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Stock Index
Bahana Securities

23 Oct 2019 | 17:42 WIB
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23 Oct 2019 | 17:42 WIB
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Land transportation: Under siege

Recent violent taxi drivers’ protests against mobile-based application companies must certainly be avoided going forward. It is imperative in our view that the government does not allow Indonesian transportation companies to hide behind unhealthy protectionist measures, which encourage inefficiencies. This is particularly true as Indonesia must deal with the rapid progress of globalization, regionalization and digitalization.


Failure to keep our market open would be the antithesis of what the government is currently attempting to accomplish within the banking sector, for example, by creating an efficient operating environment which would allow Indonesian banks to better compete in the ASEAN region.

Additionally, banning venture capitalists on the ground would undoubtedly send a negative message towards the state of Indonesia’s investment climate. With foreign direct investment unexciting in US dollar terms in 2015, Indonesia must make another push to accelerate FDI this year in an effort to accelerate economic growth.

On the day of the protest, the Ministry of Communication and Information refused closure of applications used by UBER and Grab. In our view, this is the right move as it allows for improved efficiencies to the benefit of Indonesian consumers in general, resulting in healthier competition in the land transportation segment. Additionally, Ahok, Jakarta’s Governor, has said that the development of application-based technology is unavoidable.

In our view, the two biggest taxi companies in Indonesia (BIRD and TAXI) have been slow in recognizing and responding to new threats to their business due to decades of abnormally high profit margins (exhibit 1) on lack of competition. Recently, on national TV, Ruhut Sitompul, from the Demokrat party, stated that taxi drivers were paid by their employer IDR100,000 each to demonstrate. It is interesting to note that BIRD has offered free taxi rides for passengers for the whole day on 23 March. However, as a result of the violent actions of the taxi drivers, we think that the incident might actually work in favor of Uber and Grab, as cab users might perceive them as a safer choice of transportation.

We believe this is a significant incident that will result in increased pressure on the government to rectify the issue. At this stage, we believe it is crucial that the government immediately implement regulations governing the existence of application-based transportation companies in Indonesia.

Looking ahead, we are of the view that the new online transportation companies are likely to apply continued pressure on both BIRD and TAXI, as mobile-based application companies offer drivers higher incomes and more flexible working hours while providing passengers with cheaper fares, cleaner vehicles, greater convenience and better service.

At this stage of the cycle, we expect continued intense competition and fewer drivers to restrict expansion and revenue growth, leading us to affirm our sector UNDERWEIGHT stance and REDUCE ratings on BIRD and TAXI.

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