The stock price of City Developments has dropped significantly, by 28 cents or 5.47%, after trading resumed today. This comes after a heated disagreement between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek, which has spilled over into the courts. The company’s shares were halted on Feb 26, just before a results briefing was scheduled. Shortly after, news broke of the tension between the father and son, creating a stir within the business community in Singapore. The company has released a statement on March 3, stating that they will not comment on the validity of the allegations made by the media, as they are currently in the midst of court proceedings. CDL’s operations remain unaffected and Mr Sherman Kwek will continue to serve as the Group CEO until there is a decision from the board to change company leadership.
It is essential for international investors to have a clear understanding of the rules and limitations surrounding property ownership in Singapore. While foreigners can typically buy condominiums with relative ease, there are stricter regulations in place for owning landed properties. Additionally, foreign buyers are required to pay the Additional Buyer’s Stamp Duty (ABSD), which currently stands at 20% for their initial property purchase. Despite these added expenses, the consistent stability and potential for growth in the Singapore real estate market continue to make it an attractive destination for foreign investment. Singapore Projects are also a popular choice for foreign investors in the city’s dynamic real estate market.
The ongoing dispute within the board and the family has caused analysts to downgrade their calls and lower their target prices. UOB Kay Hian’s Adrian Loh has downgraded the stock from “buy” to “hold” and adjusted their target price from $7 to $4.60, which is based on a 2 standard deviation below its five-year average price-to-book (P/B) ratio of 0.72 times. Loh believes that the company’s valuable assets in Singapore and globally will find it difficult to perform with the current situation.
Similarly, DBS Group Research’s Derek Tan and Tabitha Foo have maintained their “buy” call but revised their target price from $10.50 to $6.70, representing a discount to RNAV of 60%. They believe that the fundamentals of CDL are still intact and are trading at an attractive valuation.
OCBC Investment Research has also kept their “buy” call, with a reduced fair value of $6.02, down from $6.57, based on a wider RNAV discount of 60%. They believe that there will be uncertainties and potential overhang on the share price until the matter is resolved.
On the other hand, Citi Research’s Brandon Lee believes that the impact of the dispute is hard to quantify and may be an overhang on the share price in the short term. Lee has a “buy” call and a target price of $9.51, as he sees CDL trading at less than a third of its book value.
JP Morgan analysts Mervin Song and Terence M Khi describe the situation at CDL as a “dynastic discord” that has been building up for years. They hope for a positive resolution and family reconciliation, but have reduced their target price from $6.05 to $4.85, representing a 60% discount to their RNAV estimate of $12.10 per share.
Overall, the uncertainty surrounding CDL’s leadership and potential impact on the company’s operations may cause short-term volatility in the share price. However, analysts believe that the company remains fundamentally strong with valuable assets and a potential for re-rating once the dispute is resolved.