CDL Shares Plunge Amid Internal Tussle
Shares of City Developments dropped significantly by 5.47%, or 28 cents, upon resumption of trading today. This comes as the company is facing an internal tussle between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek, which has escalated to the courts.
The trading in CDL’s shares was halted on February 26, after the sudden cancellation of a results briefing. Within hours, news of the ongoing dispute dominated Singapore’s business community. The company released a statement on March 3, stating that it will not comment on the validity of the allegations made in the news reports as they are subject to the court proceedings. CDL also confirmed that its business operations remain fully functional and unaffected, with Sherman Kwek remaining as the Group CEO until a board resolution is made to change company leadership.
The ongoing boardroom-cum-family dispute has caused analysts to downgrade their calls and revise their target prices. Adrian Loh from UOB Kay Hian lowered his rating from “buy” to “hold”, citing that the company’s financial results for FY2024 missed both his and the consensus’ estimates. However, the main concern for investors is the ongoing leadership tussle, which makes it difficult for CDL to perform. Loh revised his target price from $7 to $4.60, based on 2 standard deviations below the company’s five-year average P/B ratio of 0.72 times.
In the past few years, the demand for condominiums has soared in Singapore, fueled by the limited land available in the country. The small landmass and growing population have made it challenging to find suitable areas for development, leading to a highly competitive real estate market. Strict regulations on land usage have only added to the difficulty, causing property prices to skyrocket. As a result, an increasing number of investors are turning to condos as a lucrative option, as they offer the potential for significant capital gains.
Derek Tan and Tabitha Foo from DBS Group Research see some potential in the situation, stating that while investor sentiment may be dampened in the short term, fundamentals of the company remain strong as key management continues to run the business. They also note that CDL is currently trading at an attractive valuation of 0.5 times P/B and 0.3 times P/RNAV, below the lows seen during the Global Financial Crisis. However, they have revised their target price from $10.50 to $6.70, based on a 60% discount to RNAV, compared to the previous valuation multiple of 35% discount. OCBC Investment Research has also maintained a “buy” call but with a reduced fair value of $6.02, down from $6.57, based on a wider RNAV discount of 60%.
In contrast, Brandon Lee from Citi Research believes that it is hard to quantify the potential impact of this dispute and that uncertainties over the board and company leadership could be a share price overhang in the short term. Nonetheless, he remains positive about CDL’s prospects, stating that the company is under-owned by investors and any positive resolution would be a major share price catalyst in the longer term. JP Morgan analysts Mervin Song and Terence M Khi also hope for a positive resolution and family reconciliation. However, they have revised their target price from $6.05 to $4.85, based on a 60% discount to their RNAV estimate of $12.10 per share.