Dubai: Parkin IPO to deliver strong returns on steady parking demand – News

Parkin’s initial public offering (IPO) is a good investment option in one of the UAE’s best public companies that offers to pay a semi-annual dividend in April and October, experts say.

Market experts and analysts said the minimum dividend payout for 2024 is expected to be higher than the net profit for the year and will attract retail and institutional investors to invest in the IPO.

They said parking demand in Dubai is relatively consistent, driven by factors such as population growth and urbanization, generating recurring revenue streams.

Saad Manair, Senior Partner at Crowe UAE, called Parkin’s IPO another interesting opportunity to invest in the UAE stock market.

“This is a good opportunity, especially when the market in the UAE is growing. However, in my opinion, long-term investors need to be comfortable with scalability in this segment of the industry before making a decision,” Manair told Khaleej Times.

Parkin’s revenue grew 14 percent, from Dh686 million in 2022 to Dh779 million in 2023, while its earnings before interest, taxes, depreciation and amortization grew at a faster rate of 23 percent, from Dh337 million dirhams in 2022 to 414 million dirhams, representing a margin of 53 percent. The company’s capex-light business model resulted in 99 percent superior cash conversion in 2023.

Growth potential

Shailesh Dash, a Dubai-based financier and businessman, said the Dubai government, after two successful IPOs of RTA Group, has announced plans to launch another bid for its third subsidiary that runs the parking business.

“Dubai as an economy has seen significant growth in its population as its economy has grown. The harsh climate has meant that a large portion of the population is reliant on their cars to get around. This has led to a significant jump in the transportation business. parking and it’s also a very lucrative business,” Dash said. Khaleej Times.

“It is commendable that the Government of Dubai has identified these gems in the government sector to help the public participate in its operations, in addition to being useful for the state’s public finances,” he said.

As with Salik and Dubai Taxi, he said this IPO of the parking business is expected to be significantly oversubscribed and perform well. “This certainly helps improve the depth of Dubai’s stock market and should help attract more foreign direct investment into its capital markets as well,” she said.

Dash said Parkin itself has very strong fundamentals and the potential for future growth is high considering that as the city expands and many new communities form, there will be an increasing need for parking spaces. “This will be a valuable investment for both retail and institutional players in the capital markets,” he said.

A dominant player

Vijay Valecha, chief investment officer at Century Financial, welcomed the first IPO of 2024 on the Dubai financial market, saying it offers a tantalizing opportunity for investors to engage with a dominant player in Dubai’s vital infrastructure sector. Dubai.

He said Parkin maintains a dominant position with more than 90 percent market share in parking space management.

“The Parkin IPO, with 749.7 million shares, is scheduled with a subscription period for retail investors from March 5 to 12 and for institutional investors from March 5 to 13, with a minimum investment of Dh5,000 (1,360 dollars) for retail investors. The listing date is scheduled for March 21. Parkin’s commendable financial performance includes an annual revenue of 13.5 percent,” Valecha said.

Dubai Law No. (30) of 2023 establishes ‘Parkin’ as a public joint stock company (PJSC) that oversees parking facilities in the Emirate. Parkin PJSC, now responsible for the planning, design, permitting and general operations of public and private parking lots, handles the electronic collection of fees and fines in accordance with regulations, a role previously performed by the Road Transport Authority (RTA).

While the Government of Dubai maintains full ownership, it can transfer up to 40 percent of the shares to the public or private sector, indicating greater private sector participation.

“Parkin PJSC, as described in its charter, goes beyond legal requirements, and includes targets such as electric vehicle charging stations and smart applications. “This move aligns with Dubai’s goal of achieving 25 percent autonomous transportation by 2030,” he said.

Advantages of IPO

Valecha said the company’s dependence on Dubai’s economic performance makes it an excellent choice to invest directly in the ever-burgeoning Dubai market.

“In 2023, Dubai saw a notable 19.4 per cent year-on-year increase in international visitor arrivals, surpassing both 2022 figures and pre-pandemic records. “The strong growth of its tourism sector emerged as a major catalyst, playing a pivotal role in the city’s impressive 3.3 per cent GDP growth during the first nine months of 2023. This performance will directly benefit the company,” he said .

Elaborating, he said that Parkin’s IPO has some significant advantages.

“It is Dubai’s first IPO of 2024, making it attractive to investors interested in the UAE and seeking new opportunities in the growing Dubai market. Additionally, as an RTA entity, Parkin benefits from government support,” he said.

In addition, he stated that the company is a leader in its sector, with a solid track record with more than 197,000 parking spaces. Additionally, allocating 10 percent of shares to retail investors improves accessibility, potentially broadening the investor base and increasing liquidity. “Parkin will introduce a new sector to DFM that may be of interest to investors looking to diversify their portfolio,” he said.

Stable returns

Valecha said this IPO will also likely attract significant interest from dividend/income investors seeking stable returns. The predictable nature of the parking business offers several advantages for these investors.

First, parking demand is relatively consistent, driven by factors such as population growth and urbanization, generating recurring revenue streams.

Secondly, Parkin’s dominant market position and established presence in Dubai suggest a lower risk of significant disruption compared to other sectors.

“The Parkin IPO presents a multifaceted investment opportunity, combining market leadership, government support and stability, poised to attract a wide range of investors,” he said.

Intriguing opportunity

Yusuf Mansawala, chief market analyst at CPT Markets, Dubai, said Parkin’s upcoming IPO on the Dubai Financial Market offers an intriguing opportunity for retail investors interested in Dubai’s infrastructure sector.

Mansawala highlighted the advantages and some potential challenges of Parkin’s IPO below:

First Move Advantage: As the first IPO of 2024 on the DFM, Parkin allows investors to participate in Dubai’s renewed focus on public offerings. This could lead to higher returns over time, especially if the company does well.

Government support: Parkin is the third RTA entity to go public, after Salik and Dubai Taxi Company. This government support can instill confidence in investors seeking stability and growth potential in line with Dubai’s infrastructure development.

Retail Investor Accessibility: The IPO reserves 10 percent of the shares for retail investors, giving them the opportunity to participate in a potentially successful offering. The minimum investment of Dh5,000 with increments of Dh1,000 makes it more accessible to a wider range of investors.

Dominant market share: Parkin has a 100 percent share of the public paid parking market and a 91 percent share of the overall on-street and off-street paid parking market (excluding gated communities). This makes it a critical provider of infrastructure and parking activities in a city where car penetration is extremely high, with more than 61 percent of Dubai commuters using private cars.

Solid business model: Parkin’s business model is underpinned by a 49-year concession agreement with the Roads and Transport Authority (RTA), ensuring exclusivity in Dubai’s public parking landscape. The company operates under a well-defined regulatory framework, which offers long-term visibility, resilient revenues and cash flows. Its capex-light nature, solid margins and strong cash conversion contribute to an attractive target dividend payout ratio.

Growth prospects: Dubai’s ambitious economic plans and projected population growth are expected to drive demand for public parking, which is projected to be more than 60 percent higher over the next ten years. Parkin aims to expand existing public parking, collaborate with private developers, optimize rates and improve digitalization.

Potential challenges

Limited history: Parkin is a relatively new company with a short operating history and limited financial performance data. Conducting thorough research and evaluating the future prospects of the company is essential before making any investment decision.

Dependence on Dubai market: Parkin’s success is closely linked to the growth and progress of Dubai’s real estate and infrastructure sectors. Any slowdown in these areas could have a negative impact on the company’s performance and investor returns.

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