UBS Investment Research - Chartered Semi on Track

UBS Investment Research
Chartered Semi
Business momentum on track

! Positive Q405 results and Q106 guidance
Chartered reported Q405 results on 27 Jan. Margins came in above our
expectations at 24% and 9%, with net profits reaching US$26.5m, ahead of our
US$17.2m. Looking into Q106, Chartered guided for sales decline of 2-4% QoQ,
slightly better than our 5% QoQ decline, with net profit of US$10-15m.
! New customers for 90nm - progressing as planned
To diversify single product risk on 90nm, we believe Chartered remains on track
to secure new customer orders on 90nm. We expect the customer on baseband ICs
to start placing orders late-Q2, while wafer production from AMD could begin
from July 06. Chartered also expects new 90nm customers in graphics and storage
in 2H06.
! Adjustments to earnings forecast
We raised our 05/06E/07E earning estimates from –
US$183m/US$97.5m/US$125m to –US$173m (actual)/US$101.7m/US$131.7m,
to partly reflect better Q405 results, less-than-expected seasonal sales decline in
Q106, as well as new capacity additions in its Fab 7, from 15K to 19K wpm in
06E.
! Valuation: Maintain Buy 2, upped PT to S$1.70
With Chartered's business momentum intact, we maintain Buy 2 on Chartered. We
also lift our PT to S$1.70 to reflect our increased earnings forecast for 06E/07E,
based on 06E EV/CE of 1.4x (prev 1.3x), assuming ROCE of 10.1% (prev 9.8%),
WACC of 8.8% and growth of 5.5%, translating to 06E P/B of 1.8x.