UAE investors are always fine-tuning their stock picks. Summer will be a good enough time to look at district cooling. Image Credit: Shutterstock

The AC is often said to be the only real friend you need during UAE's peak summer.

The advent of newer ways like cloud seeding has reduced the impact of scorching weather conditions, and even the summer cycle to an extent. However, the resident population often finds the best comfort only in the cooling systems during the peak months from June to September.

In this regard, the two stocks that notably stand out regarding sectoral trends are Empower and Tabreed. The stocks belong to the water utilities sub-industry within the broader category of the utilities sector.

Specifically categorised as district cooling service providers (DCS), these utilities provide much-needed cooling system services to residential, commercial and hospitality buildings. Tabreed, the older entity among the two, has over two decades of a rich legacy. With its 90 plants across GCC, the utility has also created a niche in chilling solutions to high-profile projects, including Louvre Abu Dhabi, Ferrari World, Dubai Metro, and Downtown Dubai.

Empower, which commenced commercial operations in 2004, explicitly serves most of the new Dubai population. Some notable projects it serves include Bluewaters, JLT, Burj Al Arab and Dubai International Airport.

Metric comparison: Tabreed vs Empower

  • Refrigeration Tons: 1.3 million RT + vs. 1.4 million RT
  • District cooling plants: 90 vs 81
  • Revenues (2023 end): Dh2.41 billion vs Dh3.03 billion
  • Net profit: Dh431 million vs Dh960 million
  • Market cap: Dh8.6 billion vs Dh16.2 billion

Growing demand

The overall CAGR growth in the net refrigerated capacity for both operators has been in the 7-8 per cent range over the last seven years. The rise in Dubai's expat residency population is fuelling massive demand in Dubai's offplan and ready property markets.

Areas like Dubai South, Creek Harbour, Town Square, JVC, etc, are seeing a massive spike in demand for offplan properties. This, in turn, has a cyclical impact across the real estate chain with demand for utility and other housing services.

Even in the Dubai hotel and hotel apartment space, stats show that as of February, the average occupancy rate rose to 90.8 per cent (3.4 per cent increase y-o-y). Dubai's tourism and trade events hub status will likely provide these utility companies with another leg of refrigeration demand.

With an average dividend yield of 5.10 per cent, the Tabreed and Empower stocks could gain more investor traction due to rising business demand growth.