City Developments, a company currently embroiled in a legal battle between its executive chairman, Kwek Leng Beng, and his son, group CEO Sherman Kwek, saw its shares drop by 5.47% upon resumption of trading today. The trading in the company’s shares was halted on February 26th, when a results briefing was cancelled and news of the family dispute shocked the Singapore business community.
On March 3rd, CDL issued a statement saying that the company will not comment on the validity of the allegations made in the media, as they are currently the subject of ongoing court proceedings. The company also assured shareholders that its business operations remain unaffected and that Sherman Kwek will continue as the Group CEO until there is a board resolution to change company leadership.
However, analysts have downgraded their calls and reduced their target prices for CDL due to the ongoing dispute. UOB Kay Hian’s Adrian Loh downgraded the stock from “buy” to “hold” and reduced his target price from $7 to $4.60. Loh’s revised target price is based on 2 standard deviations below CDL’s five-year average P/B of 0.72 times.
Similarly, Derek Tan and Tabitha Foo of DBS Group Research have cut their target price from $10.50 to $6.70 and OCBC Investment Research has reduced theirs from $6.57 to $6.02. However, all three firms maintain a “buy” call on the stock, citing CDL’s attractive valuation of 0.5 times P/B and 0.3 times P/RNAV.
JP Morgan analysts Mervin Song and Terence M Khi say that the dispute at CDL is a “dynastic discord” that stems from years of frustration and public disagreement among certain members of the extended Kwek family. While they also express hope for a positive resolution and family reconciliation, they have reduced their target price from $6.05 to $4.85, based on a 60% discount to their RNAV estimate of $12.10 per share.
In conclusion, while some analysts see potential for share price recovery once the dispute is resolved, others warn of potential overhang on the stock in the short term.
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