BIRD The Decline Slowed Down. The Stock Fell 27% Anyway.

Costs Stopped Outrunning the Business

Every quarter so far on this site has told some version of the same story: Blue Bird's top line erodes, and whatever sits beneath it erodes faster. This quarter breaks that pattern, though not because the erosion stopped - it's because everything beneath the top line finally stopped getting worse at a faster rate than the top line itself. On a standalone-quarter basis (see methodology note below), net revenue for the three months ended September 30, 2016 fell 14.2% year-over-year - essentially the same pace as Q2's 13.5% decline - but operating income's own decline slowed from Q2's 50.4% to 22.6% this quarter, net income attributable to owners' decline slowed from 58.9% to 27.3%, and standalone-quarter operating expenses fell 3.75% year-over-year, reversing the 53.4% growth rate that drove last quarter's Prescription to call out cost discipline as the company's central problem.

Indonesia's OJK-mandated interim filing for this period reports nine-month cumulative figures for the period ended September 30, 2016 rather than a discrete third quarter, so every standalone Q3 number in this post - unless stated otherwise - is derived by subtracting the six-month cumulative figures already disclosed in Q2 2016's filing from this filing's nine-month total. Both years are derived the same way, so the year-over-year comparisons below are apples-to-apples even though neither number is a directly-quoted line in either filing. The Jadetabek (Jakarta, Depok, Tangerang, Bekasi) erosion that quadrupled from -4.3% to roughly -19% between Q1 and Q2 also held steady rather than accelerating further this quarter, at -19.0% YoY - the first quarter since this erosion began that it didn't get materially worse than the one before it.

The Prescription

Blue Bird should treat this quarter's cost reversal as proof of concept, not a one-off, and make it structural: standalone-quarter salaries fell 5.7% YoY (the first such decline on this site) and rent-and-maintenance growth collapsed to 2.4% from Q2's 61.5%, while permanent headcount kept falling - 4,107 at quarter-end, down 4.2% from June and down 5.7% over the last two quarters combined. That's the actual discipline the Prescription in the last post was asking for, and it shows up this time not just in headcount but in the G&A line itself. The task now is holding that line while Non-Taxi keeps compounding: standalone Non-Taxi operating income grew 22.4% YoY this quarter (accelerating from Q2's 16.1%) at a 30.5% margin, even as its own revenue growth decelerated to 5.8% from 12.7% - profit is still growing faster than revenue in that segment, and that gap deserves continued capital priority.

What it should still stop doing: leaning on the Bank Mandiri fleet-financing facility so lightly that it barely matters. A combined Rp58.2 billion is now drawn across the parent and subsidiary PT Pusaka Prima Transportasi - 3.6% of the Rp1.6 trillion facility, up only half a point from last quarter's 3.1% (see Beyond the Usual) - fifteen months after the facility was signed specifically to fund fleet renewal against the same Jadetabek competition that just held its ground rather than reversed. A facility this large, drawn this slowly, isn't fleet-renewal urgency; it's optionality being kept on the shelf.

Key Financial Metrics

Q3 2016 vs. Q3 2015 (P&L, standalone quarter, derived - see note below), and Sep 2016 vs. Jun 2016 (balance sheet, QoQ) - consolidated

FX: IDR 13,003 = USD 1 (September 29, 2016 close, the last trading day of the month).

Standalone-quarter P&L figures below are derived by subtracting the Q2 2016 post's already-published six-month cumulative figures from this filing's nine-month cumulative totals for the periods ended September 30, 2016 and 2015 - the same situation covered for BCA's Q3 2016 filing and for this company's own prior two quarters. Both years are derived identically, so the YoY comparison is real even though neither number is a directly-quoted line in either filing.

Metric	Q3 2016 (IDR)	Q3 2016 (USD)	Q3 2015 (IDR)	YoY
Net Revenue	Rp1,173.6B	~$90.3M	Rp1,368.2B	⚠️ -14.2%
Adjusted EBITDA» (Operating Income + D&A)	Rp394.7B	~$30.4M	Rp446.8B	⚠️ -11.7%
Operating Income»	Rp210.0B	~$16.2M	Rp271.2B	⚠️ -22.6%
Net Income» (attributable to owners)	Rp131.9B	~$10.1M	Rp181.4B	⚠️ -27.3%
Free Cash Flow» (Op. CF minus capex)	Rp151.3B	~$11.6M	Rp46.0B	✅ +228.9%
Total Cash (at quarter-end)	Rp338.0B	~$26.0M	Rp248.7B	✅ +35.9%
EPS (basic)	~Rp53	~$0.0041	~Rp73	⚠️ -27.4%

Every rate of decline above is smaller than the one Q2 posted against the same year-ago quarter - the arithmetic is still negative everywhere, but it's negative by less. Gross margin compressed only slightly, from 29.9% to 29.2% (versus Q2's 30.3%-to-26.7% collapse), and operating margin fell from 19.8% to 17.9% - a 1.9-point drop, not Q2's 9.6-point one. Adjusted EBITDA margin actually improved YoY, from 32.7% to 33.6%, even though the EBITDA dollar figure fell - because revenue fell faster than the underlying cost base excluding depreciation did, the clearest single number confirming that costs, not just headcount, genuinely came down this quarter.

Free cash flow's jump is the standout line: both years were already FCF-positive on a standalone basis (unlike Q1 and Q2, which were both negative), but capex fell 52.4% YoY (Rp119.8B vs Rp251.9B) while operating cash flow fell only 9.0% - a far larger swing than the offsetting effect FCF got from Q2's own capex cut. Total cash at quarter-end also grew YoY for the first time on this site, to Rp338.0B, even after nine months of dividend payments and loan amortization.

Balance sheet metric	Sep 2016 (IDR)	Sep 2016 (USD)	Jun 2016 (IDR)	QoQ
Total Assets	Rp7,287.8B	~$560.4M	Rp7,489.5B	➖ -2.7%
Total Liabilities	Rp2,763.1B	~$212.5M	Rp3,097.4B	✅ -10.8%
Total Equity	Rp4,524.6B	~$348.0M	Rp4,392.1B	✅ +3.0%
Debt-to-Equity Ratio» (company-disclosed)	0.61x	-	0.70x	✅ improved

Leverage reversed direction for the first time since this site started tracking it: the debt-to-equity ratio fell from 0.70x back to 0.61x, as total liabilities dropped 10.8% (no new dividend was declared this quarter, and Rp365.5B of long-term loans were repaid against just Rp8.2B of net new bank drawdowns at the parent level). Equity grew again after last quarter's first-ever quarterly decline, this time purely from retained comprehensive income rather than any dividend timing effect.

Segment Performance

Blue Bird still reports the same two operating segments - Taxi and Non-Taxi - with no further disclosure change this quarter.

Taxi

Standalone Q3 2016 net revenue ~Rp984.4B (-17.2% YoY), operating income ~Rp152.3B (-32.0% YoY), operating margin 15.5% (down from 18.8% a year ago). The revenue decline rate is essentially unchanged from Q2's -17.3% - not an improvement in the underlying competitive pressure, but not a further acceleration either. Sequentially, though, the segment's own margin actually recovered, from Q2's 10.1% to 15.5% this quarter, entirely on the back of the cost discipline described in The Prescription above rather than any pricing or volume recovery.

Non-Taxi

Standalone Q3 2016 net revenue ~Rp189.2B (+5.8% YoY), operating income ~Rp57.7B (+22.4% YoY), operating margin 30.5% (up from 26.4% a year ago, and up again from Q2's 27.4%). Revenue growth decelerated sharply from Q2's +12.7% - the slowest growth this segment has posted on this site - but operating income growth accelerated to +22.4% from +16.1%, and margin kept climbing. Non-Taxi is generating more profit growth from less revenue growth than a quarter ago, the opposite of what a maturing, competition-squeezed segment usually looks like.

Segment Comparison

Segment	Revenue (Q3 2016, standalone)	YoY Growth	Operating Margin
Taxi	~Rp984.4B (83.9%)	⚠️ -17.2%	⚠️ 15.5%
Non-Taxi	~Rp189.2B (16.1%)	✅ +5.8%	✅ 30.5%

Non-Taxi's revenue share held essentially flat at 16.1% (versus Q2's 16.4%) - Taxi's decline rate didn't accelerate enough this quarter to keep shifting the mix the way it did between Q1 and Q2. The more important divergence isn't revenue mix, it's margin mix: Taxi's margin recovery this quarter came from cost cuts, while Non-Taxi's came from the business itself getting more efficient at a lower growth rate - two very different kinds of improvement sitting inside the same consolidated operating-margin number.

Key Operational Metrics

• Geographic split (standalone Q3 2016, derived): Jadetabek revenue was ~Rp877.8B (74.8% of standalone quarterly net revenue), down ~19.0% YoY; revenue from outside Jadetabek was ~Rp295.8B (25.2%), up ~4.0% YoY - decelerating from Q2's +9.7%. On the filing's own nine-month cumulative basis, Jadetabek revenue fell 14.3% YoY and its share of total net revenue fell further, from 76.5% to 76.0%.
• Permanent employees (Group): 4,107 (Sep 2016), down 4.2% from 4,288 (Jun 2016) and down 5.6% from 4,352 (Dec 2015) - the third straight quarter of net headcount reduction since Q1 2016's growth.
• 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 or transcript exists for this quarter to fill either gap.

Beyond the Usual

The MESOP program's target date has moved again, this time to 2017

The Management and Employee Stock Option Program's two contractual tranches were due no later than May 2015 and May 2016 - both deadlines passed with zero options distributed as of last quarter, with management's stated plan at the time being to issue rights "in 2016." That plan has itself now lapsed: as of this report, the Company still hasn't distributed a single option under either tranche, and management's position has shifted again, to "reassessing the criteria" of the program with a plan to distribute rights "in 2017." A program now on its third stated target date, having already missed two contractual deadlines by more than a year, is drifting rather than being executed.

Blue Bird's related-party rent structure - disclosed since the company's first quarterly report - kept normalizing this quarter rather than concentrating further. Nine-month related-party rent expense reached Rp29.7 billion, up only 4.4% YoY (a sharp deceleration from the growth rate flagged in Q2's report), and its share of total rent expense fell further, to 63.4% from 80.0% a year earlier, as more non-related-party leases keep entering the mix. The land-lease agreements with founder-controlled PT Pusaka Citra Djokosoetono alone still commit the Company and its subsidiaries to Rp49.9 billion of future minimum rental payments through the agreements' 2021-2024 maturities (Rp9.0 billion due within the next year) - a real, disclosed, long-dated related-party obligation, even as its share of the overall rent bill keeps shrinking.

Non-cash fleet investment kept growing faster than the capex line the cash flow statement shows: Rp244.1 billion of previously-paid advance payments for fixed assets were reclassified directly into fixed assets over nine months (up 87.4% from Rp130.2 billion a year earlier), even as fleet additions financed directly through trade payables fell, to Rp12.0 billion from Rp21.7 billion. Combined, non-cash investing activity grew 68.5% YoY - none of it touches the cash flow statement's investing-activities total, so the reported capex and free cash flow figures above still understate how much fleet investment is actually happening.

The Rp1.6 trillion Bank Mandiri investment credit facility - flagged as barely drawn last quarter (PT Pusaka Prima Transportasi's initial Rp50 billion draw) - saw a second, smaller drawdown: the parent company itself, PT Blue Bird Tbk, drew Rp8.2 billion this quarter. Combined outstanding balance across both entities is now Rp58.2 billion, still just 3.6% of the facility's total capacity fifteen months after signing (see The Prescription above).

Stock Price: A New Low, and Further Below the IPO Price

Blue Bird's shares closed at Rp2,950 on September 30, 2016 (no stock split has occurred since, so this remains directly comparable to the Rp4,060, Rp5,775, and Rp9,950 closes reported for Q2 2016, Q1 2016, and Q1 2015) - down 27.3% from June's close, the weakest quarter-end price this site has recorded for the stock. The shares are now 54.6% below their own Rp6,500 IPO price (November 2014), a materially deeper discount than Q2's 37.5%. Over the trailing twelve months (September 2015 to September 2016), the stock closed lower than the prior month in eight of twelve months - worse than the seven-of-twelve ratio Q2's report found over its own trailing year, even though this quarter's actual operating numbers deteriorated less than last quarter's did. The price and the business are, for the first time in this coverage, moving in genuinely different directions.

Target Valuation Range

Enterprise value ~Rp9,806B (~$754M), implying ~15.4x annualized P/E and ~1.66x P/B - the stock fell further and faster than the business's own fundamentals did this quarter, the opposite of what happened in Q1 and Q2. This is the first quarter on this site where the multiples look more attractively priced than the operating trend actually justifies, though "attractive" here means "no longer overshooting a still-shrinking core business," not "cheap regardless of what happens next."

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

Market cap → enterprise value	Q3 2016
Share price (period-end)	Rp2,950
Shares outstanding	2,502,100,000
Market capitalization	~Rp7,381.2B (~$567.7M)
Total liabilities	~Rp2,763.1B
Less: cash and equivalents	~Rp338.0B
Enterprise value	~Rp9,806B (~$754M)

Market cap is down from ~Rp10.2 trillion at Q2 2016's close.

Peer-multiple sanity check	Q2 2016	Q3 2016
P/E (annualized)	~22.1x	~15.4x (9M 2016 EPS Rp144 × 4/3 = Rp192)
P/B	~2.35x	~1.66x (book value/share ~Rp1,779)
Annualized ROE	~10.7%	~11.1%
Annualized ROA	~6.3%	~6.7%

Every multiple compressed again, but this time the underlying return metrics didn't compress alongside them - they ticked up. A stock priced at 22.1x earnings against a business whose own returns were falling made some sense; a stock priced at 15.4x earnings against a business whose returns just improved is a genuinely different situation. The open question is no longer whether the market is pricing the deterioration accurately - it's whether this quarter's deceleration in Taxi's decline and acceleration in Non-Taxi's profit growth (see Segment Performance) is the start of a real inflection or just one calmer quarter inside a longer structural decline. Until a second quarter confirms the pattern, this reads as a stock that's stopped falling for the same reasons the business is - it's now falling for reasons the business's own numbers don't fully explain.

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