt that Chartered was an attractive takeover target, given its record-low valuations in terms of price-to-book ratios, and this subsequently caused a stock rally last month.