City Developments Shares Plunge After Family Spat
Shares of City Developments (CDL) experienced a sharp drop of 28 cents, or 5.47%, when trading resumed today amid an internal tussle that has now reached the courts. The trading of CDL’s shares had been halted since February 26, when a scheduled results briefing was suddenly cancelled and news of a disagreement between Executive Chairman Kwek Leng Beng and his son Sherman Kwek, who is the Group CEO, came to light.
CDL released a statement on March 3, saying that they will not be commenting on the allegations made against the board as they are currently subject to ongoing court proceedings. They also reassured shareholders that the company’s business operations remain unaffected and it is “business as usual”. Sherman Kwek will continue to hold the position of Group CEO until the board makes a decision to change the company leadership.
As a result of this boardroom-cum-family dispute, analysts have downgraded their calls for CDL and reduced their target prices. Adrian Loh from UOB Kay Hian downgraded the stock from “buy” to “hold” in a note dated February 27. He stated that the company’s FY2024 numbers missed both his and consensus estimates, but more significantly, the news of the leadership tussle overshadowed any financial performance. Loh said that while CDL has valuable assets both in Singapore and globally, it is likely to face difficulties in performing due to this ongoing issue. He has revised the target price to $4.60, down from $7, which is now pegged at two standard deviations below its five-year average price-to-book (P/B) ratio of 0.72 times.
Derek Tan and Tabitha Foo from DBS Group Research have also downgraded their target price for CDL from $10.50 to $6.70, with a “buy” call. They believe that despite the interim decline in investor sentiment, the fundamentals of the company remain strong, with key management still in place to run the company. Tan and Foo also pointed out that CDL is currently trading at an attractive valuation of 0.5 times P/B and 0.3 times P/RNAV, which are both below the levels during the Global Financial Crisis. They are confident that once the dispute is resolved, there will be a renewed focus on driving shareholder returns and profitability.
OCBC Investment Research has also maintained a “buy” call but with a lower fair value estimate of $6.02 from $6.57, based on a wider RNAV discount of 60%, up from 45%. The research house also believes that there may be uncertainties surrounding CDL’s outlook until the matter is resolved.
Citi Research’s Brandon Lee also thinks that the potential impact of this episode is difficult to quantify, but he believes that the share price may be negatively affected in the short term due to the uncertainty surrounding the board and company leadership. However, he does note that CDL is under-owned by investors, therefore, a positive resolution would likely be a major catalyst for the share price in the long term. Lee has a “buy” call with a target price of $9.51, based on his assessment of the company’s trading at less than a third of its book value.
In a note dated February 26, JP Morgan analysts Mervin Song and Terence M Khi describe the situation at CDL as a “dynastic discord” that was brewing for some time due to underperformance and disagreements within certain members of the Kwek family. They remain hopeful that the dispute will be resolved positively and the family reconciled, but their target price has been lowered to $4.85 from $6.05, which is based on a 60% discount to their estimated RNAV of $12.10 per share.