City Developments’ shares saw a significant drop of 28 cents, or 5.47%, when trading resumed today amidst an internal dispute that has escalated to a court battle.
On February 26, trading of the company’s shares was halted and a scheduled results briefing was cancelled abruptly. Shortly after, the business community in Singapore was hit with the news of a conflict between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek.
In response to media reports on the disagreement within the board, CDL released a statement on March 3 stating that they will not comment on the validity of the allegations as they are currently involved in court proceedings related to the matter. The company reassured shareholders that their business operations are functioning as usual and that Mr. Sherman Kwek will remain as the Group CEO unless there is a decision made by the board to change company leadership.
The ongoing dispute within the board has caused analysts to downgrade their calls and lower their target prices for the company. In a note released on February 27, UOB Kay Hian’s Adrian Loh downgraded the stock from “buy” to “hold” as he highlighted that the company’s FY2024 numbers fell short of both his and the market’s estimates. However, the most significant factor affecting the stock’s performance is the public leadership tussle. Loh suggests that the stock might struggle to perform amidst this issue, despite the valuable assets owned by the company in Singapore and globally. His revised target price of $4.60, down from $7, is based on a 2 standard deviation below the company’s 5-year average P/B of 0.72 times.
Derek Tan and Tabitha Foo from DBS Group Research released a note on February 27 with a more optimistic view. While they believe that the dispute may dampen investor sentiment for the time being, they maintain that CDL’s fundamentals remain strong with key management still in place. The company is currently trading at an attractive valuation of 0.5 times P/B and 0.3 times P/RNAV, which is below the lows seen during the Global Financial Crisis. Tan and Foo maintain a “buy” call for the stock but have lowered their target price to $6.70, taking into account a 60% discount to RNAV.
OCBC Investment Research has also kept their “buy” call but with a reduced fair value of $6.02, down from $6.57, based on a wider RNAV discount of 60% from 45% previously. They anticipate uncertainties and a potential overhang on the stock price until the dispute is resolved.
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Brandon Lee from Citi Research notes that the impact of this episode on the company is difficult to quantify. However, he believes that the uncertainty surrounding the board and company leadership, as well as the potential lengthiness of the court case, might cause the stock price to be affected in the short term. Lee also points out that CDL is currently under-owned by investors, and any positive resolution to the dispute could be a significant catalyst for the stock in the long term. He maintains a “buy” call and a target price of $9.51, which is based on his view that CDL is currently trading at less than a third of its book value.
In their note released on February 26, JP Morgan analysts Mervin Song and Terence M Khi describe the situation at CDL as a “dynastic discord” that has been building up over the years due to frustration, underperformance, and public disagreements among certain members of the extended Kwek family. They express their hope for a positive resolution and family reconciliation, but have lowered their target price from $6.05 to $4.85, with a 60% discount to their RNAV estimate of $12.10 per share.