City Developments, a company currently experiencing an internal conflict that has spilled into the courts, saw its shares plummet by 5.47% or 28 cents when trading resumed today. The trading of the company’s shares had been halted since February 26, when a scheduled results briefing was unexpectedly cancelled. Shortly thereafter, news spread throughout the Singapore business community of a disagreement between executive chairman Kwek Leng Beng and his son, Sherman Kwek, who serves as the group’s CEO.
In response to these reports, CDL released a statement on March 3 saying, “Shareholders should take note that many of the allegations made regarding the disagreement within the board are currently being addressed in court.” The company reiterated that its business operations remain unaffected and Sherman Kwek remains the CEO until the board decides otherwise.
Expectedly, the boardroom and family clash has caused analysts to downgrade their recommendations and lower their target prices for CDL. Adrian Loh of UOB Kay Hian has changed his “buy” rating to a “hold” and cut his target price to $4.60 – a significant decrease from the previous $7. Loh explains that while the company does possess valuable assets both in Singapore and globally, it may struggle to perform well under these circumstances. He also points out that the company’s current share price is significantly lower than its average price-to-book (P/B) ratio of 0.72 times, indicating that there may be some major underlying issues.
Similarly, Derek Tan and Tabitha Foo of DBS Group Research have retained their “buy” recommendation but revised their target price from $10.50 to $6.70. They believe that the company’s fundamentals remain strong and that things will improve once the board dispute is resolved. OCBC Investment Research has also maintained its “buy” rating but with a lower fair value estimate of $6.02, down from $6.57. They expect uncertainty to weigh down CDL’s share price until the matter is resolved.
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Brandon Lee of Citi Research notes that the potential impact of this episode is difficult to quantify and could be a short-term overhang on the share price. However, he also believes that CDL is under-owned by investors and any positive resolution to the dispute could significantly boost the share price in the long term. JP Morgan analysts Mervin Song and Terence M Khi describe the dispute at CDL as a “dynastic discord” resulting from years of frustration and public disagreement between certain members of the Kwek family. They hope for a positive resolution and a reconciliation between the family members.