The ongoing saga at City Developments did not give further reasons for analysts to cheer. Even as they expressed hope for positive outcomes from the boardroom-cum-family dispute, they have downgraded their calls and reduced their target prices.
UOB Kay Hian's Adrian Loh, in his Feb 27 note, downgraded the stock from "buy" to "hold", as he points out that the FY2024 numbers missed both his, and consensus' estimates.
"However, this was overshadowed by news of a very public leadership tussle," says Loh. "While the company has extremely valuable assets in Singapore and globally, we believe the stock will likely find it difficult to perform given this overhang," adds Loh.
His revised target price of $4.60, from $7, is pegged to 2 standard deviations below its five-year average price-to-book (P/B) of 0.72 times.
"Without a swift resolution to the leadership tussle and more active capital recycling, CDL’s share price will not likely approach these levels any time soon," cautions Loh.
"Professionalising the management and clearing out the factions within the board, reconciliation of the family members, and/or putting up the company for sale are clearly measures that could lead to near-term pain relief for CDL’s long-suffering minority shareholders," he adds.
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In their Feb 27 note, Derek Tan and Tabitha Foo of DBS Group Research see some silver lining. "While this is likely to dampen investor sentiment in the interim, we take the view that fundamentals remain intact, as key management continues to run the company."
They point out that CDL is trading at an attractive valuation of 0.5 times P/B (with book value at cost) and 0.3 times P/RNAV, below the lows seen during the Global Financial Crisis.
"With the resolution of the board dispute, we anticipate a renewed focus on driving shareholder returns and profitability, supporting a gradual recovery in share price," they add.
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Nonetheless, while keeping their "buy" call, Tan and Foo cut their target price from $10.50 to $6.70, which is based on a 60% discount to RNAV, versus a previous valuation multiple of 35% discount. In contrast, the sector average is a discount of 50%.
For them, re-rating will come from clarity and resolution from disagreement at the board, and realisation of RNAV with the completion of development projects and potential asset recycling.
Similarly, OCBC Investment Research has maintained its "buy" call but with a reduced fair value of $6.02, down from $6.57, based on a wider RNAV discount of 60% from 45% previously. "We expect uncertainties over CDL’s outlook and potential overhang on its share price until the matter is resolved," says OCBC.
In his Feb 26 note, Brandon Lee of Citi Research figures that the potential impact of this episode is hard to quantify. "We think uncertainty regarding the board and company leadership, as well as lengthiness of a potential court case, could be a share price overhang in the short term."
Lee, referring Leng Peck's resignation back in Oct 2020, recalls that CDL's share price dropped by a fifth over the following fortnight. "Nonetheless, we believe CDL is very under-owned by investors, hence, any positive resolution would be a major share price catalyst in the longer term," says Lee, who has a “buy” call and $9.51 target price, premised on his view on how CDL now trades at less than a third of its book value.
In their Feb 26 note, JP Morgan analysts Mervin Song and Terence M Khi describe what happened at CDL as a "dynastic discord" arising from the culmination of years of frustration, underperformance and public disagreement among certain members of the extended Kwek family.
"We hope for a positive resolution to the dispute and a family reconciliation," write Song and Khi, although they have reduced their target price from $6.05 to $4.85, which is based on a 60% discount to our RNAV estimate of $12.10 per share.
CDL shares remain halted for trading. It last changed hands at $5.12.
