ANALYSTS believe that the ongoing feud between CDL’s executive chairman Kwek Leng Beng and chief executive officer and his son, Sherman Kwek, could cause an overhang on the group’s share price in the near term.
Some analysts downgraded the company’s stock on Wednesday (Feb 26) and Thursday, checks by The Business Times showed.
JP Morgan on Wednesday downgraded its rating for the stock to “neutral”, with a price target of S$4.85. UOB Kay Hian on Thursday downgraded its rating for the counter to “hold”, with a target price of S$4.60.
Morgan Stanley, meanwhile, reiterated its “underweight” call on the counter, with a price target of S$5. HSBC on Wednesday kept its “hold” call on CDL.
DBS Group Research on Thursday slashed its target price on CDL to S$6.70 from S$10.50 previously.
The new target price represents a 60 per cent discount to revalued net asset value (RNAV), and it is higher than the sector average of 50 per cent.
Shares of CDL ended Tuesday 0.4 per cent or S$0.02 lower at S$5.12, before calling for a trading halt the next morning.
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DBS analysts Derek Tan and Tabitha Foo said the boardroom tussle has created uncertainty about CDL’s strategic direction in the near-term.
Citi Research’s analyst Brandon Lee said in a note on Wednesday that while the potential impact is “hard to quantify”, he believes that the boardroom tussle, as well as lengthiness of a potential court case, could weigh on share price in the short term.
The last major director departure had resulted in a 19 per cent share price decline in over two weeks, he pointed out.
That said, both Citi’s Lee and DBS’ analysts are still optimistic that CDL’s share price could recover in the long-term, following a resolution of the feud.
DBS’ Tan and Foo believe that CDL’s “fundamentals remain intact” as key management like its chief operating officer and chief financial officer continue to run the company.
They also expect the property giant to “focus on driving shareholder returns and profitability”, following a resolution, and therefore support a “gradual recovery” in the group’s share price.
Amid optimism that CDL’s core business will remain unaffected by the board tussle, DBS analysts maintained their “buy” call on the counter.
CDL’s core business, which includes property development, hotels and investment properties, are “hard assets generating revenue and cash flow”, said the analysts.
Citi’s Lee also kept his “buy” call on CDL. “We believe CDL is very under-owned by investors, hence any positive resolution would be a major share price catalyst longer term,” added the analyst.
He also noted that Citi’s valuations on CDL, which represents 0.3 times price-to-book ratio and 68 per cent RNAV discount, are “undemanding”.
To recap, executive chairman Kwek Leng Beng on Wednesday said he had filed court papers to deal with an “attempted coup” – by group CEO and son Sherman Kwek, Philip Lee, Wong Ai Ai and a group of directors acting with them – to allegedly consolidate control of the board and the group.
According to the elder Kwek, Sherman Kwek’s group had orchestrated major board changes and bypassed the nomination committee, contrary to corporate governance principles and the Singapore Exchange’s listing rules.
CDL on Wednesday said that “business operations remain fully functional and unaffected”. It added that Sherman Kwek remains the “group CEO until such time as there is a board resolution to change company leadership”.
Subsequently, Kwek issued a statement at 11.34 pm saying that “following a court hearing today, the serious lapses of corporate governance at CDL (together with its subsidiaries) have now been halted”.
Despite the ongoing power tussle, analysts are also optimistic that CDL’s profit could rise in FY2025.
While the group’s FY2024 results missed the estimates of DBS’ analysts, both Foo and Tan believe that there are “multiple tailwinds for the group in the coming years”.
CDL posted a net profit of S$201.3 million for FY2024, down 36.6 per cent on the year, driven by its property development segment which recorded “substantially lower contributions”.
They see “good earnings visibility on the back of largely pre-sold residential projects in Singapore and a pipeline of residential projects”.
Foo and Tan also expect CDL’s hospitality sector to deliver “strong returns”, driven by steady revenue per available room growth, as well as rising travel demand.
Similarly, while Bloomberg Intelligence’s Ken Foong said CDL’s boardroom tussle could create an overhang in the near term, he is still positive that CDL’s bottom line could be boosted by its housing, hotels and investment properties segments.
CDL’s residential unit could be aided by higher contributions from projects that will obtain temporary occupation permits this year, added Foong.
