The stock price of City Developments (CDL) has taken a significant hit following an internal dispute that has escalated to the courts. The stock dropped by 28 cents or 5.47% upon its resumption of trading today. The company’s shares were halted on Feb 26 and a results briefing was abruptly cancelled. Soon after, news of a fallout between CDL’s executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek, sent shockwaves through the Singapore business community.
CDL has released a statement addressing the situation on March 3, stating that the company will not comment on the validity of the allegations made as it is currently the subject of an ongoing court proceeding. The company also reassured shareholders that its business operations remain fully functional and unaffected and that it is still business as usual for CDL. Sherman Kwek also remains the Group CEO until there is a Board resolution to change company leadership.
As a result of this boardroom and family dispute, analysts have downgraded their calls and lowered their target prices for CDL. Adrian Loh from UOB Kay Hian downgraded the stock from “buy” to “hold” and stated that the company’s FY2024 numbers fell below both his and consensus’ estimates. However, this was overshadowed by the news of the public leadership tussle, making it difficult for the stock to perform. Loh’s new target price of $4.60 is based on 2 standard deviations below its 5-year average P/B of 0.72 times.
Derek Tan and Tabitha Foo from DBS Group Research see some silver lining in the situation, stating that while it may dampen investor sentiment, CDL’s fundamentals remain intact as key management continues to run the company. They also point out the attractive valuation of the stock at 0.5 times P/B and 0.3 times P/RNAV, which is below the lows seen during the Global Financial Crisis. They believe that with the resolution of the board dispute, there will be a renewed focus on driving shareholder returns and profitability, leading to a gradual recovery in the share price. As a result, they have maintained their “buy” call but reduced their target price from $10.50 to $6.70 based on a 60% discount to RNAV.
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OCBC Investment Research also maintains their “buy” call but with a reduced fair value of $6.02 compared to their previous valuation of $6.57. They believe that uncertainties over CDL’s outlook and potential overhang on its share price will persist until the matter is resolved. Similarly, JP Morgan analysts Mervin Song and Terence M Khi describe the situation as a “dynastic discord” that has resulted from years of frustration and underperformance among certain members of the extended Kwek family. They hope for a positive resolution and family reconciliation in the future 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.
Brandon Lee from Citi Research believes that the potential impact of this episode is hard to quantify but expects uncertainty regarding the board and company leadership to be a short-term share price overhang. However, Lee also notes that CDL is significantly under-owned by investors, making any positive resolution a major catalyst for the stock in the long term. He has a “buy” call and a $9.51 target price, based on his view that CDL currently trades at less than a third of its book value.
In conclusion, the recent events at CDL have caused a significant reduction in analysts’ target prices for the stock. However, many analysts still believe in CDL’s strong fundamentals and see potential for a recovery in the share price with the resolution of the boardroom dispute.