Shares of City Developments, which has been embroiled in a recent boardroom tussle that has now gone to court, saw a drop of 28 cents, or 5.47%, when trading resumed today. This came after the company’s shares were halted on Feb 26 and a scheduled results briefing was cancelled at the last minute. The business community in Singapore was taken by surprise when news broke of a falling out between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek.
“Shareholders should note that the news reports have mentioned various allegations made regarding the disagreement within the board. At this time, the company will not comment on the validity of these allegations, as many of them are subject to the ongoing court proceedings related to the application,” City Developments stated on March 3rd.
Despite the internal conflict, City Developments assures that its business operations remain unaffected and fully functional. The current situation has not disrupted its daily operations. Sherman Kwek remains the Group CEO until the board passes a resolution to change company leadership.
However, the boardroom feud and family squabbles have caused analysts to downgrade their calls and lower their target prices for the company. Adrian Loh of UOB Kay Hian downgraded the stock from “buy” to “hold” on Feb 27th, citing that the FY2024 figures fell short of both his and consensus estimates. The news of the public leadership tussle overshadowed the strong assets owned by the company, both in Singapore and globally. Loh cautions that the stock may not perform well with this issue hanging over its head. He has revised the target price to $4.60 from $7, using a P/B ratio that is two standard deviations below the five-year average of 0.72 times.
Derek Tan and Tabitha Foo of DBS Group Research, on the other hand, see some positives in this predicament. Though the current situation dampens investor sentiment, the fundamentals of the company are strong, with key management still running the show. The company is currently trading at an attractive valuation of 0.5 times P/B and 0.3 times P/RNAV, lower than the lows seen during the Global Financial Crisis. They have lowered their target price from $10.50 to $6.70, based on a 60% discount to RNAV compared to the previous 35%. The sector average is currently at a 50% discount. They believe that the resolution of the board dispute and a renewed focus on driving shareholder returns and profitability will lead to a gradual recovery in share price.
OCBC Investment Research maintains a “buy” call on the company but with a reduced fair value of $6.02, down from $6.57. The new fair value is based on a higher RNAV discount of 60% compared to 45% previously. They expect uncertainties over CDL’s outlook and the potential overhang on its share price until the matter is resolved.
Though it is hard to quantify the potential impact of this episode, Brandon Lee of Citi Research believes that the uncertainty surrounding the board and company leadership, as well as the lengthiness of a potential court case, may be an overhang on the share price in the short term. He recalls that back in Oct 2020, CDL’s share price dropped by a fifth following Leng Peck’s resignation. Nonetheless, Lee notes that CDL is relatively under-owned by investors, and a positive resolution of the boardroom tussle could be a major share price catalyst in the long run. Lee has a buy call with a target price of $9.51, based on the belief that CDL is currently trading at less than a third of its book value.
JP Morgan analysts Mervin Song and Terence M Khi describe the events at CDL as a “dynastic discord” resulting from years of disagreements and underperformance among certain members of the Kwek family. They hope for a positive resolution and family reconciliation, but they have lowered their target price from $6.05 to $4.85, based on a 60% discount to their RNAV estimate of $12.10 per share.…