Shares of City Developments plummeted by 28 cents or 5.47% upon resumption of trading today amid an internal conflict that has escalated to the courts. The company’s shares were halted on February 26 when a results briefing was suddenly cancelled, and news of a disagreement between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek, rocked the Singapore business community.
City Developments has stated that news reports have disclosed various allegations made regarding the board’s disagreement. However, the company will not comment on the validity of these allegations as they are subject to the ongoing court proceedings.
CDL’s business operations remain fully functional and unaffected, with Sherman Kwek remaining as Group CEO until a Board resolution is made to change the company’s leadership. Despite the boardroom-cum-family dispute, analysts have downgraded their calls and reduced their target prices.
UOB Kay Hian’s Adrian Loh downgraded the stock from “buy” to “hold” in his February 27 note, citing that the FY2024 numbers fell short of both his and consensus’ estimates. However, he notes that the news of a very public leadership tussle overshadowed this. As the company holds valuable assets in Singapore and globally, Loh believes that the stock may struggle to perform with this overhang. He has revised his target price from $7 to $4.60, based on 2 standard deviations below its five-year average price-to-book (P/B) of 0.72 times.
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Derek Tan and Tabitha Foo from DBS Group Research see some silver lining, stating that fundamentals remain intact as key management continues to run the company. They note that CDL is trading at an attractive valuation of 0.5 times P/B (with book value at cost) and 0.3 times P/RNAV, lower than during the Global Financial Crisis. However, they have cut their target price from $10.50 to $6.70, based on a 60% discount to RNAV.
OCBC Investment Research has also maintained its “buy” call but reduced its fair value from $6.57 to $6.02, based on a wider RNAV discount of 60%. They expect uncertainties over CDL’s outlook and potential overhang on its share price until the matter is resolved.
Citi Research’s Brandon Lee states that the impact of this episode is hard to gauge, but believes that potential uncertainty and the lengthiness of a potential court case could be a share price overhang in the short term. However, he maintains a “buy” call with a $9.51 target price, as CDL is currently trading at less than a third of its book value.
JP Morgan analysts Mervin Song and Terence M Khi describe the events at CDL as a “dynastic discord” stemming from years of frustration, underperformance, and public disagreement among certain members of the extended Kwek family. They hope for a positive resolution and family reconciliation but have reduced their target price from $6.05 to $4.85, based on a 60% discount to their RNAV estimate of $12.10 per share.