Genting Bhd’s share price could finally find a bottom soon, given that the stock has fallen by 60% from its high, said Macquarie Research. “Consensus EPS (earnings per share) estimates for 2009 have been slashed by a third (from RM1.8 billion to RM1.3 billion) and are now close to our forecast. We believe further downside is capped at 10%,” it said in a note on Monday. Macquarie Research is 15% below consensus for 2009 earnings.

Genting fell four sen to RM3.64 yesterday with nearly 3.3 million shares done. Reiterating an outperform on Genting, Macquarie Research said most of the risks had been factored in and at its target price of RM6.50 for the stock, the implied adjusted target price earnings ratio (PER) was 12 times FY10E.

“Stripping out loss-making GIL (Genting International plc), Genting’s underlying PER is 5.2 times FY10E and EV/Ebitda is 1.2 times. “Our RNAV-based target price of RM6.50 has further upside from at least three sources: new production or transactions at the oil and gas division, higher revenue risk in Singapore, and revenue surprises at the Malaysian leisure division.

“Additionally, Genting could receive a boost as we expect its KLCI weight to rise from 2.9% to 4% on July 6 (on the potential KLCI index changes),” said the research house. Macquarie Research said Sentosa would drive the stock price this year as the market would focus increasingly on the potential growth that Sentosa would deliver once it opened in the first quarter of 2010.

“We see Sentosa as the key driver of EPS growth in 2010–12, helping to potentially double Genting’s earnings over the next three years. This is even after accounting for current economic conditions in Singapore,” it added. “Fourth quarter 2008 results are likely to be robust, although earnings may be cut on lower CPO price and GDP assumptions.

“Beyond that, the tripling of VIP hotel room capacity, the first Tangguh LNG cargo in May 2009 potentially triggering a sale/revaluation and the Sentosa opening in the first quarter 2010 should drive the stock,” the research house said. Macquarie Research said the largest part of Genting’s value was derived from its gaming operations, with Resorts World Bhd contributing 43% and GIL a further 23% of total revised net asset value (RNAV).

“However, the oil and gas and power divisions are not a small part of the value, so any unlocking of value at these divisions would suggest a rerating of Genting’s price closer to its full RNAV,” it said.