Chartered Semicon Mfg (Sell S$0.21, (Downgrade from Hold), Bloomberg: CSM
SP)
Rights will buy time
Price Target : 12-month S$ 0.19 (Prev S$ 0.23)
By: Ai Teng Tan +65 6398 7967
Chartered's US$300m rights issue is insufficient to refinance its US$1.25b outstanding debt (US$815m due in 09/10), but will boost its balance sheet temporarily. The bigger concern now is Chartered's prospects as it enters the worst semicon industry downturn with stronger competition from AMD's Globalfoundries, backed by US$9.6b investment from Abu Dhabi and a stronger TSMC gaining market share to produce chip for Intel. Given the dimmer outlook and heavy dilution from the rights issue, we downgrade Chartered to Sell with a revised target price of S$0.19.
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27-for-10 rights at S$0.07/share. The rights share is priced at 66% discount to yesterday's close of S$0.205, with a theoretical ex-right price of S$0.1064. The rationale for the rights issue is to enhance financial flexibility for growth and to finance maturing debts to lower net gearing to 0.7x from 0.86x. Temasek has undertaken to subscribe up to 90% of the offer, including its entitlement of 59.4%.
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Chartered narrows Q1 loss guidance to US$127m, but there are still challenges. The US$20m improvement stemmed largely from higher wafer starts (≤ 0.11μ) for new handset/digital TV products for April delivery. Despite signs of the business stabilizing, competition is getting keener now that customer AMD has started a new foundry with support from Abu Dhabi, and TSMC is gaining market share and positioning to produce Intel's major CPU, Atom. The overall outlook remains challenging as Chartered is facing an upward battle. Near term, it risks losing to financially stronger UMC if it does not continue to grow its leading edge technology and capacity.
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Downgrade to Sell. We prudently widened our loss estimate by 12%.
Accordingly, our target price is lowered to S$0.19, still pegged to peers average of 0.3x P/NTA (excluding TSMC).
SP)
Rights will buy time
Price Target : 12-month S$ 0.19 (Prev S$ 0.23)
By: Ai Teng Tan +65 6398 7967
Chartered's US$300m rights issue is insufficient to refinance its US$1.25b outstanding debt (US$815m due in 09/10), but will boost its balance sheet temporarily. The bigger concern now is Chartered's prospects as it enters the worst semicon industry downturn with stronger competition from AMD's Globalfoundries, backed by US$9.6b investment from Abu Dhabi and a stronger TSMC gaining market share to produce chip for Intel. Given the dimmer outlook and heavy dilution from the rights issue, we downgrade Chartered to Sell with a revised target price of S$0.19.
<O:p></O:p>
27-for-10 rights at S$0.07/share. The rights share is priced at 66% discount to yesterday's close of S$0.205, with a theoretical ex-right price of S$0.1064. The rationale for the rights issue is to enhance financial flexibility for growth and to finance maturing debts to lower net gearing to 0.7x from 0.86x. Temasek has undertaken to subscribe up to 90% of the offer, including its entitlement of 59.4%.
<O:p></O:p>
Chartered narrows Q1 loss guidance to US$127m, but there are still challenges. The US$20m improvement stemmed largely from higher wafer starts (≤ 0.11μ) for new handset/digital TV products for April delivery. Despite signs of the business stabilizing, competition is getting keener now that customer AMD has started a new foundry with support from Abu Dhabi, and TSMC is gaining market share and positioning to produce Intel's major CPU, Atom. The overall outlook remains challenging as Chartered is facing an upward battle. Near term, it risks losing to financially stronger UMC if it does not continue to grow its leading edge technology and capacity.
<O:p></O:p>
Downgrade to Sell. We prudently widened our loss estimate by 12%.
Accordingly, our target price is lowered to S$0.19, still pegged to peers average of 0.3x P/NTA (excluding TSMC).
