The stock price of City Developments declined by 5.47%, falling 28 cents, upon resumption of trading today after being halted on February 26. The company was also forced to cancel a results briefing at the last minute, as news of a rift between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek, emerged.
CDL released a statement on March 3, saying that it will not comment on the validity of the allegations made in the news reports, as these allegations are currently being addressed in the ongoing court proceedings. The company reassures shareholders that its business operations remain unaffected and that Sherman Kwek will continue to serve as the Group Chief Executive Officer until further notice.
In light of the dispute within the board, analysts have downgraded their ratings and reduced their target prices for CDL. UOB Kay Hian’s Adrian Loh downgraded the stock from “buy” to “hold” on February 27, due to the company’s lower-than-expected FY2024 numbers and the public feud between the Kwek family members. He also revised his target price from $7 to $4.60, based on a price-to-book (P/B) ratio of 2 standard deviations below its five-year average of 0.72.
Similarly, in their note dated February 27, Derek Tan and Tabitha Foo of DBS Group Research see the potential for CDL’s fundamentals to remain strong despite the ongoing dispute. They note that the company’s valuation is currently at 0.5 times P/B and 0.3 times price-to-right issue net asset value (P/RNAV), which are lower than the lows seen during the Global Financial Crisis. The analysts, who maintained their “buy” call, lowered their target price from $10.50 to $6.70, based on a 60% discount to the RNAV, compared to the previous valuation multiple of 35%.
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OCBC Investment Research also maintains a “buy” recommendation but has reduced their fair value from $6.57 to $6.02, based on a wider RNAV discount of 60%. They believe that uncertainties over the company’s outlook and potential overhang on its share price will remain until the board dispute is resolved.
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Citi Research analyst Brandon Lee highlights the difficulty in quantifying the impact of this episode but notes that uncertainty surrounding the board and company leadership, as well as the potential lengthiness of a court case, could be a short-term overhang on the share price. However, he also believes that CDL is currently under-owned by investors, making a positive resolution to the dispute a potential catalyst for the share price in the long run. Lee maintains a “buy” rating with a target price of $9.51, based on the stock trading at less than a third of its book value.
In their note dated February 26, JP Morgan analysts Mervin Song and Terence M Khi refer to the situation at CDL as a “dynastic discord” resulting from years of frustration and underperformance within certain members of the Kwek family. They hope for a positive resolution and reconciliation among family members, 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.