City Developments, a company currently embroiled in a legal dispute between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek, saw its shares drop 28 cents, or 5.47%, when trading resumed today. The halt in trading was initiated on February 26, when a scheduled results briefing was unexpectedly cancelled and news of the internal feud between the father and son was made public.
In response to the news, CDL released a statement on March 3, stating that the company would not comment on the validity of the allegations made in the media, as they are currently subject to court proceedings. The company also reassured shareholders that its operations remain unaffected and business is continuing as usual. Sherman Kwek also remains the Group CEO until a board resolution is reached.
However, the ongoing dispute has led analysts to downgrade their ratings and target prices for the company. UOB Kay Hian’s Adrian Loh lowered his recommendation for the stock from “buy” to “hold”, citing missed estimates for the FY2024 financials and the overshadowing impact of the public disagreement between the Kwek family members. He also revised his target price down to $4.60 from $7, based on a 2 standard deviation below the company’s five-year average price-to-book ratio of 0.72 times.
DBS Group Research’s Derek Tan and Tabitha Foo, on the other hand, view the dispute as a temporary setback and believe that the company’s fundamentals remain strong, with key management still running the company. They note that CDL is currently trading at an attractive valuation of 0.5 times price-to-book and 0.3 times price-to-revenue-at-net-asset-value (P/RNAV), below the lows seen during the Global Financial Crisis. The analysts maintain their “buy” call but have reduced their target price from $10.50 to $6.70, based on a 60% discount to the company’s RNAV, which is in line with the sector’s average discount of 50%.
OCBC Investment Research also maintains a “buy” call on CDL but has lowered its fair value estimate to $6.02 from $6.57, based on a wider RNAV discount of 60%. They anticipate uncertainties surrounding the company’s outlook and potential overhang on its share price until the issue is resolved.
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Brandon Lee of Citi Research acknowledges the potential negative impact of the ongoing dispute, as seen when the resignation of Leng Peck in October 2020 caused a 20% drop in CDL’s share price over the following two weeks. However, Lee believes that the company is currently underowned by investors and any positive resolution to the dispute would be a significant catalyst for a higher share price in the long term. He maintains a “buy” call and a target price of $9.51, based on CDL’s low valuation of less than a third of its book value.
Finally, JP Morgan analysts Mervin Song and Terence M Khi describe the situation at CDL as a “dynastic discord” that has been brewing for years. They express hope for a positive resolution and a reconciliation among members of the Kwek family, but have reduced their target price from $6.05 to $4.85, based on a 60% discount to their estimated RNAV of $12.10 per share.