BlueBird, the Indonesian taxi operator, begins roadshows on Monday for a Rp3.7 trillion ($307 million) initial public offering.
The proceeds have been fixed but the company, one of the country's leading brands, has left itself plenty of flexibility by going out with a range for both the price and the number of shares it hopes to sell.
According to a term sheet seen by FinanceAsia, the group is offering between 397.85 and 513.889 million primary shares, which represents 19.5% to 50.8% of its issue share capital on a pro-forma basis. The price range is being marketed at Rp7,200 to Rp9,300 per share.
There is no greenshoe because Indonesian regulations stipulate it would need to be secondary shares and none of the group's current shareholders want to sell at the current valuation. This works out at 17.1 to 20.1 times 2015 earnings compared to syndicate analysts' fair value estimates of 18 to 24 times.
BlueBird is being marketed at a premium to its nearest domestic comparable, PT Express Transindo Utama, which is currently trading at about 14.7 times 2015 earnings. The latter has underperformed the Jakarta Composite Index (JCI) all year long, falling 15.5% year-to-date, compared to a 15% rise in the benchmark index.
Other consumer plays have fared much better, with retailer Matahari Putra Prima up 49.7% to 25.2 times 2015 earnings and home improvement retailer Ace Hardware rising 43.2% to 20.5 times 2015 earnings.
BlueBird has been pitched at a discount to mainstream consumer plays because fuel costs add an element of uncertainty to its future earnings. This factor combined with softening sentiment towards Indonesian equities will be the main issues investors are likely to grapple with.
However, sources close to the deal say that the institutional order has been covered since day one. The group is already well-known among many investors, having conducted pre-marketing in 2013.
This came to an unexpected halt due to litigation among the controlling Purnomo family. However, BlueBird not only represents one of Indonesia's largest listings in recent years but also one of its most eagerly anticipated given as if offers a liquid play on the the country's consumer growth story.
Pricing will take place on October 10, with a retail offering running from October 24 to 28 and listing on November 3. Lead managers are Credit Suisse, Danareksa and UBS.
Market sentiment sours
The Indonesian stock market has been one of Asia's best performers this year, hitting an all time high of 5,262 on September 8. However, the momentum has disappeared and, even it had not, investors would likely be wondering how much upside was left.
Throughout September, the local market was subject to the same selling pressure as other global exchanges, with foreign investors turning net sellers. In recent days, there have also been signs the country's post election glow is wearing off as well.
The JCI fell 3.8% over two trading sessions at the end of last week following the news that an opposition MP, Setya Novanto, had been voted House Speaker. Investors worry this will hinder president-elect Joko "Jokowi" Widodo's growth plans.
One of his first actions is likely to be a new cut in the fuel subsidy. Domestic newspapers are reporting a likely hike of Rp3,000 per litre, with the savings re-directed to much-needed infrastructure development. For example, while car sales have been rising by 10% per annum, there has been no increase in the public road network over the same period.
The move is likely to boost GDP and the country's central bank is forecasting growth of 5.4% to 5.8% in 2015, up from 5.12% during the second quarter of this year. Increasing GDP growth and improving infrastructure will both benefit BlueBird's earnings.
But in previous years, fuel price hikes have had a negative short-term impact on the stock market and this is what is most likely to bother investors considering the IPO.
The last fuel price hike in June 2013 raised prices from Rp4,500 per litre to Rp6,500 per litre. The JCI fell 24% over the following three months.
Increasing tariffs to mitigate fuel price rises
The hike will also fall through to BlueBird's bottom line since it is the company that will need to absorb it and not its drivers. Express Transindo does not have the same issue as it operates a different business model, with the drivers absorbing the hike.
However, sources close to the transaction say BlueBird has the flexibility to adjust its tariffs to counter increasing costs. In September 2013, for example, it raised its initial fare from Rp6,000 to Rp7,000 and its rate per kilometre from Rp3,000 to Rp3,600.
BlueBird and Express Transindo report relatively similar gross margins of about 32%. However, BlueBird is not only larger, but also has a much longer operating history and consequently a far stronger brand - all of which point to a higher valuation.
Express Transindo is owned by Peter Sondakh's Rajawali group and listed in October 2012. But it has a far smaller market capitalization of Rp2.6 trillion and a limited institutional investor base.
Analysts are currently forecasting 2015 net profit around the Rp180 billion mark, up from Rp132 million in 2013. Where BlueBird is concerned, 2015 forecasts range from Rp794 billion to Rp 858 billion.
BlueBird's current fleet numbers 30,298 taxis in 17 cities, of which 23,932 are regular taxis or BlueBirds, with their familiar blue signage. This segment of the business accounted for 80% of 2013 revenues.
The company's executive taxi fleet, known as SilverBird, accounted for 6% of revenues, with limousines and hire cars (GoldenBird) on 9% and its chartered buses (BigBird) for the remaining 5%.
It total, it has a market share of 33% compared to Express Transindo's 15%.
Notwithstanding short-term stock market volatility, the company has a very clear and strong growth model underpinning earnings growth in the low 20% range.
Transport conditions in Jakarta are among Asia's most chaotic and, while moves to finally build a mass transit system will one day provide its taxis with more competition, they will also clear the traffic clogged roads, making journeys more bearable.
BlueBird has the unusual advantage of having a long-established brand and yet strong domestic growth potential. The former derives from the customer loyalty it has built up since it first began operations in 1972 with 25 taxis.
One of its strongest calling cards is its reputation for safety and reliability in a country where unlicensed taxis often flout the law, overcharge and are generally considered unsafe.
And it is still at an early point in its growth cycle given the under-penetration of taxis in Greater Jakarta, which is seven times lower than neighbouring countries.
There are currently just 41,000 taxis serving a population of 30 million in the capital city. By comparison, Bangkok has a fleet of 107,000 serving a population of 10 million.
On top of this, Indonesia's ratio of cars to people (50 per 1,000) is also very low compared to its ratio of motorcycles to people (350 per 1,000). As the middle class continues to grow so should its capacity to hire taxis.
BlueBird should also be able to maintain its margins and market share as entry barriers are relatively high. Local government-issued licenses, for example, are strictly controlled.
Its supporters also say it is not at threat from App-related lift-sharing competitors such as Uber and Lyft, having run its own App since 2011.
