Mar 21, 2016 11:17:46
Transportation: Clock Is Ticking For Online Ride Applications

Though the Government does not ban the use of online ride applications (apps), we believe the threat they pose to conventional taxis is exaggerated. Based on our interview with Uber drivers, we find their monthly income has declined, due to the phasing out of incentives. Our findings indicate that the key reason for the drivers to use online ride apps was the incentives. We also foresee that online ride apps’ cheaper tariff will not be permanent, as we have seen in other countries, where the tariff gets adjusted gradually to be on par with that of the conventional system.

¨ Maintain OVERWEIGHT rating on Transportation. Whether the Government decides to ban their use or not, in our opinion, the threat from online ride apps has been exaggerated. We believe the euphoria over their use has so far been based on the current promotional period, and once this ends, online ride app market share may likely decline. We maintain our BUY call on Blue Bird given its: i) potential earnings growth from higher average daily revenue and utilisation rates, ii) strong brand equity, iii) healthy balance sheet, iv) high ROE vs peers, and v) a standardised quality of services and infrastructure.

¨ Waiting for the Government’s decision on online ride apps to see how they will be regulated. As the legal status of online ride apps is still debatable, we built our scenario analysis assuming either a ban on online ride apps, or no ban. In the first scenario, we think that there will be an overhang over the short to medium term – not for the long term, because we think Uber’s steep 33% discount to standard taxi tariffs will not permanent. As we have seen in other countries’ experiences, the tariff then gets gradually adjusted to be on par with that of conventional taxis. Furthermore, we think the lower incentives to drivers could become an issue as well. In the second scenario, we foresee a direct positive impact on the taxi industry, especially for Blue Bird ($BIRD), as we will discuss later. The second scenario would not have a significant impact on Express Transindo Utama (Express Transindo) ($TAXI) as the company has a high gearing level and would need to reduce it before expanding their fleet, in our view.

¨ Uber drivers impart that their monthly income declined. The incentives are the key tools from online ride apps to attract and motivate the drivers. Based on our interviews with Uber drivers, we found out that the incentives from Uber make up a huge portion of their earnings. Without these incentives, we foresee a deterioration in drivers’ earnings and it could make the driver quit. Some of the drivers that we interviewed mention that their monthly income has declined, due to the expiry of the incentives.

¨ Conventional taxi system likely to remain drivers’ preferred option. For those depending on driving a taxi as their primary source of income, we think that the conventional taxi system providesmore stable and higher earnings compared with using online ride apps (without incentives). Based on our ground check, we discovered that some drivers who use online ride apps as a source of income use them as a second job or for an additional source of income. The earnings of online ride apps drivers are very dependent on the incentives given from the companies, which showed a declining trend since last year.