City Developments (CDL) shares saw a sharp decline of 5.47% as trading resumed today after being halted since February 26. This halt came after the sudden cancellation of a results briefing, which was followed by news of a dispute between executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek.
In response to media reports on the matter, CDL issued a statement on March 3 saying, “The company will not comment on the validity of these allegations, as many of these allegations are the subject of the court proceedings in relation to the Application, which is ongoing.” The company also assured that its business operations are not affected, and Mr. Sherman Kwek remains the Group CEO until there is a board decision to change company leadership.
As analysts adjust their predictions and rating for the company, there is a general consensus that the dispute will have a negative impact on CDL’s share prices in the short term. UOB Kay Hian has downgraded their rating from “buy” to “hold”, with a revised target price of $4.60, compared to their previous target of $7. This is based on a valuation of 2 standard deviations below the company’s five-year average price-to-book (P/B) ratio.
DBS Group Research and OCBC Investment Research also maintain their “buy” rating for CDL, but with a lower target price of $6.70 and $6.02 respectively. Both research teams see the potential for renewed focus on shareholder returns and profitability once the board dispute is resolved.
Citi Research, on the other hand, highlights the share price overhang and uncertainties caused by this episode, while JP Morgan describes the situation as a “dynastic discord” that has been building up over time. Both research teams hope for a positive resolution and a reconciliation among the Kwek family members.
In summary, despite the negative impact on CDL’s share prices in the short term, analysts believe that the company’s fundamentals remain intact and its assets are undervalued. They also see potential for a positive re-rating once the board dispute is resolved and the company’s focus returns to driving profitability and maximizing shareholder returns.
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