Dubai: Parkin IPO to offer good returns on consistent parking demand

The Parkin’s initial public offering (IPO) is a good investment option in one of the best public companies in the UAE offering 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 more than the net profit for the year and it will attract retail as well as institutional investors to invest in the IPO.

They said demand for parking in Dubai is relatively consistent, driven by factors like population growth and urbanisation, leading to recurring revenue streams.

Saad Manair, senior partner at Crowe UAE, termed the Parkin IPO another exciting opportunity to invest in the UAE stock market.

“This is a good opportunity, especially when the market in UAE is growing. However, in my opinion, the long-term investors need to draw comfort on scalability in this industry segment before they take their decision,” Manair told Khaleej Times.

Parkin’s revenue grew by 14 per cent from Dh686 million in 2022 to Dh779 million in 2023 while its earnings before interest, taxes, depreciation and amortisation grew at a higher rate of 23 per cent from Dh337 million in 2022 to Dh414 million, representing a margin of 53 per cent. The company’s capex light business model resulted in superior cash conversion of 99 per cent in 2023.

Growth potential

Shailesh Dash, a Dubai-based financier and entrepreneur, said Dubai government after two successful IPOs from RTA Group, has now announced plans to launch another offer for its third subsidiary which manages the parking business.

"Dubai as an economy has seen significant growth in its population as its economy has grown. The harsh weather has meant quite a bit of the population depends on their automobiles for commuting. This has lead to significant jump in the parking business and it’s also a very lucrative business," Dash told Khaleej Times.

"It’s commendable that Govt of Dubai has identified these jewels in the govt sector to help the public have a share in their operations as well as which is helpful to the public finances of the state," he said.

Just like with Salik and Dubai Taxi, he said it’s very much expected that this IPO of the parking business will be oversubscribed significantly and do well. "This certainly helps improve the depth of the Dubai stock market and should help attract also more foreign direct investment into its capital markets," he said.

Dash said Parkin in itself has very strong fundamentals and future growth potential is high taking into account as the city expands and many new communities are formed there will be an increasing need for parking spaces. "This will be a valuable investment for both the retail and institutional player 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 and said it offers an enticing opportunity for investors to engage with a dominant player in Dubai's vital infrastructure sector.

He said Parkin is holding a dominant position with over 90 per cent market share in parking space management.

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

Dubai's Law No. (30) of 2023 establishes 'Parkin' as a public joint stock company (PJSC) overseeing parking facilities in the Emirate. Now responsible for planning, design, permits, and overall operations for public and private parking, Parkin PJSC handles electronic fee and fine collection in accordance with regulations, a role previously held by the Road Transport Authority (RTA).

While the Dubai Government maintains full ownership, it can transfer up to 40 per cent of shares to the private or public sector, indicating increased private sector involvement.

“Parkin PJSC, outlined in its Articles of Association, goes beyond legal requirements, including objectives like electric vehicle charging stations and smart applications. This move aligns with Dubai's goal for 25 per cent autonomous transportation by 2030,” he said.

IPO advantages

Valecha said the company’s dependence on Dubai economic performance makes it a great choice to invest directly into the ever-blooming Dubai market.

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

Elaborating, he said the Parkin IPO has some significant advantages.

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

Moreover, he said the company is a leader in its sector, boasting a strong track record with over 197,000 parking spaces. Also, allocating 10 per cent of shares to retail investors enhances accessibility, potentially expanding the investor base and increasing liquidity. “Parkin will be introducing a new sector to DFM which may interest 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 such investors.

Firstly, demand for parking is relatively consistent, driven by factors like population growth and urbanisation, leading to recurring revenue streams.

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

“The Parkin IPO presents a multifaceted investment opportunity, combining market leadership, government support, and stability, poised to attract a diverse 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 advantages and some potential challenges of Parkin IPO below:

First mover advantage: Being the first IPO of 2024 on the DFM, Parkin allows investors to get in on the ground floor of Dubai's renewed focus on public offerings. This could result in higher returns over time, especially if the company does well.

Government backing: Parkin is the third RTA entity to go public, following Salik and Dubai Taxi Company. This government backing may inspire confidence in investors looking for 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 a chance to participate in a potentially successful offering. The minimum investment of Dh5,000 with Dh1,000 increments makes it more accessible to a wider range of investors.

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

Robust 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, offering long-term visibility, resilient revenues, and cash flows. Its capex-light nature, robust margins, and strong cash conversion contribute to an attractive target dividend payout ratio.

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

Potential challenges

Limited track record: Parkin is a relatively new company with a short operational history and limited financial performance data. Conducting thorough research and evaluating the company's future prospects is essential before making any investment decisions.

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

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