The share price of City Developments has taken a hit, dropping by 5.47%, as the internal power struggle within the company reached the courts. The trading of shares had halted on February 26, and a scheduled results briefing was cancelled, leading to the news of a rift between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek.
In response to this, the company stated that it will not comment on the validity of the allegations made by the media, as many of them are the subject of ongoing court proceedings. It also assured shareholders that the business operations remain unaffected and that Sherman Kwek will continue as the Group CEO until there is a resolution to change leadership.
However, analysts have downgraded their calls and reduced target prices, citing the disruption caused by the boardroom-cum-family dispute. UOB Kay Hian’s Adrian Loh downgraded the stock from “buy” to “hold” and revised his target price from $7 to $4.60, based on a two standard deviation below its five-year average P/B of 0.72 times. He believes that the stock will have difficulty performing amid this uncertainty.
Similarly, DBS Group Research’s Derek Tan and Tabitha Foo also maintained their “buy” call but reduced the target price from $10.50 to $6.70, based on a 60% discount to RNAV. They see a potential recovery in share price once the board dispute is resolved and a renewed focus on shareholder returns and profitability.
OCBC Investment Research has also maintained a “buy” call but with a reduced fair value of $6.02, citing the uncertainty over CDL’s outlook and a potential overhang on its share price until the matter is resolved. Citi Research’s Brandon Lee believes that the impact of this episode is hard to quantify, but any positive resolution could be a major share price catalyst in the longer term. Likewise, JP Morgan analysts Mervin Song and Terence M Khi hope for a positive resolution to the dispute and a family reconciliation, but have reduced the target price from $6.05 to $4.85, based on a 60% discount to their RNAV estimate of $12.10 per share.
In conclusion, the internal tussle within City Developments has caused a dip in share price and uncertainty, leading to downgrades in calls and target prices by analysts. However, once the dispute is resolved and the focus is back on driving shareholder returns and profitability, a potential re-rating can be expected.
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