OREANDA-NEWS. Fitch Ratings Indonesia has assigned Indonesia-based taxi company PT Express Transindo Utama Tbk (Express) a National Long-Term Rating of 'A(idn)' with a Stable Outlook.

'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category.

KEY RATING DRIVERS

Second-Largest Taxi Operator: The rating on Express reflects the company's position as the second-largest taxi operator in Indonesia with a fleet of over 11,000 vehicles. The company has been operating since 1989 and has established networks and infrastructure. Its scale and track record are key competitive advantages when tendering for taxi licences. Its expertise and experience also help it to recruit and retain drivers.

Partnership Scheme Provides Stable Cash Flows: The company's stable cash flow is supported by its partnership scheme for its regular taxis, where drivers place a security deposit at the start of their contracts and have the option to buy their vehicles at the end of the contracts. During the contract, drivers pay a fixed tariff fee to Express, and pay for fuel and maintenance. The partnership scheme helps Express to pass on risks related to the volatility in fuel prices, and maintenance and resale value of vehicles. Regular taxis accounted for 84% of the company's revenue in 9M14, with most of these drivers under the partnership scheme.

Favourable Fleet Profile: The company uses mainly Toyota cars - Toyota Limo forms 80% of the fleet and Toyota Etioz 15%. The use of Toyota sedans is an advantage because components are readily available, they are easy to maintain, and they have high resale value. Express has a young fleet that averages two years in age, with about 92% of the cars less than three years old.

Supportive Environment: Fitch believes the industry dynamics are favourable. The lack of good public transportation, increasing parking tariffs, particularly in the Greater Jakarta area, and continued economic growth will drive demand for taxis. At the same time, barriers to entry are quite high because it is difficult to obtain taxi licences, while it takes a long time to recruit and retain good drivers, and build trust with customers. Players also require consistent capital flow to replenish assets.

Periodic Capex Required, Manageable Liquidity: The company requires regular investments to replace its older vehicles, expand its fleet size, and develop its infrastructure. Despite the capex requirement, we believe Express has adequate liquidity because of its stable operating cash generation. Express also has relatively good access to funding partly because it is part of the Rajawali group. As of end-September 2014, Express had cash of IDR298bn and committed bank facilities of IDR109bn, sufficient to meet upcoming debt maturities. Fitch expects net debt/EBITDA to remain below 3.0x in 2015-2017 and EBITDA/gross interest expense to remain above 3.0x in 2015-2017.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Net addition of 769 regular taxis to its fleet in 2015, 500 in 2016, and 500 in 2017.

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Decline in net debt/EBITDA to below 1.0x on a sustained basis (annualised 9M14: 2.8x)
- Significant increase in market share for regular taxis (market share of about 14% in 2013, according to Euromonitor)

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Increase in net debt/EBITDA above 3.0x on a sustained basis
- Increase in receivable days greater than 70 days on a sustained basis (9M14: 78 days)
- Decline in net profit to below IDR9m per car on a sustained basis (9M14: about IDR10m)
- Significant decline in market share for regular taxis due to higher competition or inability to secure funding or recruit drivers