BIRD Profit Fell 38% Last Quarter. This Quarter It Fell 59%.

The Moat's Erosion Just Quadrupled

Last quarter's post described a company whose top line had barely moved while everything beneath it deteriorated - net revenue down 0.7%, operating income down 27.2%. This quarter, the top line stopped merely "barely moving." On a standalone-quarter basis (see methodology note below), net revenue for the three months ended June 30, 2016 fell 13.5% year-over-year, and net income attributable to owners fell 58.9% - roughly one-and-a-half times the rate of decline the prior quarter posted (-38.1%). The Jadetabek (Jakarta, Depok, Tangerang, Bekasi) erosion flagged last quarter as a 4.3% YoY decline has, on the same standalone basis, accelerated to roughly 19% this quarter - not a new problem, the same problem moving faster.

Indonesia's OJK-mandated interim filing for this period reports six-month cumulative figures for the six months ended June 30, 2016 (period end) rather than a discrete second quarter, so every standalone Q2 number in this post - unless stated otherwise - is derived by subtracting the already-published Q1 2016 figures from this filing's H1 total. Both years' Q2 figures are derived the same way, so the year-over-year comparison below is apples-to-apples even though neither number is a directly-quoted line in the filing itself. One piece of genuinely good news arrived in the same window: on May 23, 2016, the Supreme Court rejected Dr. Mintarsih A. Latief's Cassation petition seeking to cancel the "Blue Bird" trademarks - the suit that had shadowed the company since less than three months after its 2014 IPO is now closed, in the company's favor, at the highest court available (see Beyond the Usual).

The Prescription

Blue Bird should keep pointing capital toward Non-Taxi, and now put real weight behind actually using the Rp1.6 trillion Bank Mandiri fleet-financing facility signed back in February - only barely tapped so far (see Beyond the Usual) - specifically to renew and reposition the Jadetabek taxi fleet rather than only fund expansion outside it. Non-Taxi grew standalone Q2 revenue 12.7% and operating income 16.1% while running a 27.4% margin against Taxi's 10.1%; that gap has now held for two consecutive quarters, and it's no longer a "worth watching" trend, it's the business's actual profit engine while its historically-dominant Taxi segment keeps shrinking.

What it should stop doing: letting general and administrative costs grow at nearly triple the pace of revenue while revenue itself is shrinking. H1 2016 salaries expense grew 42.1% YoY (Rp117.3B vs Rp82.5B) and rent-and-maintenance grew 61.5% (Rp44.7B vs Rp27.7B) - against a top line that fell. Group permanent headcount did drop 5.7% quarter-on-quarter (4,547 to 4,288, see Key Operational Metrics), so some cost discipline is happening at the margin - but it isn't showing up anywhere in the G&A line, which is where the real damage is. Cutting headcount while allowances and office costs keep climbing is optics, not discipline.

Key Financial Metrics

Q2 2016 vs. Q2 2015 (P&L, standalone quarter, derived - see note below), and Jun 2016 vs. Mar 2016 (balance sheet, QoQ) - consolidated

FX: IDR 13,177 = USD 1 (June 30, 2016 close).

Standalone-quarter P&L figures below are derived by subtracting the Q1 2016 post's already-published figures from this filing's six-month cumulative totals for the periods ended June 30, 2016 and 2015 - Blue Bird's interim financial statement reports year-to-date, not discrete-quarter, P&L, the same situation covered for BCA's Q2 2016 filing. Both years are derived identically, so the YoY comparison is real even though neither number is a directly-quoted line in either filing.

Metric	Q2 2016 (IDR)	Q2 2016 (USD)	Q2 2015 (IDR)	YoY
Net Revenue	Rp1,196.7B	~$90.8M	Rp1,383.3B	⚠️ -13.5%
Adjusted EBITDA» (Operating Income + D&A)	Rp339.8B	~$25.8M	Rp487.5B	⚠️ -30.3%
Operating Income»	Rp154.7B	~$11.7M	Rp311.8B	⚠️ -50.4%
Net Income» (attributable to owners)	Rp90.7B	~$6.9M	Rp220.8B	⚠️ -58.9%
Free Cash Flow» (Op. CF minus capex)	-Rp69.5B	-~$5.3M	-Rp92.2B	✅ improved
Total Cash (at quarter-end)	Rp371.7B	~$28.2M	Rp521.8B	⚠️ -28.8%
EPS (basic)	Rp37	~$0.0028	Rp88	⚠️ -58.0%

Every line that fell last quarter fell faster this quarter. Gross margin compressed from 30.3% to 26.7% as direct costs barely eased even on falling revenue, then operating expenses grew 53.4% YoY on top of that, pushing operating margin from 22.5% down to 12.9% - a bigger one-quarter margin collapse than Q1's own six-point drop. A business whose operating income fell 27.2% against a flat top line in Q1 has now seen operating income fall 50.4% against a top line that's actively shrinking - the arithmetic gets worse exactly as fast as the underlying demand does.

One genuine bright spot: free cash flow, while still negative, improved YoY (-Rp69.5B vs -Rp92.2B standalone). Both operating cash flow and capex fell by a similar proportion this quarter (roughly a third each), but capex fell by a larger absolute amount - Rp152.4B versus operating cash flow's Rp129.7B decline - which is what actually narrowed the FCF gap, even as every profitability metric above it worsened.

Balance sheet metric	Jun 2016 (IDR)	Jun 2016 (USD)	Mar 2016 (IDR)	QoQ
Total Assets	Rp7,489.5B	~$568.4M	Rp7,369.3B	➖ +1.6%
Total Liabilities	Rp3,097.4B	~$235.1M	Rp2,902.2B	⚠️ +6.7%
Total Equity	Rp4,392.1B	~$333.3M	Rp4,467.2B	⚠️ -1.7%
Debt-to-Equity Ratio» (company-disclosed)	0.70x	-	0.65x	⚠️ worsened

Equity actually fell quarter-on-quarter for the first time since this company started reporting on this site - not because the business lost money (H1 net income was positive), but because the Rp165.1B dividend declared this half (see Beyond the Usual) outpaced the quarter's own retained-earnings contribution. Combined with liabilities growing 6.7% on the back of a fresh Rp554.1B long-term loan draw, leverage ticked up from 0.65x to 0.70x - the same debt-to-equity ratio the company itself discloses as its own capital-management metric, so this isn't an outside estimate.

Segment Performance

Blue Bird still reports the same two operating segments introduced in Q1 2016 - Taxi and Non-Taxi - no further disclosure collapse this quarter, but the direction of travel between them widened further.

Taxi

Standalone Q2 2016 net revenue ~Rp1,000.2B (-17.3% YoY), operating income ~Rp100.9B (-62.0% YoY), operating margin 10.1% (down from 22.0% a year ago, and down further still from Q1 2016's already-weaker 14.5%). This segment's revenue decline itself accelerated from -3.5% in Q1 to -17.3% this quarter - the clearest sign yet that whatever pricing or volume response Blue Bird has to app-based competition in Jadetabek isn't working faster than the competition is growing.

Non-Taxi

Standalone Q2 2016 net revenue ~Rp196.5B (+12.7% YoY), operating income ~Rp53.9B (+16.1% YoY), operating margin 27.4% (up slightly from 26.6% a year ago). Growth decelerated somewhat from Q1's +19.2%, but margin held essentially flat while Taxi's collapsed - this segment is no longer just "growing faster," it's now the segment carrying group profitability on both dimensions.

Segment Comparison

Segment	Revenue (Q2 2016, standalone)	YoY Growth	Operating Margin
Taxi	~Rp1,000.2B (83.6%)	⚠️ -17.3%	⚠️ 10.1%
Non-Taxi	~Rp196.5B (16.4%)	✅ +12.7%	✅ 27.4%

Non-Taxi's revenue share ticked up from 14.7% to 16.4% in one quarter - not because Non-Taxi grew explosively, but because Taxi shrank fast enough to move the mix on its own. If Taxi's revenue decline keeps accelerating at anywhere near this quarter's pace, Non-Taxi's share of group operating income - not just its margin - becomes the more important number to track than either segment's growth rate (see The Prescription).

Key Operational Metrics

• Geographic split (standalone Q2 2016, derived): Jadetabek revenue was ~Rp902.9B (75.4% of standalone quarterly net revenue), down ~19.1% YoY; revenue from outside Jadetabek was ~Rp293.8B (24.6%), up ~9.7% YoY. Q1 2016 showed Jadetabek down 4.3%; this quarter's standalone erosion rate is more than four times as fast. On the filing's own six-month cumulative basis, Jadetabek revenue fell 12.0% YoY and its share of total net revenue fell from 80.6% to 76.5%.
• Permanent employees (Group): 4,288 (Jun 2016), down 5.7% from 4,547 (Mar 2016) and down 1.5% from 4,352 (Dec 2015) - the first headcount decline reported since this company's IPO, reversing the +4.5% QoQ growth seen in Q1 2016.
• Weighted average shares outstanding: 2,502,100,000, unchanged since the IPO - no further dilution.
• Not available this quarter: a discrete three-month P&L (see the standalone-quarter methodology note above), plus the granular Regular Taxi/Executive Taxi/Bus/Rental split, which remains collapsed - see Q1 2016 for why. No presentation deck exists for this quarter to fill either gap.

Beyond the Usual

The trademark-cancellation lawsuit is over - the Supreme Court rejected the challenge

Dr. Mintarsih A. Latief's January 2015 suit seeking to cancel the "Blue Bird" and related trademarks - flagged as a critical, unresolved risk in Blue Bird's first quarterly report and still open on Cassation as of Q1 2016 - reached its final outcome this quarter. On May 23, 2016, the Company received formal notification that the Supreme Court had rejected the Cassation petition in full; a copy of the decision was received June 15, 2016. Sixteen months after being filed, and having gone all the way to the Supreme Court, the challenge to the company's own name is now closed with no further appeal available. A brand-dependent business that spent its entire public-company life to date with an open legal question over its own name can now drop that specific risk from its watchlist.

A second, unrelated land-title suit was also thrown out at trial

A civil suit filed by a third party (Triana) in September 2015, disputing ownership of land in Medan tied to related party PT Pusaka Bumi Mutiara and seeking Rp2.1B in compensation plus Rp15.0B in moral damages, was ruled on by the Medan District Court on June 16, 2016 - the court found the plaintiff's claim inadmissible. The ruling can still be appealed and no notice of appeal had been received as of this report's authorization date, but it's a second favorable trial-court outcome landing in the same window as the trademark resolution above.

Both stated MESOP deadlines have now passed with zero options distributed

The Management and Employee Stock Option Program approved alongside the 2013 IPO structure was contractually due to issue options in two tranches - the first no later than May 2015, the second no later than May 2016. Both deadlines have now passed. As of this report, the Company still hasn't distributed a single option under either tranche; management's stated position remains that it is "reassessing the criteria" and plans to issue rights "in 2016." A program with two written deadlines that has missed both, more than a year after the first was due, is no longer a timing slip - it's a commitment the company hasn't kept and hasn't explained beyond a one-line placeholder.

Rent paid to related-party landlords is growing faster than the business it's housing

The Company leases land for taxi and bus fleet pools from founder-controlled related parties (PT Pusaka Citra Djokosoetono, PT Pusaka Bumi Mutiara, PT Golden Bird Bali, and others), a structure disclosed since the Q1 2015 report at roughly Rp25.2B annualized. This half, related-party rent expense reached Rp19.8B for six months (an annualized run-rate near Rp39.6B) - a meaningfully larger related-party rent bill than disclosed eighteen months ago, and one still representing 66.8% of the Company's total rent expense even as that share has actually declined from 80.0% a year earlier as more non-related-party leases entered the mix. Related-party rent growing in absolute terms while overall revenue shrinks is worth tracking, even though the structure itself remains fully disclosed and the same as previously reported.

The Rp1.6 trillion investment credit facility Blue Bird signed with Bank Mandiri in February 2016 - flagged in Q1 2016's report as undrawn - saw its first drawdown this quarter: subsidiary PT Pusaka Prima Transportasi borrowed Rp50 billion at 10.5% per annum, about 3.1% of the facility's total capacity. The fleet-renewal program signaled by that facility's signing is now actually underway, even if only barely.

Blue Bird's non-cash investing activity grew alongside its financed capex this half: Rp173.7 billion of previously-paid advance payments for fixed assets were reclassified directly into fixed assets (up from Rp127.1 billion a year earlier), and a further Rp26.9 billion of fleet additions were financed directly through trade payables rather than cash. None of this shows up in the cash flow statement's investing-activities total, since none of it moved cash - a reminder that the reported capex and free cash flow figures above understate the pace of actual fleet investment happening this half.

Stock Price: Now 37.5% Below the IPO Price

Blue Bird's shares closed at Rp4,060 on June 30, 2016 (no stock split has occurred since, so this remains directly comparable to the Rp5,775 and Rp9,950 closes reported for Q1 2016 and Q1 2015) - down 29.7% from March's close alone, and down 62.8% from the stock's all-time closing high of Rp10,900, reached in January-February 2015. The stock is now 37.5% below its own Rp6,500 IPO price (November 2014) - the first BIRD post on this site to find the shares trading meaningfully under the price the company itself sold new stock at less than two years earlier. The decline has broadened rather than reversed: over the trailing twelve months (June 2015 to June 2016), the stock fell in seven of twelve months, the same ratio Q1 2016's report found over its own trailing year - this isn't a single shock, it's a steady, month-by-month repricing (see below for how the valuation multiples have moved alongside it).

Target Valuation Range

Enterprise value ~Rp12,926B (~$978M), implying ~22.1x annualized P/E and ~2.35x P/B - the stock has fallen roughly in step with the business's own deterioration rather than overshooting it. This isn't yet a value opportunity; it's a business and a stock still finding the same new, lower level together.

Against this quarter's numbers (2,502,100,000 shares outstanding, unchanged):

Market cap → enterprise value	Q2 2016
Share price (period-end)	Rp4,060
Shares outstanding	2,502,100,000
Market capitalization	~Rp10.2 trillion (~$770.9M)
Total liabilities	~Rp3,097.4B
Less: cash and equivalents	~Rp371.7B
Enterprise value	~Rp12,926B (~$978M)

Market cap is down from ~Rp14.4 trillion at Q1 2016's close.

Peer-multiple sanity check	Q1 2016	Q2 2016
P/E (annualized)	~26.2x	~22.1x (H1 2016 EPS Rp92 × 2 = Rp184)
P/B	~3.3x	~2.35x (book value/share ~Rp1,727)
Annualized ROE	~12.8%	~10.7%
Annualized ROA	~7.6%	~6.3%

Every multiple compressed again this quarter, and by roughly the same proportion the underlying return metrics did - the market isn't yet pricing in a turnaround, but it also isn't obviously overreacting relative to what the numbers show. The open question remains the one from last quarter: whether Non-Taxi's now two-quarter run of double-digit growth and a mid-to-high-20s margin can grow large enough, fast enough, to offset a Taxi segment whose own revenue decline just went from -3.5% to -17.3% in one quarter. Until that trajectory is visible in the numbers rather than argued from segment mix alone, a lower price and a lower multiple are simply tracking a genuinely weaker business - not yet a mispriced one.

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