Feb 28, 2016 12:11:08
Blue Bird ($BIRD)
Counterattack Strategy From Blue Bird

Maintain BUY and IDR8,500 TP (47% upside) on Blue Bird’s potential earnings growth from improving utilisation rates. As FY15 growth slowed amid an economic slowdown and a slight impact from online ride apps, Blue Bird aims to scale back its expansion plan and focus on improving utilisation rates this year. It has also launched a new mobile app to compete with online ride apps. We expect FY16F margin expansion to be limited as lower fuel cost would be slightly offset by other costs (ie daily fixed commission).

? Blue Bird’s response to challenge from online ride applicatons (apps). Blue Bird has upgraded its mobile app to be similar with Uber’s. The new features are more user-friendly (with credit card payment, e-voucher and more accurate maps) and the company may look into the possibility of promotional pricing. In order to compete in an unequal war with online ride apps, Blue Bird plans to introduce new strategies like loyalty cards to offer promotional packages to its customers.

? Competitive pressure may wane over time. With online ride companies like Uber, Grab Taxi and Gojek cutting their drivers’ incentives for profitability, we foresee more ex-taxi drivers who were previously attracted by incentives from online ride companies to rejoin Blue Bird. This has been reflected in the company’s improving utilisation rates since 2H15. According to CFO Robert Rerimassie, Blue Bird’s average blended utilisation rate in FY15 was 74.3% (in line with our 74.3% estimate). For FY16, the company expects to ramp up its utilisation rate to around 77-78% (our estimate: 75.3%).

? Softened spending and competition a double blow in FY15. Mr Robert cited two reasons for the slowdown in the taxi business in FY15: i) softened purchasing power, and ii) competition from online ride applications.

? Blue Bird scaled back its expansion in FY15 and would continue to do so in FY16 (target of adding 1,700-2,000 taxis). While this is largely in response to a slowing economy, Mr Robert mentioned that there is also some impact from online ride apps. In FY16, Blue Bird would focus on maintaining its market share in the taxi industry as well as its utilisation rates.

? We maintain our BUY call and DCF-derived IDR8,500 TP (WACC: 11.3%, TG: 3%) on Blue Bird on the back of: i) its potential earnings growth from an improvement in utilisation rates and average daily revenue, ii) high market share in the industry, iii) healthy balance sheet, and iv) high ROE compared to its local and regional peers’.