City Developments has been embroiled in an internal conflict between the executive chairman Kwek Leng Beng and his son, Group CEO Sherman Kwek. This has resulted in a significant dip in the company’s shares by 5.47% upon resumption of trading today.
Trading in the company’s shares had been put on hold since February 26th, when a results briefing was suddenly cancelled and news of the dispute between the father and son was made public. The company has released a statement saying that they will not be commenting on the validity of the allegations made, as they are currently the subject of ongoing court proceedings.
CDL has clarified that their business operations have not been affected by this issue and it is still running as usual. Sherman Kwek remains the Group CEO until a decision is made by the board to change the company’s leadership. However, analysts have downgraded their calls and lowered their target prices for CDL due to the ongoing tussle.
UOB Kay Hian’s Adrian Loh has downgraded the stock from “buy” to “hold” as the company’s financial results for FY2024 have fallen short of both his and consensus estimates. This news, coupled with the public dispute, has resulted in a negative impact on the company’s performance. Loh has reduced his target price from $7 to $4.60, which is based on CDL’s five-year average price-to-book (P/B) of 0.72 times.
DBS Group Research’s Derek Tan and Tabitha Foo have also lowered their target price for CDL from $10.50 to $6.70. They have, however, maintained their “buy” call as they believe that the fundamentals of the company remain strong and key management is still in charge. They also highlight that CDL is currently trading at an attractive valuation of 0.5 times P/B, which is below the lows seen during the Global Financial Crisis.
OCBC Investment Research has also maintained their “buy” call, but with a reduced fair value of $6.02, down from $6.57. They believe that the potential uncertainties surrounding CDL’s outlook and the ongoing dispute may have an impact on the company’s share price until the matter is resolved.
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Citi Research’s Brandon Lee has a similar view and believes that the uncertainty may cause a short-term overhang on the company’s share price. However, he also notes that CDL is currently under-owned by investors, and any positive resolution could act as a major catalyst for the company’s share price in the long run.
JP Morgan analysts Mervin Song and Terence M Khi describe the internal conflict at CDL as a “dynastic discord” that has been building up for years. They hope for a positive resolution and a reconciliation between the 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.