Cdl Shares Resume Trading
City Developments has been facing internal turmoil, which has now escalated to a court battle. As a result, the company’s shares have dropped by 28 cents (or 5.47%) since trading resumed today. The trading of these shares had been halted on February 26th, when a results briefing was abruptly cancelled. Within hours, news broke of a falling out between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek.
In response to this, CDL released a statement on March 3rd, stating that they would not comment on the validity of the allegations surrounding the dispute as many of them are currently under court proceedings. The company’s operations remain unaffected, and Sherman Kwek will continue as the Group CEO until a board resolution is made to change company leadership.
The ongoing boardroom and family feud has caused analysts to downgrade their ratings and lower their target prices for CDL. UOB Kay Hian’s Adrian Loh has downgraded the stock from “buy” to “hold” following the news, citing missed financial estimates for FY2024 and the distraction caused by the leadership tussle. Loh’s revised target price is now $4.60, which is based on a 2 standard deviations below the company’s five-year average P/B ratio of 0.72.
On the other hand, Derek Tan and Tabitha Foo of DBS Group Research see some hope for CDL. They believe that while the dispute may dampen investor sentiment in the short term, the company’s fundamentals remain intact, and key management continues to run the company. They note that CDL’s current valuation is attractive, trading at a P/B ratio of 0.5 and a P/RNAV ratio of 0.3, which is lower than during the Global Financial Crisis. They have reduced their target price to $6.70, from $10.50, based on a 60% RNAV discount.
Similarly, OCBC Investment Research maintains its “buy” call but with a lower fair value of $6.02 (down from $6.57), based on a 60% RNAV discount. They expect uncertainty to surround CDL’s outlook and potential overhang on share price until the matter is resolved.
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Citi Research’s Brandon Lee believes that the impact of this episode is uncertain and could potentially be an overhang on the company’s share price in the short term. However, he notes that CDL is currently under-owned by investors, and a positive resolution would be a major catalyst for the share price in the longer term. Lee has a “buy” call with a target price of $9.51, based on CDL’s trading at less than a third of its book value.
Lastly, JP Morgan analysts Mervin Song and Terence M Khi describe the turmoil at CDL as a “dynastic discord” caused by years of frustration, underperformance, and public disagreement among certain members of the extended Kwek family. They hope for a positive resolution and family reconciliation, but have reduced their target price from $6.05 to $4.85, based on a 60% RNAV discount.