The shares of City Developments, currently embroiled in a tense internal conflict that has escalated to the courts, experienced a significant drop of 28 cents, or 5.47%, upon resuming trading today.
The trading of the company’s shares had been halted since February 26, when a last-minute decision to cancel a results briefing was made. Within hours, the Singapore business community was shaken by news of a dispute between the company’s executive chairman Kwek Leng Beng and his son, group CEO Sherman Kwek.
“Shareholders should be aware that various news reports have surfaced regarding the disagreement within the board. The company will not comment on the validity of these allegations as they are currently subject to ongoing court proceedings related to an application,” said City Developments on March 3.
The company further clarified that its business operations remain unaffected and fully functional. Sherman Kwek also remains the group CEO until a resolution is reached by the board to change company leadership.
In light of the ongoing family feud, analysts have downgraded their recommendations and lowered their target prices for City Developments. Adrian Loh from UOB Kay Hian downgraded the stock from “buy” to “hold” in a note on February 27, citing the company’s FY2024 figures which missed both his and consensus estimates.
“However, this has been overshadowed by news of the public leadership tussle. We believe that while City Developments has valuable assets both in Singapore and globally, the stock will have a difficult time performing due to this issue,” said Loh. He revised his target price from $7 to $4.60, based on a 2 standard deviations below the company’s five-year average P/B ratio of 0.72 times.
Derek Tan and Tabitha Foo from DBS Group Research, on the other hand, believe that City Developments still has potential. “While this may dampen investor sentiment in the short-term, we believe that the fundamentals of the company remain strong, as key management continues to run the company,” they said. They also noted that the stock is currently trading at an attractive valuation of 0.5 times P/B and 0.3 times P/RNAV, lower than its lows during the Global Financial Crisis. DBS Group Research maintains its “buy” rating but has lowered its target price from $10.50 to $6.70.
Similarly, OCBC Investment Research has kept its “buy” call but has reduced its fair value from $6.57 to $6.02, taking into account the wider RNAV discount of 60% from 45% previously. “We expect uncertainties regarding City Developments’ outlook and a potential share price overhang until the matter is resolved,” said OCBC.
Citi Research’s Brandon Lee also sees some short-term impact on the company’s share price, due to shareholder uncertainty and the length of the potential court case. However, Lee believes that City Developments is currently under-owned, which could lead to a significant stock price catalyst in the long-term. With a “buy” call and a target price of $9.51, Lee highlights how the company is trading at less than one-third of its book value.
JP Morgan analysts Mervin Song and Terence M Khi describe the internal conflict at City Developments as a “dynastic discord” that has been brewing for years due to frustration, underperformance, and disagreements among members of the Kwek family. Despite this, the analysts hope for a positive resolution and family reconciliation. They have, however, reduced their target price from $6.05 to $4.85, based on a 60% discount to their RNAV estimate of $12.10 per share.
It is essential for foreign investors to have a clear understanding of the regulations and limitations surrounding property ownership in Singapore. While purchasing condos may be relatively easy for foreigners, the same cannot be said for landed properties, as they are subject to stricter ownership rules. Additionally, foreign buyers are required to pay a 20% Additional Buyer’s Stamp Duty (ABSD) for their initial property purchase. Despite this added cost, the Singapore real estate market continues to offer unwavering stability and promising growth potential, making it a highly attractive option for foreign investment. Those interested in investing in the lucrative Singapore Condo market can explore their options with Singapore Condo.