CFA Institute Research Challenge

hosted by Mongolian Society of Financial Analysts

“MonStars”- University of Finance and Economics

The CFA Institute Research Challenge is a global competition that tests the equity research and valuation,
investment report writing, and presentation skills of university students. The following report was prepared in
compliance with the Official Rules of the CFA Institute Research Challenge, is submitted by a team of
university students as part of this annual educational initiative and should not be considered a professional
report.

Disclosures:
Ownership and material conflicts of interest
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The
author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the
content or publication of this report.
Receipt of compensation
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as an officer or a director
The author(s), or a member of their household, does not serve as an officer, director, or advisory board member of the subject
company.
Market making
The author(s) does not act as a market maker in the subject company's securities.
Disclaimer
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the
author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or
completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This
information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report
should not be considered to be a recommendation by any individual affiliated with Mongolian Society of Financial Analysts, CFA
Institute, or the CFA Institute Research Challenge with regard to this company's stock.
 University of Finance and Economics
This report is published for educational purposes only by APU COMPANY
students competing in the CFA Institute Research Challenge. Absolute. Pure. Unique.

Date: 01/03/2019 Current price: MNT 620.00 Recommendation: BUY

Stock exchange: MSE Target price: MNT 757.57 Industry: Beverage
Ticker: APU Upside potential: 22.19% Investment period: 12 month

Figure 1. MARKET SNAPSHOT APU JSC (hereafter referred to as the Company) is the largest brewer, beverage
Closing Price (Jan 3th, 2019) 620.00 producer, and the local distribution of international beverage brands with over
Shares Outstanding (MM) 1,064 90 years of operational history. APU is currently the top-ranked company on
Market Cap (MM) 659,792 the Mongolian Stock Exchange (MSE) and the biggest company in terms of
52 week low 467.84 market capitalization.
52 week high 906.80
Daily Turnover (MM) 19.23 Summary
Free Float (%) 5.55
We issue a BUY recommendation on APU with a target price of MNT 757.57 per
Source: MSE
share using a Discounted Cash Flow Analysis (DCF) and Relative Multiples
Figure 2. VALUATION SUMMARY Valuation (EV/EBITDA). This offers 22.19% from its closing price of MNT 620 by
DCF Valuation (85%) January 3, 2019.
PV of FCFF (MNT MM) 351,973.38 Our forecasted rate is based on increasing sales and EBIT growth, the strong
PV of Terminal Value (MNT MM) 321,931.83 cash flow generation and rapid reduction in debt, the revenue synergies and
Implied Enterprise Value (MNT MM) 673,905.21 further M&A, management’s track record of delivering results, and leading
Implied Value of Equity (MNT MM) 673,905.21 share of the Mongolian beer and vodka market. We expect this to continually
Number of Shares ( MM) 1,064.00
drive double-digit EPS growth in the next five years with a dividend.
Target price 633.37 Top National Brand
Relative Valuation (15%) The recent transaction with Heineken’s Mongolia based business, marked as
Implied EV/EBITDA 10.13 the largest merger in the country as APU became a dominant player with more
EBITDA forecasted at 2020Q4 154,112.30 than 75% share of the local alcoholic beverage market. A key skill set of APU is
Target price 1,461.35 tapping into local pride, offering affordable and mainstream beers and vodka to
Weighted 12 month target price 757.57 consumers. When consumers have excess savings, APU’s premium products as
well as imported beverages are available to unlock aspirations of the middle
Recent dividend (Feb 19, 2019) 46
class.
Expected capital gain 29.61%
Driving Sustainable Long-Term Growth
Source: Team estimates
The APU’s growth is not only supported by its merger but its strong balance
Figure 3. TOTAL MARKET CAPITALIZATION
sheet, domestic high brand reputation as well as its supportive subsidiaries. The
company has an extremely favorable position in the beverage industry as
24.74% shown by its high liquidity and solvency ratios. APU’s priority is to focus on
38.04% organic growth in its existing footprint and business. Strong market shares and
strong brands provide a healthy backdrop for continued profit growth over the
long-term.
8.08%
International know-how
11.65% 12.94% Heineken is the world’s second-largest brewing company. We believe
1.88% 2.67%
APU
Heineken’s objective to increase its Asian market growth would be aligned with
Gobi the APU’s exporting proposition, as it supports high-quality premium products’
Tavan Tolgoi exports through its marketing expertise. Already a power brand in the local
Suu market, the company strives to implement the best practices of Heineken.
Ard Following the global trend, APU has introduced a low alcohol beverage, offering
Mongolian Mortgage Corporation a variety to the consumers.
Others
Further value-accretive M&A
Source: MSE
There will likely be a pause for breath in the near term as the company just
Figure 4. FORECASTED EXPORT REVENUE delivered, M&A remains a core competency for APU and we expect a number
WEIGHT IN TOTAL REVENUE of opportunities such as trade and cooperation agreements beyond Heineken
merger which could lead to value creation.
8.00%
7.00% Outstanding Management Use of Advanced Technology
6.00%
The APU Company has been able to take advantage of its economies of scale by
5.00% investing in high technology plants and warehouses through its partnership
4.00% with German, and Swedish technology companies. That utilization allows the
3.00% company to optimize its cost and safety issues efficiently by its advanced
2.00% functions. The integration of an automatic system gives an opportunity to APU
1.00% to take advantage of the industry shift, improvement of safety issues, and
0.00% continue to drive top-line growth into the future.
2018A 2019E 2020F 2021F 2022F 2023F 2024F

Source: Company data, Team Estimates

1
 Figure 5. MARKET SHARE Business Description
Market share Pre-merger Post-merger
Vodka 52% 78% Established in 1924, APU is the first alcoholic distillery and one of the oldest
Beer 56% 93% companies in Mongolia. The company is also the largest brewer and beverage
Dairy products 21% 28% producer with 93% beer market and 78% of the vodka market (Figure 5). APU is
a publicly-traded company based in Ulaanbaatar, Mongolia.
Soft drink 3% 3%
Source: Company reports
The company’s current well-established operations are divided into two main
segments: alcoholic and non-alcoholic products. Between these two product
Figure 6. SALES CONTRIBUTION BY SEGMENT lines, the company offers a total of over 260 unique products (Figure 10). APU
also imports premium quality whiskey, liquor, beer, and wine; offering the local
market a consumption options.
100%
After the recent merger with Evergreen Investments LLC, APU now operates 3
80% vodka production plants (including one in Russia), 2 breweries, 1 dairy
production, and 1 general beverage production plants. It currently has over
60%
9,000 distribution points across Mongolia and employs over 2,000 workers.
40% APU is the only company certified by ISO 22000:2010, ISO 14001, and ISO
9001:2008. Furthermore, the company has a specialized food safety inspection
20% team, an integrated quality management system and an in-house certified
laboratory which monitors each of five stages of the production.
0%
Company Strategies After Successful Merger
APU’s long-term goals are to increase its beer and vodka volumes in the
targeted export markets. We have identified three key pillars of its corporate
Dairy Vodka Others Beer strategy: building a premium-brand portfolio through quality control, ensuring
cost and operational efficiency, and generating value through improving social
Source: Company Data, Team Estimates
responsibility, environmental impact, and human resource capital.
I. Building a portfolio of premium products for targeted global markets
Figure 7. THE COMPANY STRUCTURE As the local alcoholic drink market has limited growth prospects, APU now aims
to expand its beer and vodka volumes in targeted export markets, particularly
to China and Russian markets by offering selectively chosen premium goods.
Among many exporting premium products, one worth highlighting is Chinggis
Khan vodka. It has won numerous international awards including a gold medal
at the San Francisco World Spirits Competition and has gained popularity
among consumers across the globe.
The company has recently begun to place increasing emphasis on pursuing
Source: Company data Russian export opportunities by signing a trade and cooperation agreement
Note: Mongolian Beverage Co Pte Ltd is in the process with Tatspirtprom JSC, the alcoholic beverage producer in Russia. The company
of liquidate. estimates to generate MNT 62.78 billion of additional gross profit from export
sales from 2019E to 2024F. Export sales expected to increase the current plant
utilization rate and reduce production cost.
Figure 8. REVENUE BREAKDOWN II. Internally generated cost savings programs
100% APU integrated its raw material production and distribution operations with
80%
0.72% 98.95% Evergreen’s spirit supplier, Nature Argo LLC and the distributor, APU Trading
60% 0.33% LLC and SBB Trading LLC. This vertical integration resulted in significant margin
40% expansion. One of which is by combined sourcing of raw materials and
20% 0.56% 99.34%
0%
0.10% packaging for the procurement department, results in further cost savings.
Import sales Export sales Domestic III. Value-oriented mindset
market sales
2017A 2018A Social responsibility: APU has been active in supporting and partaking in social
causes such as donating and sponsoring various sports, educational, and social
Source: Company Data events. The company emphasizes and promotes awareness of moderate
drinking culture by providing training. Most recently, when Bayan-Ulgii province
was flooded due to natural disaster, the company has raised approximately
MNT 25 million to those who needed (Appendix 3-4).
Figure 9. OWNERSHIP STRUCTURE Environment responsibility: APU incorporates environmental issues into its
5.55% operations in order to eliminate waste, reduce CO2 emission, maximize the
5.19% efficiency of its water and energy consumption. In regards to waste
management, the company was managed to reduce waste by 33% during the
13.42% 50.84% last 5 years and hope to increase the percentage to 50% by 2020. In 2018,
company has successfully implemented 12 projects about managing gray water
which led to reusing 14,000 tons of water. APU’s focus on energy efficiency
resulted in a reduction of 180,000 kW/h in power consumption and 54% less
25.00% electricity (Appendix 3-4).
Human resource: APU shows that it cares for its employees. The company set
Shunkhlai Group a target of having a zero occupational hazard. Also, APU wants to retain its
Heineken Asia Pacific Pte.Ltd talented employees by providing competitive compensations as well as provide
Steppe Beverage KFT training. According to the annual report, the company achieved 100 percent
Mongolian Beverage Investments LLC performance for its Collective agreement with the Labor Union, providing MNT
Individual Investors 3,000,357,000 for various employee supports.
Source: Company Data
2
University of Finance and Economics
 Figure 10. SALES VOLUME AND PRODUCT Corporate Governance
PORTFOLIO
Governance Assessment
150 133 300
260 We evaluated the company’s governance on criteria mentioned in CFA
99 91 93 Institute Corporate Governance Manual for Investors. APU’s quality of
88
100 200
162 164 corporate governance practices has increased after the successful merger. Our
107
136 team also evaluated the levels of threat to minority shareholder which is an
50 100
important consideration from the governance (Figure 11 & Appendix 3-3). The
company’s corporate governance practice seeks to ensure that the board
0 0
members act in the best interests of shareowners and the interests of a
2014A 2015A 2016A 2017A 2018A
broader stakeholder group which refers to labor groups and society at large
Sales volume (million liters)
(Appendix 3-5).

Product types (SKU)

Ownership structure
Pre-merger ownership of the company was concentrated with Tuul
Source: Company Report international Co being the biggest shareholder with 51.72% of the total share,
followed by Wit Alliance and Golomt Bank LLC which owns 20.09% and 19.87%
respectively. APU JCS issued 321,304,553 new shares that are distributed to
Figure 11. THREAT TO MINORITY the two shareholders of Evergreen Investments LLC, HAP and MBI LLC. In 2018,
SHAREHOLDER Golomt Bank LLC sold a stake to the Hungarian Steppe Beverage KFT at an
average price of MNT 720. There are currently 4 major shareholders of APU
Executive that together own 94.45% of the company. The company has a free float of
management 5.55% (Figure 9).
Board of Directors
Disclosure 1
and
Board of At a shareholders meeting on April 26th 2019, APU appointed a new board of
2 2 directors
Transparency directors that will serve for a 3-year term. The chairman of the board
Batsaikhan Purev is non-executive director and the president of Shunkhlai
Group LLC. Newly appointed members include Kenneth Choo who currently
1 serves as a managing director of Heineken Asia Pacific, Thomas Holland the
Rights and
Takeover
obligations of
CEO of Development Finance Asia, and Damdinsuren.Ya who was previously
Defense 3
shareholders the chief strategic officer at APU in 2018 (Appendix 3-1).
Executive Management Team
1 2 3 4 5
APU’s executive management team, operates under CEO Erdenebileg
Insignificant Low Moderate Significant High
Tseveenjav with 24 years of industry experience, consists of 11 members with
Source: Team analysis the function of providing consultancy and guidance. We expect a senior
management appointment from Heineken to assist with the integration
process and international sales (Appendix 3-2).
Figure 12. LOCAL MACROECONOMIC
FORECAST Industry overview and Competitive Positioning
11.95%
9.95%
Global beverage market outlook
7.95% The global alcoholic beverage market is expected to grow steadily at a CAGR of
5.95%
over 3% from 2019E-2024F, according to Euromonitor International. The
demand is strongly driven by the significant rise in consumption for alcoholic
3.95% beverages from emerging markets due to increasing purchasing power. The
1.95% industry is highly consolidated, and has high barriers to entry for smaller
-0.05% market players. The global top 3 players are Anheuser-Busch InBev, SABMiller,
-2.05% 2019E 2020F 2021F 2022F 2023F 2024F and Heineken. The dynamic of the brewing industry among major players is
forming a larger business through M&A in order to create dominance in the
Exports of goods growth (YoY%) alcoholic beverage industry. This trend hasn’t missed the Mongolian market
Real GDP growth (YoY%)
Emerging market real GDP growth (YoY%)
when APU merged with Heineken in 2018, acquired a significant industry share
Inflation rate (%) in the beer segment. This is perhaps due to the expected growth in the Asia
Pacific region.
Source: International Monetary Fund, World Bank
Mongolian Macroeconomic outlook
Mongolian economy is reliant on mining and livestock. The country has
Figure 13. MONGOLIAN POPULATION extensive mineral deposits and the economy is heavily linked to global mineral
FORECAST (in million) commodity prices. According to the World Bank, the economy picked up in
2017 and a significant growth reached 7.2% in 2018. This is due to high
1.28 1.29 1.31 1.34 1.36 1.40 1.42
commodity prices, an inflow of foreign direct investment and private
consumption in Mongolia. Economic outlook remains positive for the mid-
term. Furthermore, much of Mongolia’s domestic and foreign policy is shaped
by its two neighbors, Russia and China. To balance this, the country has actively
1.96 2.01 2.05 2.09 2.13 2.19 2.21 pursued a “third neighbor” policy, which involves expanding political, economic
and defense relations with regional democracies and with selected Western
2018A 2019E 2020F 2021F 2022F 2023F 2024F
countries. The current government has worked on numerous projects to help
boost the economy. Most notably, considering APU’s export target markets,
Population +21 Population 0-21 the government was successfully signed on deals with China and Russia.
Source: NSO, International Monetary Fund However, uncertainty remains whether these deals would be completed due to
the 2020 Parliamentary election.

3
University of Finance and Economics
 Figure 14. HOUSEHOLD INCOME AND EXPENSE Domestic Outlook
1,400,000. 24.00% The current condition of Mongolia’s alcoholic beverage market is varied across
1,200,000. 22.00% segments but generally appears to be promising with regards to the potential
1,000,000. 20.00% for future expansion of APU’s alcohol business. In recent years, the domestic
800,000. 18.00% alcohol beverage market sales perceived as matured as it have been relatively
600,000. 16.00% flat with below 5% of CAGR while the beer and wine segments have been
400,000. 14.00%
200,000. 12.00%
showing modest growth. On the other hand, the dairy and soft drink markets
0. 10.00% are still growing with a CAGR of more than 10% for both segments. The APU is
offsetting the slowing growth in the alcoholic beverage market by exporting its
products to neighboring countries. The company is targeting APAC, the USD
Monthly average expenditure per household 480,702 million worth market, as it expected to grow annually by 3.1% (CAGR
Monthly average food expense per household 2019E-2023F).
Monthly average income per household
Percentage of food expenses in household expenditure I. Demographic groups drive beverage industry demand growth: The
Source: NSO
density of the population group aged 21 to 45 has a direct impact on the
beverage sector as it comprises Mongolia’s biggest demographic group with
Figure 15. NUMBER OF ALCOHOLIC BEVERAGE more than one-third of the population. According to NSO, the population aged
MANUFACTURE over 21 has surpassed 1.96 million, accounting for 60.54% of the total
population in 2018. The growth rate has been increasing at a 5-year CAGR of
65 62 56
49
roughly 1.35% (Figure 13). This upward trend is projected to continue driven by
55 46 the fact that 210,000 people are shifting to the drinking age in the next 5 years
45 35 which will cause constant demand for alcoholic beverages with the effect of
35 increasing the young generation.
19 19 19 19 17
25
II. Consumer staples offer resilient growth: Food & beverages are
15 10 9 9 9 8 considered as non-discretionary consumer segment also a constant element of
5 the consumer basket accounting for a 24.73% of household consumption.
2014A 2015A 2016A 2017A 2018A While these companies don’t typically offer the high-growth or the big dividend
Spirit Vodka Beer payouts like tech companies might, but they have historically fared well when
the economy goes south. According to Face Set Data, the consumer staples
Source: Ministry of Food, Agriculture and Light sector has a dividend yield of 2.8%, just behind energy and utilities for the
industry (MOFA) third-highest yield in the S&P 500. The production of alcoholic and non-
alcoholic beverages are consumer staples so that we believe APU will benefit
Figure 16. ALCOHOLIC BEVERAGE PRODUCTION
from rising consumer spending (Figure 14).
(MILLION LITERS)
140
III. Growing consumer expectations for higher-value products: After the
2007 poisonous vodka scandal in Mongolia, the number of alcohol distillers
120
had decreased and the industry became highly regulated. The industry is
100
currently dominated by a few large distillers adhering to the international
80 quality standards including APU (Figure 15). Since consumers require high-
60 quality products with a strong brand image, we believe that APU can mutually
40 meet consumer expectations.
20
0 IV. Increasing beer consumption influenced by the adoption of western
2014A 2015A 2016A 2017A 2018A culture: The consumption of beer has increased in APAC including Mongolia in
recent years due to the rise in household income and an increase in consumer
Beer Vodka Spirit Wine
preferences for beer over other alcoholic beverages influenced by cultural
Source: Ministry of Food, Agriculture and Light changes and the adoption of western culture. The beer segment plays an
industry (MOFA) important role where its gross production as of 2018 was 69.77% of the total
production of alcoholic beverages (Figure 16). So we believe that the company
Figure 17. PRODUCTION OF PROCESSED DAIRY
fully meets domestic market needs.
1000 14.96% 20.00%
V. Significant growth in the consumption of processed milk and dairy
800 15.00% products: Dairy market has experienced a CAGR of 17.65% from 2014A-2018A.
600
10.00%
In Ulaanbaatar, 62.5% of dairy products are industry processed (Figure 18).
9.29% 9.42% Mongolia will see significant growth potential in the consumption of organic
400 8.04% 7.10%
200 5.00% milk, yogurt and dairy products, fueled by increasing demand for premium
0 0.00%
products from quality-conscious consumers. This significant increase could be
2014A 2015A 2016A 2017A 2018A
explained by a large influx of migrants from the countryside to Ulaanbaatar.
Traditionally, dairy has been a big part of the Mongolian diet but has been
Dairy resources for agricultural production (million liters)
produced in a smaller, household scale. With rapid urbanization, demand for
Processed dairy products (million liters)
Percentage of total processed dairy products
dairy products will continually rise. We believe that APU is well-established, by
spinning-off it’s dairy production, to make the dairy business unit an
Source: Ministry of Food, Agriculture and Light independent profit center. Despite the fact that SUU JCS makes up 48% of the
industry (MOFA) market, the company has a good prospect for growth with the current market
share of 28% due to the increasing consumption of processed dairy products.
Figure 18. MONGOLIAN EXPORT (MM USD)
Exports Outlook: Great opportunity to benefit from the larger APAC
11,000,000. 15.% consumer base
9,000,000. 10.% APU objects Russia and China as two strategic markets & have already started
7,000,000.
5.%
negotiating with reputable sales partners in the region due to its geographic
5,000,000. proximity. According to Tridge, nearly all of Mongolia’s current alcohol export
3,000,000. 0.% demand comes from China and recent figures indicate that China accounted for
over 96% of Mongolia’s beer exports and a similar proportion of the country’s
1,000,000. -5.% liquor exports. The company is willing to export its premium vodka brands
including Chinggis to Russia, and beer to China.

Exports (million USD)

Exports of goods growth YoY
4
Source: International Monetary Fund, World Bank University of Finance and Economics
 Figure 19. TOP LOCAL BREWERS IN CHINA
Even though APU’s alcohol export business currently makes up a relatively
(market cap in million USD)
smaller portion of the company’s overall operations compared to the domestic
alcohol business (Figure 8), the company will have great opportunity to benefit
Tibet Galaxy Science and… 0.16 from the larger Asia Pacific consumer base if it can accomplish its long-term
Lanzhou Huanghe Enterprise 0.21 goal of growing its exports.
FuJian YanJing HuiQuan… 0.29
Guangzhou Zhujiang Brewery 2.06 I. Increasing demand for premium beer offerings in China
Beijing Yanjing Brewery 2.7 The Chinese beer market is fairly consolidated with the top 5 players owning
Chongqing Brewery 3.2 75% of the 49 billion liters market. It is broadly classified into local mass-
Tsingtao Brewery 8.9 produced beer (Figure 19) and the premium foreign beer segments. The
China Resources Beer 15 Chinese alcoholic beverage market volume is 99% dominated by baiju, the
Source: Refinitiv traditional drink. However, the remaining one percent, consisting of vodka,
whiskey and other premium liquors, is still a large market estimated to be 35%
Figure 20. CHINESE BEER MARKET of the global premium alcoholic beverage market. In addition, China is the
largest beer market in the world with an annual consumption of 45.7 billion
2022F 730.6
45 liters, twice as much as the US. Consumers gradually tend to choose beer with
2021F 698.1
45.2 high quality instead of low prices (Figure 20). The increasing demand for more
2020F 665.8
45.5
633.9
premium beer offerings in China is being driven by the country's young, middle-
2019F 45.6
602.8
income consumer segment. Tier-one cities, consisting of Beijing, Shanghai and
2018A 45.6 Tianjin, offer the greatest volume of this consumer group, as well as large
0 200 400 600 800 numbers of bars and restaurants for the distribution of more premium alcohol
Total value ( in billion CNY) offerings. The market is expected to grow annually by 2.5% (CAGR 2019E-
Total volume (in billion liters) 2024F). Premium beer companies including APU have a huge opportunity to
exploit the growing demand for high-quality foreign beers in the Chinese
Source: Euromonitor Internationals
market since beer imports have been growing by double digits over the last 5
Figure 21. PORTER’S FIVE FORCES ANALYSIS years.
Threat of II. Consuming less but better: High spirits for Russia’s premium alcohol
substitutes market
5
4 Pushed by increased government regulation, the volume of the market is
Rivalry among 3 Bargaining declining rapidly in Russia. Yet, on the other hand, the spirits market is still
existing 2 power of growing in terms of value. The growing interest in premium spirits is coming
competitors
1
suppliers from a rising middle class. Revenue in the Russian vodka segment amounts to
2,524 million USD in 2019 (-3.8% YoY). The market is expected to grow annually
by 1.4% (CAGR 2019E-2023F). The average per capita consumption stands at
Threat of new
Bargaining 2.2 L in 2019. We believe that APU’s trade and cooperation agreement with
power of Tatspirtprom JSC will have a great impact on the company’s long-term goal. This
entrants
buyers
agreement allows Tatspoirtprom JSC to sell Chinggis vodka to the Russian
1 2 3 4 5 market with official exclusive rights, and APU to manufacture Russian best-
Insignificant Low Moderate Significant High selling Tundra vodka.
Source: Team Analysis
Competitive Positioning
Figure 22. GROWTH SHARE MATRIX
Maintaining local dominance with long-standing customer relations:
RELATIVE MARKET SHARE POSITION
APU is positioned in both back-end and front-end of the product value chain
HIGH since Natur Agro LLC, the subsidiary of APU manufactures spirits. (Figure 23)
+20% According to Porter’s 5 forces analysis (Appendix 4-2), the alcoholic beverage
market is characterized by high regulations and significant capital expenditure
required for manufacturing facilities, thus entry barriers are high. The overall
GROWTH OF MARKET

competitive rivalry is moderate as APU is holding 93% of the beer market, 78%
of the vodka market, 28% and 3% of the dairy products and soft drinks markets,
respectively in 2019Q2. The company operates across different beverage
industry segments, facing mostly per segment competition from local players
and foreign brands (Figure 22). APU dominates in the domestic alcoholic
beverage market with approximately 85% of its revenue from vodka and beer
after the merger. As for domestic dairy products and soft drink markets, Suu
JCS, MonFresh Group, Vitafit LLC and MCS Coca Cola LLC are the main
LOW competitors. Against the local competition, we believe that APU’s long-standing
-20% B2B relationships and operational scale will allow it to maintain its market share
LOW HIGH (Figure 21 & Figure 22). (A more detailed evaluation of competitive positioning
MED 100% of the company, see Appendix 4-5 and 4-6)
0%
50%
Source: Team Analysis

Figure 23. VALUE CHAIN POSITIONING

Support activities Primary activities

Technology
Outbound Marketing and
Development & Procurement Inbound logistics Operations Retailing
logistics sales
Research
Local & foreign
suppliers including Channels of retail
APU

Source: Team analysis

5
University of Finance and Economics
 Investment Summary
Figure 24. APU REVENUE, POPULATION & REAL
GDP GROWTH (2019E-2024F) We initiate our coverage target price of MNT 757.57 offering 22.16% upside
12.00% from its closing price of MNT 620. We believe APU can maintain its highly
10.00% defensive business through solid performance and strong cash flow generation,
8.00% which would further maximize the firm’s value.
6.00%
4.00%
Our investment thesis is founded on the following key pillars (I) Increasing sales
2.00% related to the key macroeconomic indicators (II) Promising outlook influenced
0.00% by successful merger (III) Valuation underpinned by strong cash flow generation
2019E 2020F 2021F 2022F 2023F 2024F (IV) Technical analysis (V) Export growth (VI) Monte Carlo simulation.
Population (+21) Growth GDP Growth
APU Revenue Growth
Increasing sales related to the key macroeconomic indicators
Source: Company Data, Team Estimates According to the IMF, Mongolian GDP growth will average 5% over the next five
years. Based on this outlook, associating with the drinking age population
Figure 25. METHODOLOGY COMPARISON growth (1.35% YoY) and increased market share, we expect sales will grow for
Discounted Relative the following 5 years. Our team believes APU is well-positioned in the market
№ Criteria Cash Flow Valuation to capture positive results in Mongolia, earning a steady a CAGR of 9.79% sales
(DCF) (EV/EBITDA) between 2019E-2024F.
1
Suitable for mature
1 1 Promising outlook driven by the influenced merger
company
The main goals of the merger were to achieve substantial growth, increase
Incorporate business market share, acquire new resources, new technologies, know-how processes,
2 1 0 and especially experienced talents. On the other hand, through the acquisition,
strategy changes
the company also aims to expand its product range to improve the competitive
3
Include all major
1 0 position on a particular set of products by enhancing the seller’s commercial
assumptions network and to exploit the opportunities derived from cross-selling.
Scenarios can built Furthermore, post-merger APU can penetrate new markets and reach new
4 1 0
in potential customers. We expect that the company will continue to use its
Allow sensitivity outstanding level of liquidity to expand its business and to follow its inorganic
5 1 0 growth strategy in order to increase shareholder value and further diversify its
analysis
Reflect diversified business.
6 1 0
revenue source Valuation underpinned by strong cash flow generation
Suitable for for APU is currently underutilizing its plants as the company acquired debt-free
7 analyzing merger 1 0 assets through its recent merger. With sufficient production capacity, we do
and acquisition not expect significant CAPEX in the upcoming 3 years aside from maintenance
expenditures. This would allow the company to generate high growth of free
Total 6 1 cash flow starting from 2020 throughout next 3 years. As a result, APU will be
well-positioned to spend bigger marketing budgets for international sales or
Weight 85% 15% engage in M&A activities to bring more growth. We are considering additional
CAPEX from 4th year as it will be discussed further below. Overall, increased
Source: Team Estimates free cash flow is expected to bring outstanding value to APU.
Technical analysis
Figure 26. APU STOCK CANDLESTICK PATTERN In order to support our expectation of an increase in stock price, we identified
a double bottom pattern in the candlestick chart in APU’s stock price. Double
700
bottom pattern entails two low points forming near a similar horizontal price.
The nearly 3 months’ duration between the two lowest points indicates a
600 greater probability of successful uptrend candlestick pattern. Even though the
double bottom pattern is followed by a minor downtrend, it signals the
beginning of a potential uptrend. Therefore, we expect an upside in price based
500 on technical analysis (Figure 26).
Export growth is expected to show outstanding results to support the
400 company
We believe the recent transaction is key to APU’s export expansion, as the
company seizes the great opportunity to benefit from the larger Asia Pacific
consumer base. We view export will weigh 7.21% of total income by 2024F,
Source: MSE showing a strong CAGR of 61.15% (2019E-2024F) as one of the key drivers of
the overall sales increase (Figure 4).
Figure 27. MONTE-CARLO SIMULATION Monte Carlo Simulation
89.80% probability We used two variables, including historical stock price and terminal growth rate
of BUY recommendation to run Monte-Carlo simulation. This model was utilized to analyze a range of
possible outcomes for changes in key modeling assumptions on the 12-month
Target Price of target price. We simulated 100,000 outcomes, 89.80% of which support the
757.57 MNT
buy recommendation, 10.08% support a hold recommendation, and 0.12%
support a sell recommendation. Hold recommendation range is within ±20%
from a mean value of MNT 748.05. The mean target price of the simulation was
MNT 748.05, with a median target price of MNT 749.56. The standard deviation
of the simulated price was MNT 38.75. From the simulated prices, only 1.39%
was lower than the current market price and the remaining 98.61% were
higher than the current market price (Figure 27, Appendix 5-6).
580
600
620
640
660
680
700
720
740
760
780
800
820
840
860
880
900

Source: Team Estimates

6
University of Finance and Economics
 Valuation
Figure 28. VALUATION APPROACH
We have estimated that APU’s 12-months target price is MNT 757.57 based on
Models Weight Price (MNT) two valuation methodologies. These are the discounted cash flow model (DCF)
and relative valuation (EV/EBITDA) methods. We attributed weights of 85% and
Discounted Cash Flow 85% 633.63 15% respectively for each methodology to derive our price target. Assigning a
Relative multiples 15% 1461.35 majority of the weights to the DCF method was based on our criteria list
Target Price per Share 100% 757.57 (Figure 25). The DCF method was a suitable valuation for APU because of its
diverse revenue sources and recently changed business structure. We believe
Source: Team Estimates that assigning 15% weight to the relative valuation method was justifiable since
the method doesn’t incorporate APU’s cash flow potential and lacked in terms
Figure 29. SALES GROWTH BY SEGMENT of ideal comparable companies.
60.00% Intrinsic valuation
50.00% Free Cash Flow to Firm (FCFF) model was selected due to the stability of the
40.00% cash flows, as it expected to increase over time. In addition, the FCFF model
30.00% allows us to include company’s industry outlook, historical positioning and
20.00% management guidance. We forecasted the company’s value using a two-stage
10.00% growth model. The first phase is based on detailed forecasted values up to
0.00% 2024, and the second phase of a perpetuity growth rate of 6.86%.
2019E 2020F 2021F 2022F 2023F 2024F Revenue modeling
Vodka Beer Dairy Other
The first step of our forecast started by calculating the weights of each
Source: Company Data, Team Estimates segment in total revenue. We assume that the share of the revenue from the
export will be 7.21% by 2024F. APU is in the early-stage of the export market,
Figure 30. EXPECTED MARKET SHARE while the weights of imported goods are expected to decrease. The total
100% revenue will be defined by the domestic revenue as we estimated the
80%
predicted domestic revenue percentage in total revenue (Appendix 5-2).
60% Domestic revenue modeling
40% Revenue growth for APU is determined by I) Volume growth that incorporates
20% the growth of market share and production level of the country II) Price growth
0% related to the inflation rate (Figure 31).
2019E 2020F 2021F 2022F 2023F 2024F Volume Growth Assumption: Each segment’s growth was forecasted in two
phases: the first phase is derived from the multiple regression analysis; the
Vodka Beer Dairy Soft Drinks
second phase of growth rates are based on the company’s strategy and
foreseen market shares of the segments.
Source: Team estimates According to our multiple regression analysis, Mongolia's domestic production
growth looks promising based on the projected input of Mongolian
Figure 31. REVENUE DECOMPOSITION macroeconomic indicators (Appendix 5-2).
II. Market share: APU is currently in a dominant position in the alcoholic
Revenue beverage industry, and we expect APU won’t exceed 95% of domestic market
growth share in the beer segment while maintaining the current market spot in the
vodka section. Water and soft drink segment is highly competitive, so its
market share is only 3%. APU controls 28% of dairy market. We expect the
market share will grow at a healthy rate, considering the strong
Price ↑ Volume ↑ competitiveness in the dairy section (Figure 30).
III. Price growth assumption: Inflation is the core driver of the price increase.
We believe each segment of beverage prices would respond differently to
inflation. Thus, we estimated a 5-year historical CAGR of each segment’s
Market Production
share ↑ ↑
average price and compared to the current inflation rate. We assume this ratio
will maintain throughout our forecasted period.
Source: Team estimates
The combination of volume growth and the price increase will result in CAGR of
12.98% - Dairy, 8.45% - Vodka, 10.39% - Beer, 10.96% - Soft drinks in 5-year
Figure 32. CAPEX (MN MNT) revenue (Figure 29).

40,000.00
CAPEX
To better estimate an accurate level of CAPEX, we split the forecasted period
30,000.00 into two tiers. The first tier spans between 2020-22 as capital expenditures will
20,000.00
be primarily focused on the expansion and maintenance of the PP&E. Over the
recent years, APU has invested significantly in dairy and other brewery plants.
10,000.00 In our forecast, we took into consideration of the CAPEX pattern. It is expected
that in the next 3 years, there won’t be any capital investment. We expect
0.00 APU’s CAPEX growth will be 9.44% with the steady pace. The second tier is
2019E 2020F 2021F 2022F 2023F 2024F adjusted for the spending on purchase of new equipment for brewery plants,
costing approximately MNT 35 Billion as production will exceed the capacity
Source: Company Data, Team Estimates (Figure 32 & Appendix 5-4).
Figure 33 TERMINAL GROWTH RATE
Terminal growth rate
(1) 4.74%
(2) 9.39% To calculate the terminal growth rate we considered (1) the long-term real GDP
(3) 6.45% growth projections of the APU’s main geographical markets in particular
Mongolia, Russia and China, (2) Mongolian household consumption growth, (3)
Terminal Growth rate 6.86% alcoholic beverage production volume. As a result, we see the terminal growth
Source: World bank, IMF, NSO data, rate as 6.86% (Figure 33 & Appendix 5-5).
Team Estimates

7
University of Finance and Economics
 WACC Assumption
Figure 34. WACC ASSUMPTION
Risk Free rate 11.60% We calculated the cost of equity using the Capital Asset Pricing Model. We
Beta 0.98 utilized a weighted average government bond yield of 11.60% to compute risk-
Equity risk premium 13.00%
free rate. Beta was estimated at 0.98 by running a linear regression of APU’s
stock against the MSE index over 5-year weekly data and adjusted the beta
Cost of equity 24.35% according to the Blume methodology. The expected equity risk premium was
Cost of debt 0 found to be 13% according to the Damodaran study, which resulted in 24.35%
Weight Equity 100% cost of equity. By 2020, APU will be a debt-free company as it would be
Weight Debt 0 completely paid off all the major long term debts. We assume the company
won’t raise additional debt in 5-years forecasted period as the cash flow from
WACC 24.35% operations are sufficient to fund the CAPEX and working capital needs, thus,
Source: ERP table by Damodaran, Team Estimates we arrived at 0% of the cost of debt (Figure 34 & Appendix 5-3).
Figure 35. RELATIVE VALUATION PEERS TABLE
(MARKET
Dividend
COMPANY COUNTRY TICKER CAP USD P/E P/BV P/S P/CF EV/EBITDA EV/Sales
yield
mm)
PT Delta Djakarta Tbk Indonesia DLTA:IJ 376.15 15.45 4.07 5.85 15.25 0.04 9.83 5.04
Namibia Breweries Ltd Namibia ZWC:PL 711.30 25.06 6.14 3.71 27.91 0.02 13.82 3.96
Caribbean Producers Jamaica
Jamaica JM:CPJ 39.60 17.14 1.67 0.37 8.20 0.01 10.43 0.65
Limited
Paradise beverages (FIJI) Limited Fiji SPSE: PBF 154.67 12.66 1.12 1.46 11.03 0.03 7.60 1.64
Multi Bintang Indonesia Tbk PT Indonesia MLBI:IJ 2412.10 27.35 28.69 9.18 23.72 0.03 18.01 9.57
Guinness Ghana Breweries Ltd Ghana GH:GGBL 94.73 22.57 1.83 0.86 6.82 - 6.41 1.17
APU Mongolia MSE: APU 224.27 13.37 1.49 1.42 7.01 0.08 7.62 1.56
Mean 20.04 7.25 3.57 15.49 0.03 11.02 3.67
Median 19.86 2.95 2.58 13.14 0.03 10.13 2.80
Source: Peer company Data, Team Estimates Relative Valuation
Figure 36. EBITDA Multiple Valuation We opted to present an additional valuation method and performed a relative
(MNT MM) valuation analysis using trading multiples in order to support conclusions from
APU EBITDA in 2020 154,112.30 our DCF valuations. We chose peer companies based on 3 criteria; Firstly,
similar revenue source; secondly, similar revenue amount; thirdly, country
Implied EV/EBITDA
10.13 classification by income level (Appendix 5-7). On the vast number of multiples
multiple available, our team has chosen EV/EBITDA due to its effectiveness as
Enterprise Value 1,561,157.59 a measure of value and cash generation. We calculated a median EV/EBITDA
Less: Total Debt 110,083.43 ratio of 10.13. Applying APU’s EPS and EG, this led us to an average target
Plus: Cash and cash price equal to 1461.35, which largely confirms the growth potential of APU
103,804.10 (Figure 35 & Figure 36). Based on relative multiples of peers, APU stock is
equivalents
relatively undervalued (Figure 36).
Equity value 1,554,878.26
Outstanding shares 1,064.00 Scenario and Sensitivity Analysis
Equity value per share 1,461.35 To get a better understanding of possible price outcomes we ran a scenario
Source: Company data, Team Estimates analysis. Our bull case scenario considers an expansionary economy, implying
better-than-expected intake and stable competitiveness in the beverage
Figure 37. Sensitivity analysis
sector, and a well-succeeded transition to the new emerging market,
expanding its business. Yet, our Bear Case Scenario is based on a weak
WACC economy, low prices along with tight competitiveness in APU’s export
Terminal Growth rate

targeted countries (Appendix 5-10).

-1.00% -0.50% 0.00% +0.50% +1.00%
5.86% 650 632 614 598 582
From a DCF point of view, the bulk of value for APU is embedded in the WACC.
We thus ran a sensitivity analysis to assess how our WACC assumptions Price
6.36% 661 642 624 606 590 Target behaves when WACC and the perpetuity growth rate varies. In the
6.86% 672 652 633 616 599 worst scenario, we arrived MNT 582 in DCF analysis, thus weighted target
price will be MNT 713.9.
7.36% 684 663 644 625 608
7.86% 697 675 655 635 617 Financial Analysis
Source: Team Analysis
Revenue growth driven by market conditions
Figure 38. MARGINS APU has shown stable revenue growth in recent years with a CAGR of 4.84%
50% between 2013 and 2017. Revenue growth was dampened in 2016 as a result
of a recession in the overall Mongolian economy. APU recovered from the
40% 2016 recession in 2017, with revenue growth of 12.4%. Revenue skyrocketed
30%
by 84.8% in 2018 due to a merger. Recent revenue growth has been driven by
past successful expansion plans which included major acquisitions designed to
20% support increases in APU’s regional market penetration. We estimated the
sales by business segment for the next 5 years. The business segments with
10% the most growth will be the dairy and beer segments, with 5-year CAGRs of
0%
12.98% and 10.39% respectively. Growth in these areas will be driven by
increasing demand for dairy products and expanding export operations. By
2022, growth of APU’s vodka segment will slow to 8.57% due to shifting
Gross profit margin Operating profit margin consumer preferences. The company will offset the slowdown by increasing
EBITDA margin Net profit margin exports, which are expected to account for 7% of sales in 2024F based on
opportunities in the Russian vodka market.
Source: Team Analysis 8
University of Finance and Economics
 Figure 39. KEY FINANCIALS
2018A 2019E 2020F 2021F 2022F 2023F 2024F
Revenue growth (%) 84.80% 11.43% 10.56% 9.84% 9.50% 9.57% 9.49%
EBITDA margin (%) 25.52% 27.31% 28.92% 30.02% 30.65% 31.29% 31.92%
Net income margin (%) 11.15% 12.79% 14.00% 14.82% 15.29% 15.77% 16.25%
EPS (MNT/shares) 45.38 57.94 70.11 81.54 92.12 104.08 117.41
ROE (%) 11.39% 12.90% 13.99% 14.45% 14.46% 14.47% 14.29%
ROIC (%) 10% 12% 13% 14% 15% 15% 16%
Cash return on equity(%) 22% 20% 23% 23% 23% 23% 22%
Fixed asset turnover 1.65x 1.75x 1.75x 1.74x 1.74x 1.74x 1.74x
Current ratio 2.77x 3.01x 3.29x 3.63x 3.97x 4.31x 4.80x
Source: Team estimates Operating efficiency demonstrated by cash conversion cycle (CCC)
Figure 40. HISTORICAL FINANCIAL LEVERAGE APU’s average number of days of payables (84days) is higher than its peers
AND INTEREST COVERAGE (45days), providing an opportunity for excess cash on hand which could be used
for short term financing activities. Also, APU’s 33 days of sales outstanding
15
13.6 being lower than of peers’ 39 days indicate APU’s favorable position in
converting its credit sales into cash. Despite the higher days of inventory on
10 hand, APU's CCC is lower than its peers by 23 days (Appendix 6-2). We expect
6.48 CCC's CAGR ratio to decrease by 0.44% in the next 5 years, further indicating
5 1.58 stable efficiency in cash management (Figure 42).
3.77
2.31 2.07 1.56 Favorable profitability performance is driven by sustainable margins
1.28
0
2015A 2016A 2017A 2018A APU has demonstrated a stable EBITDA margin with the 4-year average being
Financial leverage Interest coverage 16% (2015A-2018A). The EBITDA margin is expected to grow around 27%-32%
in the next 5 years (Figure 38). This growth results from a percentage cost
Source: Company Data, Team Estimates reduction in the COGS and SG&A due to the business consolidation and
reorganization of the company. We assume that the percentage of COGS as a
Figure 41. ROIC AND EPS GROWTH RATE part of revenue would reduce by 3%. Cost management efficiencies across the
80% company will reduce operating expenses percentage as a part of revenue by
saving 11 billion MNT in the next 5 years (Appendix 1-1). We believe APU can
60% maintain its strong margin through supporting management’s ability to achieve
40% targeted sales growth while simultaneously demonstrating cost management.
20% High capacity to fund venture capital supported by strong solvency
0%
ratio
2018A 2019E 2020F 2021F 2022F 2023F 2024F APU has completely paid off its two USD denominated debt, costing APU for an
annual payment of approximately MNT 69 Billion in 2018A. In our analysis, we
ROIC EPS growth rate expect APU to remain interest bearing debt-free by 2020, enjoying a burden-
free of interest payments. The company’s interest coverage increased to 13.6
Source: Team estimates, Team Analysis in 2018 from 6.48. APU’s financial leverage in 2018A was 1.28 proving the
point of the lesser reliance on debt as a source of financing (Figure 40). APU is
Figure 42. CASH CONVERSION CYCLE expected to accumulate a large sum of cash because net cash flow from
operating activities is assumed to show a CAGR of 15.4% in the next 5 years
200 200 (Appendix 6-1). As a result, APU won’t experience any solvency risk like many
debt-heavy firms usually do during an economic slowdown.
100 100 Excellent outlook for growth in EPS and ROIC
Basic EPS rose by 101.5% between 2017-2018. We expect EPS to continually
0 0 increase with 20.93% CAGR 2018A-2024F due to its improving operational
efficiency. Furthermore, return on invested capital is assumed to show stable
growth, reaching 16% by 2024F, marking the company’s positive outlook on a
higher return (Appendix6-1).
Days of sales outstanding
Days of inventory on hand A steady increase in ROE
Number of days of payables
Cash conversion cycle Despite a slight decrease in total asset turnover and financial leverage, ROE of
Source: Company Data, Team Estimates
APU is expected to increase from 11.3% in 2018 to 14.23% in 2024 (Figure43).
The main cause of this increase resulted from the net profit margin increase.
Figure 43. DUPONT ANALYSIS Net profit margin is expected to increase due to an increasing amount of
revenue over forecasted years 2019E-2024F. On the other hand, financial
250.00% 20.00% leverage, another important driver for ROE is assumed to be lower in upcoming
200.00% years.
15.00%
150.00%
10.00%
Investment Risks
100.00%
5.00% Market risk
50.00%
0.00% 0.00%
Economic slowdown (MR1): Although APU has some internal policies to
mitigate economic slowdowns, the country's economic uncertainty would
2015A
2016A
2017A
2018A

2020F
2021F
2022F
2023F
2024F
2019E

impact its business. In particular, the economic recession due to slow mineral
Net profit margin
demand from China could adversely affect the country’s growth, resulting in
Total asset turnover lower revenues for APU. If Mongolia can't remove itself from the Gray list, it
Financial leverage may deteriorate the inflow of foreign investment, hindering the growth of APU.
Return on equity

Source: Team Analysis 9

University of Finance and Economics
 Figure 44. APU RISK MATRIX Currency depreciation (MR2): According to the Bank of
Mongolia, the exchange rate of the Mongolian national
currency against the U.S. dollar weakened by 6.6% (YoY) in
OR3 MR1 the first Q3 of 2019. The NSO mentioned that the
High

depreciation was mainly attributed to higher imports that led

OR2 RR1 MR2 to the outflow of dollars. Currency depreciation’s effect on
the company depends on the currency it uses to conduct
Impact

transactions with foreign suppliers. Moreover, it might

Medium

MR3 OR1 OR4 impact the business’s financial statement through non-
operational losses related to the foreign currency nominated
debt on the balance sheet. In order to mitigate the risk and
losses related to currency depreciation, the company is
Low

working to increase the number of the local supplier as well

as shifting to less volatile currencies for imports which cannot
be replaced by local suppliers.
Low Medium High
Probability Changing behavior of customers (MR3): The preference of
consumers is regularly shifting in a highly competitive market,
Source: Team Analysis requiring APU to continuously innovate new products to
Figure 45. APU RISK MITIGATION maintain its market value. The global trend of alcohol
Risks Mitigation consumption is decreasing due to consumers are becoming
Market Risks
more health-conscious. APU has strengthened its brand
value and innovation through a merger with Heineken and
The brink of a expanded marketing and sales capabilities. A significant
Liquidity management
macroeconomic crisis amount has been invested in APU in anticipation of Asian
The decline of market expansion.
the currency’s value relative Shift to less volatile currencies Operational Risk
to foreign currencies
Management abilities (OR1): APU's human capital has
Changes in consumer increased twice as much after the merger. Although APU has
Investments to improve products set up automated manufacturing plants, the company still
consumption
Operational Risks relies on the skills and ability of its people. If APU may not be
Talent identification and
successful to manage the two big company’s workers
Management ability together, it may threaten its company's human capital
leadership development efficiency and its targeted returns. The human resource
Operational safety ISO 9001, ISO 14001, FSSC 22000 management is focusing on leadership, talent, functional
competencies and critical capabilities, and inclusion and
Supply chain risk Long-term procurement contracts diversity across the organization. APU also ensures that they
have robust talent identification and development programs
Corporate Governance risk Independent consultants in place, alongside the critical leadership development
interventions that are required to lead in a competitive,
Regulatory Risks complex and increasingly digital world.
Government policy Low cost, high-margin products
Source: Team Analysis

Operational safety (OR2): A manufacturing company is committed to providing a safe workplace for all employees and
contractors. Incidents and accidents may happen in the producing brewery, supply chain and along the route to market,
leading to all levels of injuries. Moreover, the food industry directly relates to the customer’s health and safety thus required
to follow certain standards. Failure to safety and quality management might lead to a company’s brand reputation, the
efficiency of human capital, furthermore net sales. APU is the first Mongolian company that introduced an ISO 9001 Quality
management system, ISO 14001 Environmental management system, and FSSC 22000 Food safety management systems
together. Those systems aim to enhance global standards, organization, and processes and strengthening safety leadership
and safety behaviors.

Supply chain risk (OR3): Disruptions in the supply chain could lead to the inability to deliver products to customers,
revenue loss and brand damage. Significant changes in the availability or price of raw materials, commodities, energy, and
water may result in a shortage of those resources or increased costs. Business continuity plans have been developed for
APU’s key brands in all key markets, and back-up plans are in place in operating companies. Business resilience is further
strengthened through ownership of several strategic malteries, long-term procurement contracts, water management plans
and central management of global insurance policies. Taking a long-term approach, APU has included water stewardship to
protect water resources and sustainable sourcing in the priorities of its Brewing a Better World sustainability programmed.

Corporate Governance risk (OR4): Ownership of the company is concentrated with Shukhlai Group being the biggest
shareholder with 50.84% of the total share. To mitigate possible nepotism risks, APU appoints independent consultants to
evaluate the fair value of company transactions.
Regulatory risk
Government Policy (RR1): The alcoholic beverage producers are under scrutiny in many markets. The company operates
under strict restrictions and regulations such as bans on alcohol advertisement and marketing. The most prominent risk that
APU faces is the uncertainty around rules and regulations that the Government of Mongolia may enforce in areas of taxes
and duties on alcoholic beverages. These could lead to lower overall consumption and net sales income of the company. Our
team concludes that APU can minimize the tax burden on customers through optimizing costs and introducing a new, high-
margin product. Moreover, effective scenario analysis would allow the company to engage proactively on political risks.

10
University of Finance and Economics
Table of Contents
APPENDIX 1: COMPANY FINANCIALS
• Appendix 1-1: Income Statement
• Appendix 1-2: Cash Flow Statement
• Appendix 1-3: Balance Sheet
APPENDIX 2: BUSSINESS DESCRIPTION
• Appendix 2-1: Breakdown of subsidiaries
• Appendix 2-2: Product portfolio
• Appendix 2-3: Supply chain process
• Appendix 2-4: Capacity utilization assumption
• Appendix 2-5: Company historical timeline
• Appendix 2-6: Awards
APPENDIX 3: CORPORATE GOVERNANCE
• Appendix 3-1: APU board of directors
• Appendix 3-2: Key executive management team members
• Appendix 3-3: Threat to minority shareholders
• Appendix 3-4: Social responsibility and sustainable practices
• Appendix 3-5: Corporate governance assessment
APPENDIX 4: INDUSTRY AND COMPETITIVE POSITIONING
• Appendix 4-1: Key historical economic figures
• Appendix 4-2: Porter’s five forces analysis
• Appendix 4-3:Mongolian macroeconomic assumption
• Appendix 4-4: SWOT analysis
• Appendix 4-5: Value Chain Positioning
• Appendix 4-6: Competitive positioning by segment
• Appendix 4-7: Herfindahl-Hirschman Index
APPENDIX 5: VALUATION
• Appendix 5-1: DCF valuation
• Appendix 5-2: Revenue growth assumptions
• Appendix 5-3: Cost of equity
• Appendix 5-4: CAPEX
• Appendix 5-5: Terminal growth rate
• Appendix 5-6: Monte-Carlo simulation
• Appendix 5-7: Criteria for peer company selection
• Appendix 5-8: M-Score
• Appendix 5-9: Altman Z-Score
• Appendix 5-10: Scenario Analysis
APPENDIX 6: FINANCIAL ANALYSIS
• Appendix 6-1: APU financial ratios
• Appendix 6-2: Peer financial ratios
LIST OF ABBREVIATION
ABBREVIATION STANDS FOR ABBREVIATION STANDS FOR
APU Absolute Pure Unique CEO Chief Executive Officer
JSC Joint Stock Company USD United States Dollar
MSE Mongolian Stock Exchange MNT Mongolian Tugrik
DCF Discounted Cash Flow NSO National Statistical Office
Ministry of Food, Agriculture and Light
EV Enterprise Value MOFA
Industry
Earnings before interest, taxes, depreciation, and
EBITDA IMF International Monetary Fund
amortization
PV Present Value CNY Chinese Yuan
FCFF Free Cash Flow to Firm B2B Business to Business
MM Million B2C Business to Consumer
EPS Earnings per Share NI Net Income
ROE Return on Equity CAPEX Capital Expenditure
Selling, General and Administrative
YoY Year over Year SG&A
Expenses
LLC Limited Liability Company WACC The Weighted Average Cost of Capital
PTE.LTD Private Limited Company P/E Price to Earnings Ratio
ISO The International Organization for Standardization P/BV Price to Book Value Ratio
SKU Stock Keeping Unit P/S Price to Sales Ratio
COGS Cost of Goods Sold FSSC Food Safety System Certification
M&A Mergers and Acquisitions ROIC Return on Invested Capital
CAGR Compound Annual Growth Rate P/CF Price to Cash Flow Ratio
APAC Asia-Pacific GDP Gross Domestic Product
1
University of Finance and Economics
11
 Appendix 1: Company Financials
Appendix 1-1: Income Statement
In MNT million 2015A 2016A 2017A 2018A 2019E 2020F 2021F 2022F 2023F 2024F
Revenue 210,111 208,055 234,039 432,498 481,948 532,838 585,261 640,853 702,155 768,796
Dairy segment 22,123 21,547 15,821 38,395 44,486 50,551 57,093 64,094 72,490 81,897
Vodka segment 91,231 88,733 89,707 199,950 220,077 240,544 261,166 282,367 305,303 330,118
Beer segment 86,332 83,732 101,620 184,454 206,474 229,552 253,473 279,395 307,752 338,425
Others product segment 5,752 6,123 4,583 9,698 10,910 12,191 13,528 14,997 16,609 18,355
Cost of revenue 146,598 142,013 165,026 248,689 274,256 300,000 325,935 352,920 382,262 413,639
Gross Profit 63,513 66,043 69,013 183,808 207,692 232,837 259,325 287,933 319,893 355,157
Selling, general and administrative
(26,709) (29,078) (33,026) (112,781)(120,294) (127,668)(137,419) (150,472) (164,866) (180,513)
expense
Impairment loss on trade and other - - (117) (605) (627) (693) (761) (833) (913) (999)
receivables
Other income 936 1,070 471 1,935 2,513 2,817 3,138 3,484 3,871 4,238
Other expense (12,277) (28,401) (387) (3,121) (3,478) (3,845) (4,223) (4,624) (5,067) (5,548)
Operating profit 25,463 9,633 35,953 69,237 85,807 103,449 120,060 135,488 152,918 172,335
Finance income 92 170 2,912 1,822 2,030 2,245 2,466 2,700 2,958 3,239
Finance expense (6,759) (6,079) (5,548) (5,092) (5,639) (6,234) (6,848) (7,498) (8,215) (8,995)
Income before income tax 18,796 3,725 33,317 65,967 82,198 99,460 115,678 130,690 147,661 166,579
Income tax expense (7,609) (874) (9,380) (17,725) (20,550) (24,865) (28,920) (32,672) (36,915) (41,645)
Net Income 11,187 2,851 23,938 48,243 61,649 74,595 86,759 98,017 110,746 124,934
Source: Company data, Team estimates
Appendix 1-2: Cash Flow Statement
In MNT million 2015A 2016A 2017A 2018A 2019E 2020F 2021F 2022F 2023F 2024F

Net cash provided by operating activities 40,308 47,757 48,533 92,127 94,835 122,449 139,703 155,919 174,229 194,297
Profit for the year 10,670 2,883 23,938 48,243 61,649 74,595 86,759 98,017 110,746 124,934
Changes in assets and liabilities: (3,515) 1,169 2,026 (4,695) (16,947) (8,088) (8,888) (10,045) (11,231) (12,754)
Adjustment for interest expense (6,796) (5,981) 164 12 - - - - - -

Adjustment for interest income 92 170 - - - - - - - -

Adjustment for tax (5,823) (3,880) 4,521 4,257 4,935 5,972 6,945 7,847 8,866 10,001
One time adjustment: 45,680 53,397 17,884 44,310 45,198 49,971 54,887 60,100 65,849 72,115
Net cash provided by investing activities (4,689) (2,965) 24,451 (11,976) (37,021) (41,831) (43,092) (45,697) (50,390) (54,779)
Acquisition of property, plant and equipment (5,021) (2,904) (5,138) (12,600) (37,021) (41,831) (43,092) (45,697) (50,390) (54,779)
Acquisition of intangible assets - (72) (55) - - - - - -

Proceeds from disposal of property, plant and 355 12 20 679 - - - - - -

equipment
Biology assets change (22) - - - - - - - - -

Net proceeds from sale of investment security - - 34 - - - - - - -

Cash acquired on acquisition of subsidiaries - - 29,536 - - - - - - -

Net cash used in financing activities (38,861) (34,379) (38,625) (70,179) (45,726) (50,025) (57,245) (64,262) (71,415) (60,477)
Repayment of borrowings 38,861 34,756 (38,572) (69,078) (44,498) (48,668) (55,754) (62,629) (69,627) (58,460)
Dividends paid (1) (377) (53) (1,102) (1,228) (1,357) (1,491) (1,632) (1,789) (2,018)
Exchange difference on translating foreign - - 5 2 - - - - - -
operation
Net increase in cash and cash equivalents (3,242) 10,414 34,364 9,975 12,088 30,592 39,367 45,960 52,424 79,040
Cash and cash equivalents at the beginning of 9,947 6,763 16,790 51,009 61,124 73,212 103,804 143,171 189,131 241,555
year
Effect of foreign exchange rate fluctuations on 58 (387) (146) 140 - - - - - -
cash held
Cash and cash equivalents at the end of year 6,764 16,790 51,009 61,124 73,212 103,804 143,171 189,131 241,555 320,595
Source: Company data, Team estimates

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 Appendix 1-3: Balance Sheet
In MNT million 2015A 2016A 2017A 2018A 2019E 2020F 2021F 2022F 2023F 2024F
ASSETS
Current assets
Cash and cash equivalents 6,763 16,637 51,009 61,124 73,212 103,804 143,171 189,131 241,555 320,595
Trade and Other Receivables 19,263 15,156 44,029 34,988 51,132 56,531 62,093 67,991 74,495 81,944
Prepayments and prepaid
5,280 5,218 6,962 10,911 18,958 20,120 21,657 23,714 25,983 28,449
expenses
Income tax receivable 1,635 1,270 95 100 1,985 2,402 2,794 3,156 3,566 3,904
Inventories 56,010 51,637 70,302 76,790 77,138 86,478 96,315 106,941 118,811 131,880
Other current assets 34 48 - - - - - - - -
Total current assets 88,985 89,966 172,396 183,914 222,425 269,335 326,030 390,933 464,409 566,772
Non-current assets
Property, plant and
208,574 189,333 262,404 261,660 289,169 319,703 351,157 384,512 421,293 461,278
equipment
Intangible assets and goodwill 645 554 103,713 96,885 90,731 85,134 80,019 75,330 71,025 65,162
Biological assets 103 83 50 - - - - - - -
Long term investment 905 905 - - - - - - - -
Deferred tax assets 8,450 10,230 6,287 1,290 1,437 1,589 1,745 1,911 2,094 2,293
Total non-current assets 218,677 201,104 372,454 359,834 381,337 406,426 432,921 461,753 494,412 528,732
Total assets 307,662 291,070 544,851 543,748 603,762 675,761 758,951 852,686 958,821 1,095,505
LIABILITIES AND EQUITY
Non-current liabilities
Long-term loans and - - - - - - -
88,080 70,118 29,764
borrowings
Deferred tax liabilities 6,489 244 24,056 22,955 25,579 28,280 31,062 34,013 37,267 40,803
Other payables 1,938 195 217 - - - - - - -
Total non-current liabilities 96,507 70,557 54,037 22,955 25,579 28,280 31,062 34,013 37,267 40,803
Current liabilities
Short-term loans and - - - - - - -
31,863 39,742 39,338
borrowings
Income tax payable 11,582 9,963 3,519 3,900 3,628 3,645 3,660 3,673 3,685 3,504
Trade and other payables 27,433 27,621 55,104 62,498 70,363 78,158 86,192 94,714 104,113 114,524
Total current liabilities 70,878 77,327 97,961 66,399 73,991 81,803 89,852 98,386 107,798 118,028

Total liabilities 167,385 147,884 151,998 89,353 99,570 110,083 120,914 132,399 145,064 158,832
Equity
Share capital 74 74 106 106 106 106 106 106 106 106
Share premium - - 338,095 338,095 338,095 338,095 338,095 338,095 338,095 338,095
Merger reserve - - -112,796 -112,796 -112,796 -112,796 -112,796 -112,796 -112,796 -112,796

Revaluation reserve 80,695 80,653 78,756 102,499 102,499 102,499 102,499 102,499 102,499 102,499
Foreign currency translation
- - 5 -7 - - - - - -
reserve
Retained earnings 65,348 62,458 87,044 124,766 174,557 236,042 308,401 390,651 484,121 607,037
Equity attributable to owners
146,117 143,185 391,210 452,664 502,461 563,946 636,306 718,555 812,026 934,942
of the Group
Non-controlling interest 0 0 1,643 1,731 1,731 1,731 1,731 1,731 1,731 1,731

Total equity 146,117 143,185 392,853 454,395 504,192 565,678 638,037 720,286 813,757 936,673

Total liabilities and equity 313,502 291,070 544,851 543,748 603,762 675,761 758,951 852,686 958,821 1,095,505

Source: Company data, Team estimates

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 Appendix 2: Business Description
Appendix 2-1: Breakdown of subsidiaries
№ Company name Founded
1 Mongolian Beverage Company Pte.Ltd
2 SBB LLC
4 MCS APB LLC
5 Natur Agro LLC
6 APU Trading LLC
Description Department Legal
registration
Mongolian Beverages Company Pte. Ltd. produces
2012 vodka. The company manufactures, markets, sells, and Vodka Singapore
distributes branded vodka and spirits in Mongolia.
The leading food and beverage manufacturer of
Mongolia. The core business of SBB is the production of
1973 top grade spirits from wheat grain. Since its Vodka Mongolia
establishment, the company has been supplying
premium spirits throughout the country.
MCS Asia Pacific Brewery brewing premium quality
2005 beers including Tiger and Sengur. The plant has the Beer Mongolia
capacity to produce 60,000 bottles of beer per day.
Natur Agro LLC is a fully automated distillery with a daily
2012 production capacity of 32,500 liters alpha-grade spirit. Vodka Mongolia
The company is equipped with modern high quality
German technology.
APU Trading LLC has been responsible for distribution of
2007 APU products by employing a highly skilled sales Marketing Mongolia
management team. and sales

7 Grand LLC 2012 Grand LLC has been responsible for distribution of APU Marketing Russia
products in the territory of the Russian Federation and sales
8 APU Dairy LLC 2017 APU Dairy LLC conducts milk and dairy production and Dairy Mongolia
sales.
9 Chinggis Khaan International Limited N/A N/A Vodka United
Kingdom
Source: Company report

Appendix 2-2: Product portfolio

Segment Description Brands
APU is producing 15 different brands of vodkas and high premium alcohols, Chinggis Khaan, Soyombo, Eden, Evok,
controlling majority of domestic alcoholic market share with generating 78% of Velvet, Aurug, Bolor, Arkhi, Chinggis,
Vodka
market. Vodka segment has well-established and highly recognized brands with Titem, Taiga, Ulaanbaatar, Kharaa, Yrool,
the oldest trademarks dating back to 1960’s. Altan turuu, Sarkhad
Heineken, Kaltenberg, Tiger, Bliss,Altan
APU produced variety types of lager beers with different bottling lines such
Beer Gobi, Niislel, Borgio, Seruun, Sengur,
glass, aluminum can and PET bottles.
Legend
The company has started its dairy sector back to 2006 with Swedish Tetra Pak
Dairy packaging. It collects raw milk from individual farmers to produce final products Sain, Deej, Maamuu, Pure Milk
such as fresh milk, yogurt and sour cream.
Soft drinks unit produces 5 brands including bottled pure water, which is the
APU water, Terelj, Selenge, Maamuu,
Soft Drinks most important product in this category, sparkling water, fruit juices and
Frutta
traditional soda drinks
Mast-Jagermeister se, Gruppo Campari,
APU imports high valued brands such as Jagermeister, Wild Turkey, Campari, Aperol, Cinzano, Minami Alps, Glen
Importing Goods
Aperol, Cinzano, Heineken. Grant, Grand Marnier, Espolon, Appleton
Estate, Bulldog
Chinggis Khan, Soyombo, Evok, Bolor,
APU’s main export markets are located in China and Russia. APU currently also
Chinggis, Arkhi, Altanturuu, Chinggis khan
Exporting Goods exports it’s particular vodka and beer brands to other countries including South
beer, Kaltenberg, Altangobi, Borgio,
Korea, Japan, and various European countries.
Niislel, Legend, Seruun, Sengur,
Source: Company report
Appendix 2-3: Supply chain process The company promotes responsible drinking to
consumers and carry out its sales in accordance
with international and national laws.

FULLY AUTOMATIC LOGISTIC CENTER

Raw materials are mainly
The capacity of 12 story, steel
from local suppliers
constructed, automated warehouse
whereas packages are
can store 9240 pallets of packaged
mainly from foreign
products. Directly pulls the finished
suppliers.
products from the plant conveyer &
stores it under quality control.
Source: Company report 4
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APU has an advanced supply chain management system which adheres to international standards. It undertakes regular audits
of its suppliers which drives improvements in risk management standards throughout the supply chain in Mongolia. The
company itself is subject to audits by its own customers to evaluate that the company operations remain at the exacting
standards required by these customers. The ESDD identified that the current performance in regard to environmental and
health and safety risk management are operating at a high level, in line with the Bank’s requirements, and that the company
plans to apply these standards to the planned investment program.
Appendix 2-4: Capacity utilization
Current Capacity
Capacity
Facility Description Utilization
(max/month)

The vodka plant is now a computer microprocess-controlled factory equipped with leading 18-20 million
Vodka Plant 63.00%
manufacturers’ equipment from Germany, Austria and Italy. liters

APU ventured into beer production with the guidance from expert brewers from
85.00%
Brewery Czechoslovakia. In 2013, the brewery underwent a complete renovation of building, lines, 75 million liters
equipment and technology and was fully equipped with Krones equipment from Germany.
The soft drinks plant is equipped with fully automatic machines and equipment
manufactured by world’s leading firms such as Klinger (Austria), Kosme, Gernep and Famix
Water and
(Germany) and Samsa Pack (Italy). In 2012, the production capacity of the plant quadrupled 50-60 million 62.86%
soft drinks
with the joint implementation of a new PET filling line project with KRONES company in liters
plant
Germany. The plant filters and purifies ground water with 4-stage filters by a water filtration
system supplied by Grunbeck company in Germany.
Dairy plant is equipped with fully automatic manufacturing equipments including GEA
54.47%
Dairy plant (Germany) and packaging machines such as Tetra Pak, Ecolean (Swedish) Elopak and Cup 45 million liters
filler (Japan). The plant is designed by European Milk Processing Standards (EHEDG)
Source: Company report

Appendix 2-5: Company timeline (past 5 years)

A modern distillery plant “Natur Agro”

Repaid long-term debt
equipped with German equipment and A brand new dairy plant is put into
worth $94M, before the
technology, with computerized control operation with equipment supplied by the
maturity date due to
system was accepted by the state world leading German GIA (GEA)
transaction.
inspection commission.
2009 2014 2018

2013 2017
Fully automated “APU logistics”
center with advanced warehouse Spin-off APU DAIRY LLC
technologies was established.

Source: Company report

Appendix 2-6: Awards ( 2016-2018)

2018 2017 2016
Corporate Governance
International Spirits challenge 2018 Red Dot Award 2017 Development Center of Mongolia,
MSE, FRC
Vodka Wheat Standard-Gold (VIVA Mongolia) Winner of Communication Design (Velvet) National Leading Accountant
Cathay Pacific Hong Kong
Vodka Wheat Standard-Silver (Sarkhad Alfa) Bloomberg Awards 2017 International (Wine and Spirit
Competition)
Vodka Wheat Super Premium-Silver (Velvet) Best management practices Arkhi Export Limited Edition
Vodka /Gold Winner/
Vodka Wheat Super Premium-Silver (EVOK) Mongolian National Chamber Of Commerce Chinggis Khan Vodka /Silver
And Industry Winner/
Vodka Wheat Super Premium-Silver (Chinggis Khan) Top 100 companies Alufoil Trophy-2016
Monde Selection Ministry of Labor and Social Protection Best innovation
Silver award (Sengur beer) Best employer Mongolian National Chamber Of
Commerce And Industry
The Asia Marketing Excellence Award Asian Productivity Organization Top 100 companies
APU dairy national winner marketing 3.0 award Asian model organization with efficient Asian Productivity Organization
energy conservation
Ministry of Food, Agriculture and Light Industry Social Insurance General Office Asian model organization with
efficient energy conservation
Best import substitute product Best Social Insurance Fee Paying
Employer of the Capital city
Source: Company report

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 Appendix 3: Corporate Governance
Appendix 3-1: APU board of directors
Years of
Position Name Other position Career background Education
affiliations
1993-1996: CEO, Shunkhlai LLC
Chairman of the 1997-2008: CEO, Shunkhlai Group LLC
Chairman of
board at Skytel 2002-2004: Chairman of Board of Directors, APU COMPANY
the Board & Batsaikhan Engineering,
LLC, President of 2002-2004: Chairman of Board of Directors, APU COMPANY 17
Non-executive Purev Management
Shunkhlai Group 2008-Present: President, Shunkhlai Group LLC, and Chairman of
director
LLC Board of Directors, APU company
2010-Present: Chairman of Board of Directors, Skytel LLC
1994-1996: Lecturer, the School of Economics, NUM
1999-2001: Commercial Banking Consultant, Economic Policy
Chief Financial Support Project
Non-executive Batbayar Economy,
Officer of 2002-2012: Senior Banker, European Bank for Reconstruction and 6
director Burentogtokh Finance
Shunkhlai Group Development
LLC 2012-Present: Chief Financial Officer, Shunkhlai Group
2013-Present: Director, APU company
1992-1994: Manager, “Raznoimport” LLC, Russia
1994-2000: London Branch Manager, “Trans-World Aluminum”
Non-executive Sergey Chairman of the Engineering,
Company 6
director Gromov board at Mongol Management
2001-2016: Chairman of Board of Directors, Chinggis Khaan Bank
Daatgal company
2013-Present: Director, APU Company
1992-1994: Senior auditor, PWC
1997-2003: Regional director / Senior Vice President, Royal
Ahold/CRC Ahold company
Executive Chartered
Non-executive Kenneth 2003-2012: Business Development Director, Heineken
Director of 2 Accountant,
director Choo* 2013-2015: Director/Senior director/ Regional director, Heineken
Heineken Asia Management
(APB, Singapore, Indochina, Exports)
Pacific
2015-present: Managing Director, Heineken Asia Pacific
25 Jan 2017-present: Non-executive director, APU company
1994-1996: State budget executive, Ministry of Finance
Non-executive 1996-1998: Finance Director, Mon-Sam LLC Accounting,
Heineken Asia
director, Chief Damdinsuren 2000-2004: Managing Director, Apex LLC Economics,
Pacific project 1
Strategy Yadamdorj* 2008-2017: Finance Director, MBC Marketing
manager
Officer 2017-2018: Executive Director, MBC management
2018-present: Chief Strategy Officer, APU JSC
1995-2000: Associate, J.P Morgan
2000-2002: Chief Operating Officer, Asia Bond Portal
Investment
2002-2006: Senior Investment Manager, Income Partners Asset
Director and
Management International
Non-executive Thomas Chief Executive
2006-2014: Managing Partner Asia, Cube Capital 0 relations,
director Holland* Officer at
economics
Development 2014-Present: Non Executive Chairman, Development Finance
Finance Asia, Asia
2019-Present: Managing Director, TransAsia Private Capital
Limited
General Director 1998-Present: President, BATTOUR TRAVEL COMPANY
of Battur travel 2008-Present: General Director, Ulaanbuudain Ekh Gazar LLC
LLC, Ulaanbudain 2014-Present: Chairman of Board of Directors, BATU DIGITAL LLC
Independent Batbayar
Ekh Gazar LLC 2017-Present: Director, Procon Mining Mongolian-Canadian JV 2 IT, Management
director Ulziidelger
Chairman of the
board at Batu
Digital LLC June 2017-Present: Independent Director, APU Company
1981-1989: Lecturer, Mongolian National University
1989-1991: Advisor, Council of Ministers
1991-1993: Secretary General, State Privatization Commission
Founder of the
Gerelchuluuu 1993-1996: Director, Factory Redevelopment Centre
Independent Open Town non- Engineering,
n Yondon- 1996-2000: Member of Parliament 2
director governmental Economy
Oidov
organization 2006-2008: Senior consultant to Deputy Prime Minister
2010-2012: MD, Office of the President of Mongolia
2012-2016: MD, Office of the Ulaanbaatar city Mayor
March 2017-Present: Independent Director, APU Company

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 1990-2000: Economist, Department Head and Governor of Mongol bank
Chief Executive 1996-2000: Representative of Asian Development Bank to Mongolia
Independent Unenbat Officer of the Bank 2000-2006: CEO, Mongolian Bankers Association Economy,
5
director Jigjid of Mongolia, 2009-2015: CEO, Corporate Governance Development Center Banking
Secretary-General 2015-Present: CEO and Secretary of Mongolian Bankers Association
2013-Present: Independent Director, APU Company
Source: Company report
Note: By annual general meeting of shareholders dated 26 April 2019, directors mentioned above have been elected to serve on the board of directors for
the next 3 years. *- Newly appointed member

Appendix 3-2: Key executive management team members

Years of
Name Position Other position Career background Affiliation Education

Board Member of 1995-2000: Engineer, Sales manager and Senior

Corporate Governance manager, Gobi JSC
Masters of
Chief Development Center 2000-2007: CEO, Erdenet Khivs JSC
Erdenebileg Engineering from
Executive Winner of the Best CEO 2007-2008: Vice director, APU JSC 11
Tseveenjav Technical University
Officer award of the Bloomberg
of Kiev, Ukraine
Awards 2014 2008-present: CEO, APU JSC

1987-1992: Project manager, Carnaud Metalbox,

Singapore
1992-1996: Maintenance manager, Asia Pacific
Breweries, Singapore
1996-1998: Training manager, Myanmar Brewery,
Myanmar
1998-2002: Chief engineer, Cambodia Brewery,
Cambodia
2002-2005: Brewery manager, Myanmar Brewery,
Chief Brewing technology,
Khaw Taik Myanmar
Operations N/A 1 Mechanical
Peng 2005-2008: Technical manager, South Pacific
Officer engineering
Breweries, Papua New Guinea
2008-2014: Supply chain manager, Cambodia
Brewery, Cambodia
2014-2016: Regional supply chain manager, Heineken
Asia Pacific
2016-2017: Supply chain director, AB Heineken
Philippines, Philippines
2017-2018: Supply chain director, MBC, Mongolia
2018-present: Chief Operations Officer, APU JSC
1997-2001: Chief accountant, Ayanga International
LLC
Director of the Mongolian 2002-2003: Chief accountant, Sanaa Trade LLC Accounting,
Chief
Enkhbileg CPA council and a board 2003-2006: Head of Finance Department, APU Economics, Business
Financial 16
Gonchig member of the Mongolian Trading LLC Administration
Officer
Food Industry Association 2006-2008: Head of Finance Department, APU JSC (ACCA)
2008-2009: Chief Finance Officer, Capital Group LLC
2011-present: Chief Finance Officer, APU JSC
Source: Company report
Appendix 3-3: Threat to minority shareholders
After the successful merger with Evergreen Investments LLC, APU JSC's executive
Executive management 1 Insignificant
management team lead by trustworthy CEO became more stronger.
Board members elected by cumulative voting method serve on the board of directors for
Board of directors 2 Low
3 years. 3 out of 9 directors are independent and 6 directors are non-executive.
Since APU's significant shareholders including only 4 companies own 94.45% of the shares
Rights and obligations of
3 Moderate there is a moderate threat for minority shareholders who are not capable to impact
shareholders
decision making processes.
50.84% of APU's outstanding shares belong to one entity Shunkhlai Group LLC means that
Takeover Defense 1 Insignificant
threat of a hostile takeover is insignificant. APU has free float of only 5.55%.
APU makes all information required by applicable laws and regulations and other
important information available on the company website and MSE website and allow its
Disclosure and shareholders to exercise their rights to be involved in management activities of the
2 Low
Transparency Company in an appropriate manner, in accordance with Company law, Securities market
law and Procedures of Regular Public Disclosure of Information by a Security lssue
approved as an annex to the FRC Resolution No.505 dated 12 December 2013.
Source: Company data, Team analysis
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17
 Appendix 3-4: Social responsibility and sustainable practices
Program
Waste management project
Water management project
Pure Tuul campaign
Energy saving program
Save Life project
Source: Company report
Output
Organic wastes from plants, such as rice, malt, yeast, hops, and grain wastes, are delivered to local
farmers and nomads who use it for animal fodder. APU receives ISO 14001 certificate, endorsing global
leadership in responsible waste management practices have implemented a number of programs that
are turning waste into value, rubbish into resource.
To reduce water consumption, APU reuses 15,000 tons of gray water every year.
To reduce the pollution of Tuul River, which is the source of drinking water in Ulaanbaatar, Pure Tuul
campaign has been successfully organized for 4 years. Over the past three years, more than 1,000
workers cleaned up 50 tons of garbage.
Over the past 5 years, APU has saved 180,000kwt /h energy a year.
In 2018, The company invested in Save Life project improvised by JCI Mongolia to repair surgery room of
new infants in National Maternal and Child Health Center.

Appendix 3-5: Governance Assessment

To assess APU’s quality of corporate governance, each committee of 1 The company does not follow the criteria at all
the board is evaluated on a scale of 1 to 4 based on the roles that they
have to achieve and criteria correlate with roles as stated in CFA
Institute Corporate Governance Manual for Investors. The company has 2 The company does not follow the criteria
scored overall 3.18, indicating that the company follows the criteria.
We believe that APU’s quality of corporate governance practices has
3 The company follows the criteria
increased since the company changed the members of the board of
directors and executive management team by annual general meeting
of shareholders dated 26 April 2019. We expect senior management 4 The company has excellent policies on this criteria
appointment from Heineken to assist with the integration process and
overall company long-term strategies.

Criteria Description APU policies Rating

Board members must act independently from the
management and other special interests and should
Independence bring with them a commitment to take an unbiased
approach in making decisions that will benefit the
company, shareowners, and stakeholders.
The strong performance of an entity results from its
interaction with and contributions from stakeholders,
Answerability which include regulators, investors,
employees, creditors, vendors, clients, unions,
government, among others.
The composition, background, and areas of expertise opinions to the Board of Directors and
of existing board members and whether new
The Board of Directors
Potential nominees complement the board’s current portfolio requirements for candidates for the
of talents, including an attempt to bring diverse talent positions of the Board of Directors and
and backgrounds to the board.
3 out of 9 directors are independent and
3
6 directors are non-executive.
Shareholders have the right to attend
the shareholder meeting and vote on all
agenda items proportionally to the
number of their voting shares.
3
Company matter shall be decided by a
supermajority of votes of shareholders
with voting shares present at the
shareholder meeting.
Nomination Committee shall consist of 3
members and be authorized to provide
make decisions on set the qualification
4
executive management and evaluation
criteria for their skills, knowledge,
education, experience etc.

Members of the Board of Directors shall

Board members are elected annually be elected by a shareholder meeting for 2
aterm of 3 years.

Board members shall be elected by

Elections
cumulative voting method. The number
of voting rights shall be determined by
Majority voting in director elections. multiplying the number of shares held 3
by a shareholder by the number of
members to be elected to the Board of
Directors.

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 The Board of Directors meetings shall
Attendance records of board become valid with participation of a
Attendance members at regular and special supermajority of members, and decisions will 3
meetings take effect by a supermajority vote of
members present.

Information is timely disclosed to public and

The company has disclosed any
material related party transactions or
Related Party
commercial relationships with
Transactions
existing board members or board
nominees.
interested authorities in accordance with
applicable legal and information disclosure
3
requirements and importance, The balance
between business interest and transparency
of the company is properly kept

Committees of the board, such as

Board of directors audit, nominations, and
compensation committees all of
The Board of Directors shall consist of 9
which must have at least three
Board Members members; no less than 3 of them shall be 4
members. A majority of the
independent members.
members must be either
independent board members or
nonexecutive board members.

The board is responsible for the

overall strategy of a company and
should consider that the company’s
core purpose, risks and
Responsibility
opportunities, strategy, business
model, performance, and sustainable
development are part of the value
creation process
Average score
All of the board members serving on officer of the company or its related party;
the audit committee are
Independence independent and are considered
financial experts.
Decisions made by the Board of Directors
3
shall be in the form of resolution.
3.11
It is prohibited to select following entities as
an auditor:
-A related party of the company or a
contracted employee or an authorized
-An entity that owns any securities issued by
the Company or its related party, or other 4
property or property rights belong to the
company or its related party
-An entity that has concluded a contract or
transaction with the company on matters
other than audit.

Monitor correctness of financial statements

The company has procedures and and other financial and economic data
Audit committee provisions ensuring that the internal -Monitor and advise on the control and risk
auditor reports directly to the audit management policy
Integrity of the financial committee in the case of concerns -Submit proposals on selection of an auditor
reports or accounting regarding the accuracy or integrity of and determination of audit fee 3
practices the financial reports or accounting - control over and report on large-scale
practices. Similarly, the audit transactions and transactions with conflict of
committee should have unimpeded interests
access to the internal auditor. -inspect and report on specific matters as
assigned by the Board of Directors

Audit committee is responsible for

hiring and supervising the
independent external auditors and
Auditor is recommended by the audit
ensuring that the external auditors’
Selection of Auditor committee, approved by the board of 3
priorities are aligned with the best
directors, and ratified by shareholders.
interests of the company and the
auditor is independent of
management influence

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An appropriately designed compensation
program should create incentives for company
executives to generate sustainable value for
shareowners
Align with the business strategy: The
remuneration committee align its
remuneration system with business
4
strategies focused on creating long-
term growth and shareholder value.

Pay for performance: The committee

Bonuses that reflect recent business
set clear and measurable goals and pay
performance against targeted indicators, such as
salaries and 4
key performance indicators linked to the
bonuses by fairly evaluating the
company’s strategy
performance.
Remuneration The Nomination and/or Remuneration
Compensation
(Compensation) committees of the board shall develop,
disclosures
committee approve and enforce the board
Compensation committee uses consultants to set
performance evaluation system and, at
pay for company executives or whether it relies 2
the end of each reporting year, may
on internal sources, which may be biased
evaluate the performance of each
director and conduct annual
remuneration review.
A portion of executive compensations should be Directors shall receive a fixed base fee.
in the form of equity-based, which may This fee shall be targeted at motivating
engender a short-term mind-set, or vest over a directors to
2
series of years, which may better align the use their skills and expertise in
interests of management with those of the performing their functions and
company and shareowners. encouraging their activities
Average score 3.14
APU's common share has 1 vote for 1
Election One share, one vote
share. 4
Shareholders are entitled to dividends
Right to Dividend 3
subject to the discretion of the board.
Company matter shall be decided by a
supermajority of votes of shareholders
Absence of supermajority vote requirements 4
with voting shares present at the
shareholder meeting.
If necessary, shareholder meetings
may be called by the initiative of the
Board of Directors or shareholders
Right of shareholders to call special meetings 3
owning more than 10% of voting
Shareholders
shares as per rules specified in the
rights
Shareholder Rights Company Law.
Shareholders are entitled to access
corporate books, records, and reports
Information 3
without restrictions

Shareholder's rights, liabilities and

Appraisal rights or the statutory right of a
responsibilities that are not specified in
corporation's minority shareholders to have a
the charter shall be governed by the
judicial proceeding or independent valuator
Company law and Securities Market 3
determine a fair stock price and oblige the
law and regulations adopted by
acquiring corporation to repurchase shares at
respective regulatory authorities and
that price.
the Mongolian Stock Exchange.
Average score 3.33
OVERALL SCORE 3.18
Source: Company Policies and Regulations, CFA Institute Corporate Governance Manual for Investors, Team analysis

Appendix 4: Industry and Competitive Positioning

Appendix 4-1: Key historical economic figures
Economic figures 2014A 2015A 2016A 2017A 2018A
Real GDP growth (YoY) 7.89% 2.38% 1.17% 5.30% 6.95%
Unemployment Rate (%) 7.90% 7.50% 10.00% 10.00% 10.00%
Inflation rate (%) 10.40% 1.90% 1.30% 6.40% 8.10%
Capital Formation (MNT bn) 6351.10 4725.97 4915.10 6869.35 9630.52
Government Expenditure (MNT bn) 8682.19 7781.47 9699.24 8448.08 9448.67
Exports (YoY%) 44.77% -19.96% 3.53% 3.69% -2.03%

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 Appendix 4-2: Porter’s five forces analysis
Alcoholic beverage industry Non-alcoholic beverage industry
Threat of
Threat of substitutes
substitutes 5
5
4
4
Rivalry among 3
Rivalry among 3 Bargaining Bargaining power
existing
existing power of 2 of suppliers
2 competitors
competitors suppliers 1
1

Threat of new Bargaining power

Threat of new Bargaining
entrants of buyers
entrants power of buyers
1 2 3 4 5
Insignificant Low Moderate Significant High
Porter's force Alcoholic Beverage Industry Non-alcoholic Beverage Industry
Moderate High
Wine, whisky, rum and tequila and all kinds of western
Given the saturation of the consumer market
products are the main substitutes for APU's products. Even
Threat of substitutes with diverse players at various price points and
though APU is the front-end company, it does not enter mutual
low switching costs for consumers, the threat of
agreements with its final consumers who can switch among
substitutes is high.
their preferred contrasting products.
Moderate Moderate
The required raw materials needed for production are highly The company has no switching cost since
Bargaining power of
specific and so the market is dependent on specific suppliers suppliers do not offer differentiated products.
suppliers
including 109 local and 37 foreign providers . However, certain products require special raw
materials.
Insignificant High
Switching costs are mostly low and can boost
Main channels of retail which bargaining the price for APU is its buyer power. Because there are several strong
own subsidiaries including APU Trading LLC and SBB Trading competitors including MCS and SUU JCS that
Bargaining power of buyers
LLC. Furthermore, alcoholic beverages are not sensitized to the take up a big share of the market, the APU
price changes attributable to its own uniqueness. Therefore, company has to analyze consumers
the bargaining power of buyers is insignificant. preferences and tastes, and tailors their
products to fit them.
Low Moderate
Barriers to entry into the market are high due to the
regulations of local government, great amounts of capital However, switching costs are low among
Threat of new entrants
requiring to become major player in the market, and existing beverage products that gives a new entrants a
firms that have well established brand reputation among chance to gain potential consumers.
consumers.
Moderate High
After the merger, APU JCS became dominant player by holding
93% of the beer market and 78% of the vodka market. Competition is intense for non-alcoholic
Rivalry among existing
Therefore, the main competitors are foreign imported brands. beverage producers due to the increasing
competitors
Due to increased competition, the company adopted new number of players and low switching cost for
packaging and processing technologies in order to improve consumers.
products in terms of quality.
Source: Team analysis

Appendix 4-3: Mongolian macroeconomic assumptions

Economic figures 2018A 2019E 2020F 2021F 2022F 2023F 2024F
Exports of goods growth (YoY%) -2.03% 0.39% -1.73% 4.75% 4.53% 11.13% 9.42%
Real GDP growth (YoY%) 6.95% 6.25% 4.95% 5.00% 4.95% 5.69% 5.46%
Inflation rate (%) 7.65% 9.03% 8.26% 7.55% 6.95% 7.00% 7.11%
Unemployment rate (%) 10.00% 9.00% 8.10% 7.29% 6.56% 5.95% 5.31%
Consumer Price Index growth (YoY%) 7.65% 8.44% 7.60% 7.53% 6.96% 6.92% 7.12%
General government net lending/ borrowing (%
2.60% 0.60% -0.90% -2.20% -1.90% -2.10% -2.10%
of GDP)
Current account balance (% of GDP) -17% -14.40% -12.40% -11.30% -9.50% -8.80% -8.80%
Current account balance (billion USD) -2.21 -1.96 -1.82 -1.80 -1.61 -1.60 -1.70
Source: NSO
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 Appendix 4-4: SWOT analysis
STRENGTHS WEAKNESSES
•Advanced technology equipment which meet the standards of
European union quality. •Alcohol advertising regulations
•Prominent reputation among costumers thus, loyal consumers •Dairy plant is in a challenger position.
•Dominant player in domestic alcoholic beverage industry •Soft drink plant is in a follower position.
•Sustainable financial performance
•International Know-How
OPPORTUNITIES THREATS
•Expanding domestic market share in each business segments •Foreign exchange risk as raw materials are imported.
•Positive lookout for domestic milk and beer industry •Mongolian economy has entered into gray list.
•Growth in regional market, especially in Inner Mongolia •Upcoming Parliament election may cause inconsistent political
•Increasing household consumption situation)
•Increasing growth in regional wealth •Substitute products, especially in dairy industry
•Instability of legacy
Source: Team analysis

Appendix 4-5: Value Chain Positioning

Support activities Primary activities

Technology
Inbound Outbound Marketing
Development Procurement Operations Retailing
logistics logistics and sales
& Research

APU conducts Total 109 local and APU Trading Malls,

Management 37 foreign APU manufactures packaged goods including dairy LLC, SBB supermarkets,
Productivity project suppliers products, alcoholic beverages and non-alcoholic Trading LLC convenience
to improve including the beverages and supplies to local and foreign retailers. and Grand stores, small
productivity and subsidiary of The company has fully automatic outbound logistic LLC is in retailers (
efficiency of APU, Natur center with the capacity of 12 story, steel charge of about 7000
manufacture and Agro LLC, constructed, automated warehouse that directly pulls sales and retailers), Food
S&OP project manufacturin the finished products from the plant conveyer & marketing of services (e.g.
encouraging g spirits. stores it under quality control. the company's restaurants,
production and sales products. bars, food
planning. chains etc.)
Source: Team analysis
Note: APU’s positioning in the consumer industry value chain is illustrated above. The company is positioned in both back-end and front-end by providing
spirits to front-end products and producing front-end consumer goods. APU’s front-end positioning gives the company bargaining power due to the
company’s long-term consumer relationship and their control over sales and marketing. Even though competitive threats are higher in the front-end of
the value chain as compared to the back-end, We believe that APU’s long-standing B2B relationships and operational scale will allow it to maintain its
market share.
Appendix 4-6: Competitive positioning by segment
Alcoholic Beverage Penetration
Undistilled Drinks Distilled Drinks (Liquors and Spirits)
Company Mongolia China Russia
Beer Wine Hard Cider Vodka Whiskey Gin Brandy Tequila Rum
Ab InBev ֍ ֍ Low Med High
Tsingtao Brewery ֍ ֍ - Med -
Beijing Yanjing Brewery ֍ ֍ - Med -
Carlsberg Group ֍ ֍ Low Low High
China Resources Snow
֍ ֍ - Med -
Breweries
Gem International ֍ ֍ Low - -
Russian Standard Vodka ֍ - - Med
Beluga Group ֍ ֍ ֍ ֍ ֍ ֍ ֍ - - High
APU JCS ֍ ֍ ֍ High - -
Non-alcoholic beverage Penetration
Sour Carbonated Soft Energy
Company Milk Yogurt Water Juice Tea Mongolia China Russia
cream Water drink drink
SUU JCS ֍ ֍ ֍ High - -
MCS Coca-Cola ֍ ֍ ֍ ֍ ֍ ֍ High - -
Gem International ֍ ֍ Med - -
Mon Fresh Group ֍ ֍ ֍ Med - -
Vitafit Group ֍ ֍ ֍ Med - -
APU JCS ֍ ֍ ֍ ֍ ֍ ֍ ֍ Med - -
Source: Company data, Team Analysis
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 Appendix 4-7: Herfindahl-Hirschman Index
Herfindahl-Hirschman Index in 2019

Companies Market share % HHI Marketplace

Vodka APU 93.00% 8649< Highly concentrated

Beer APU 78.00% 6084< Highly concentrated

APU JSC 28.00%

Dairy 3088< Highly concentrated
SUU JSC 48.00%
Note: The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a
moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace.
Source: Company data, Team estimate

Appendix 5: Valuation
Appendix 5-1: DCF Valuation
FREE CASH FLOW SCHEDULE 2019E 2020F 2021F 2022F 2023F 2024F
EBIT 85,806.66 103,449.10 120,059.96 135,487.59 152,917.97 172,334.97
Less: Taxes 21,451.67 25,862.28 30,014.99 33,871.90 38,229.49 43,083.74
Add: D&A 45,824.52 50,663.20 55,647.71 60,933.51 66,762.19 73,098.59
Less: Change in FC 11,037.23 12,202.67 13,403.23 14,676.36 33,880.25 35,120.95
Less: Change in NWC 8,628.07 6,942.54 7,366.12 8,001.48 8,974.47 10,107.36
FCFF 90,514.22 109,104.81 124,923.33 139,871.35 138,595.96 157,121.50
WACC 26.03% 24.35% 24.78% 24.23% 24.19% 24.38%
Perpetuity growth rate 6.86%
Discount period 1 2 3 4 5
Discount factor 0.804 0.642 0.522 0.420 0.336
PV of FCFF 71,819.58 87,740.10 80,233.10 72,954.04 58,264.50 52,781.64
Source: Company data, Team estimates

DCF SUMMARY (BASE CASE)

PV of FCFF 351,973.38
PV of Terminal Value 321,931.83
Implied Enterprise Value 673,905.21
Less: Market value of Net debt -
Implied Value of Equity 673,905.21
Number of Shares (in millions) 1,064.00
Current Price 620.00
12-month target price 633.37
Upside potential 2.16%
Source: Company data, Team estimates

Appendix 5-2: Revenue Growth Assumptions

Expected revenue contributions by export, import and domestic sales

The first step of our forecast started with calculating the weights of each segment in total revenue. We assume that export’s
growth will show superior results with carrying 7.21% (Figure 28) of total revenue by the end of the forecasted period 2024F.
Export growth is mainly driven by company strategy since the company is in early stage in export market, while weights of
importing goods are expected to slow down. The total revenue will be defined by domestic revenue as we estimated the
foreseen domestic revenue percentage in total revenue
2018A 2019E 2020F 2021F 2022F 2023F 2024F
Vodka 0.37% 0.55% 0.81% 1.19% 1.74% 2.55% 3.75%
Beer 0.35% 0.51% 0.75% 1.09% 1.61% 2.36% 3.46%
Export Total 0.72% 1.06% 1.55% 2.28% 3.35% 4.91% 7.21%
Import 0.33% 0.30% 0.28% 0.26% 0.24% 0.22% 0.20%
Export and Import 1.05% 1.36% 1.83% 2.54% 3.58% 5.13% 7.41%
Domestic 98.95% 98.64% 98.17% 97.46% 96.42% 94.87% 92.59%
Source: Company data, Team estimates
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 Total revenue assumption breakdown by segments (MNT MN)
Product segment 2018A 2019E 2020F 2021F 2022F 2023F 2024F

Vodka 38,395.29 44,486.09 50,550.78 57,093.32 64,094.13 72,490.43 81,897.30

Beer 8,235.23 9,447.06 10,702.42 12,024.19 13,481.49 15,081.95 16,817.07
Domestic Dairy 198,327.75 217,424.66 236,239.17 254,226.03 271,212.87 287,364.15 301,288.99
Others 182,958.17 204,027.15 225,580.97 247,070.81 269,104.89 291,203.81 311,829.78
Vodka 1,621.84 2,652.73 4,304.81 6,940.25 11,154.51 17,938.73 28,829.48
Export
Beer 1,496.16 2,447.15 3,971.20 6,402.41 10,290.08 16,548.55 26,595.31
Import Others 1,427.24 1,463.19 1,488.28 1,503.93 1,515.04 1,527.16 1,538.34
Total revenue 432,461.68 481,948.04 532,837.62 585,260.93 640,853.02 702,154.79 768,796.97
Source: Company data, Team estimates

Domestic revenue modeling

The total revenue growth (domestic) estimation consists of two parts: (A) Volume growth and (B) Price growth as illustrated
below.
Year Dairy Water and soft drinks Beer Vodka
Price Volume Total Price Volume Total Price Volume Total Price Volume Total
Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth Growth
2019 5.97% 9.34% 15.86% 7.92% 6.30% 14.72% 4.59% 6.62% 11.52% 4.19% 5.22% 9.63%

2020 5.46% 7.75% 13.63% 7.24% 5.64% 13.29% 4.20% 6.11% 10.56% 3.83% 4.65% 8.65%

2021 4.99% 7.57% 12.94% 6.62% 5.38% 12.35% 3.84% 5.48% 9.53% 3.50% 3.97% 7.61%

2022 4.59% 7.33% 12.26% 6.09% 5.68% 12.12% 3.53% 5.20% 8.92% 3.22% 3.35% 6.68%

2023 4.63% 8.10% 13.10% 6.14% 5.40% 11.87% 3.56% 4.49% 8.21% 3.25% 2.62% 5.96%

2024 4.70% 7.91% 12.98% 6.23% 4.96% 11.50% 3.61% 3.35% 7.08% 3.30% 1.50% 4.85%

Source: Company data, Team estimates

(A) Volume Growth Assumption

The business each segment’s growth was forecasted in two phases: the first phase is derived from the multiple regression
analysis; the second phase growth rates are based on the company’s strategy and foreseen market shares of the industries. We
investigated the historical relationship between the key macroeconomic indicators (GDP and Population) and beverage
production volume, which we then used as a proxy for APU’s volume growth of production.

Market share: APU is currently in dominant position in alcoholic beverage industry, and we expect APU won’t exceed the 95%
of domestic market share in beer segment, while maintaining the current market spot in vodka section. Water and soft drink –
supporting business unit, and highly competitive therefore will maintain its share. Dairy - The APU will highly benefit its
constant growth of production as currently controlling 28% market. We expect the market share will grow in a healthy rate
considering the strong competitiveness in the dairy section.
Segment 2019E 2020F 2021F 2022F 2023F 2024F
Total volume growth 9.34% 7.75% 7.57% 7.33% 8.10% 7.91%
Production Growth 6.27% 4.95% 5.00% 4.95% 5.69% 5.46%
Dairy Market share growth 2.89% 2.67% 2.45% 2.27% 2.28% 2.32%
Expected market share 29% 30% 30% 31% 32% 32%
Total volume growth 6.30% 5.64% 5.38% 5.68% 5.40% 4.96%
Water and soft Production Growth 5.31% 5.09% 4.83% 4.96% 4.68% 4.56%
drinks Market share growth 0% 0% 0% 0% 0% 0%
Expected market share 3% 3% 3% 3% 3% 3%

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 Total volume growth 6.62% 6.11% 5.48% 5.20% 4.49% 3.35%
Production Growth 5.48% 5.00% 5.48% 5.20% 4.49% 3.35%
Beer Market share growth 1.08% 1.06% 0% 0% 0% 0%
Expected market share 94% 95% 95% 95% 95% 95%
Total volume growth 5.22% 4.65% 3.97% 3.35% 2.62% 1.50%
Production Growth 5.22% 4.65% 3.97% 3.35% 2.62% 1.50%
Vodka Market share growth 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Expected market share 78% 78% 78% 78% 78% 78%
Source: Company data, Team estimates

Dependent Variable analysis

Multiple regression Independent Variable Regression Equation R^2

Beer Market Production GDP, Population Growth Y=-22285.26+0.002429*GDP+1970233*PG 0.969

Soft Drink Market Production GDP, Population Y=-533236.7+0.004021*GDP+0.221477*Population 0.991

Dairy Market Production GDP Y=-2091.991+0.003551*GDP 0.926

Vodka Market Production GDP Y=9842.201+0.000652*GDP 0.798

Source: Team estimates

(B) Price growth assumptions

Average price (MNT) 2013A 2014A 2015A 2016A 2017A 2018A 5Y CAGR

Dairy (Milk and Yoghurt) 1,410* 1,744 1,718 1,686 1,878 2,128 5.09%
Alcoholic Beverage (Vodka) 6,819 7,372 7,600 7,606 7,602 8,128 3.57%
Alcoholic Beverage (Beer) 1,210 1,326 1,348 1,335 1,391 1,466 3.91%
Water and soft drinks 1637.5 1665.63 1702.04 1987.5 2149.08 2270.1 6.75%
*Note: We estimated 4 years CAGR of price in dairy segments, since APU has expanded and penetrated into Dairy segment by 2014 and we believe 4 year
CAGR will reflect the APU the more precisely than 5 year CAGR.
Source: NSO, Team estimates
Inflation is the core driver of price increase,
5Y Price Current CAGR: Inflation however we believe each segment of beverage
Segment
CAGR Inflation ratio price would respond differently to the inflation.
Dairy 5.09% 7.70% 66.2% Thus we estimated 5-year historical CAGR of each
Vodka 3.57% 7.70% 46.4% segment’s average price and compared to the
Beer 3.91% 7.70% 50.8% current inflation rate. We assume this ratio will
Water and soft drinks 6.75% 7.70% 87.7% conserve, and forecasted future price growth
driven by inflation rate.
Source: IMF, Team estimates

Year Dairy Vodka Beer Soft drinks & others

2019E 5.97% 4.19% 4.59% 7.92%
2020F 5.46% 3.83% 4.20% 7.24%
2021F 4.99% 3.50% 3.84% 6.62%
2022F 4.59% 3.22% 3.53% 6.09%
2023F 4.63% 3.25% 3.56% 6.14%
2024F 4.70% 3.30% 3.61% 6.23%
Source: NSO, Team estimates
Appendix 5-3: Cost of equity
Cost of equity is calculated based on the Capital Asset Pricing Model (CAPM).
Risk-Free Rate
Currently, Mongolia doesn’t have long-term bond issued in MNT
Year INF/ MNT INF /USD Risk free rate adjusted
therefore we used the dollar bond yield to estimate risk-free
by PPP
rate. Differences of Real risk-free rate calculation in each year
2019 8.44% 2.00% 13.28%
are resulted from the exchange rate movement which is
2020 7.60% 2.73% 11.60%
estimated by using the theory of Purchasing Power Parity (PPP).
2021 7.53% 2.27% 12.03% The main reason of using PPP is to convert bond yield
2022 6.96% 2.23% 11.48% denominated in USD to bond yield denominated in MNT while
2023 6.92% 2.23% 11.44% holding the real exchange rate constant, as a conservative
2024 7.12% 2.24% 11.64% assumption from a valuation perspective.
Source: IMF
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University of Finance and Economics
Bond Name Amount Yield Maturity date Criteria
Khuraldai US $474 Million 7.23% 2024
The current biggest bond issued is Chinggis bond as we
Samurai ¥24.3 Billion 1% 2023 expect it can demonstrate risk-free rate. The accumulated
Mazaalai US $500 Million 6.92% 2021 bond payment from 2020 to 2024 is approximately $6.6B
Chinggis US $1.5 Billion 6.55% 2023 thus we believe Chinggis bond's repayment will be re-
Gerege US $800 Million 6.64% 2022 scheduled, and will match the forecasted period.

Source: Bloomberg terminal

Indicators Outcome Source
Beta 0.98 MSE TOP20 - APU Regression based on 5-years weekly data
Equity Risk Premium 13% Damodaran equity research paper

Cost of debt
APU doesn’t have issued bonds, and will be debt free company by 2020. The current weight of the cost of debt is 0 percent
therefore we need to look into CAPEX and past history of debt schedule to foresee the possibility of a new debt.
Appendix 5-4: CAPEX
Segment Current Capacity Utilization 2020F 2021F 2022F 2023F 2024F
Vodka 63.00% 63.60% 64.21% 64.82% 65.53% 66.22%
Beer 85.00% 87.27% 89.62% 92.01% 94.83% 97.62%
Dairy 54.47% 57.17% 60.04% 63.02% 66.61% 70.26%
Soft drinks 62.86% 64.85% 66.94% 69.07% 71.59% 74.10%
Source: Company Data, Team estimates
The calculation of plant utilization rate for the forecasted period is based on the team’s volume growth assumption. We assume
that there won’t be a significant amount of CAPEX (up until the point of the necessity of debt) is required as the current plants
are sufficient for forecasted production. The beer segment utilization will reach 97% in 2024. We expect CAPEX to ramp up but
we don't expect APU to take on debt. The last investment in brewery manufacturing building cost 45 to 50 billion MNT. The
company could replace aging equipment and facilities to boost capacity at the end of 2024 that results in larger CAPEX than
previous years but less than the initial debt amount in 2023 and 2024.

2016 2017 2018

Land 427,825 4,639,693 4,414,518
Value 1,039,750 5,454,268 5,414,518
Accumulated Depreciation 611,925 814,575 1,000,000
58.85% 14.93% 18.47%
Building 75,561,908 109,618,508 99,100,959
Value 93,508,821 129,566,442 120,569,059
Accumulated Depreciation 17,946,913 19,947,934 21,468,100
19.19% 15.40% 17.81%
Equipment 109,768,323 130,275,560 139,694,671
Value 234,600,884 270,392,886 207,981,107
Accumulated Depreciation 124,832,561 140,117,326 68,286,436
53.21% 51.82% 32.83%
Vehicles 3,087,146 10,203,759 9,037,287
Value 9,183,848 16,837,289 12,116,677
Accumulated Depreciation 6,096,702 6,633,530 3,079,390
66.39% 39.40% 25.41%
Furniture 950,057 6,571,876 6,224,820
Value 3,969,753 9,216,196 9,846,338
Accumulated Depreciation 3,019,696 2,644,320 3,621,518
76% 29% 37%
Construction 11,277 1,094,440 3,187,552
Value 34,336 1,120,961 3,212,608
Accumulated Depreciation 23,059 26,521 25,056
67.16% 2.37% 0.78%
Total 189,806,536 262,403,836 261,659,807
Value 342,337,392 432,588,042 359,140,307
Accumulated Depreciation 152,530,856 170,184,206 97,480,500
Source: Company Data, Team estimates
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 According to the accumulated depreciation, machines and
vehicles are most likely to be replaced. We estimated the
weights of the value of equipment and vehicles in the total
PP&E. From this calculation, we found that 35.6 billion of
additional CAPEX will be spent.

Total CAPEX Assumptions

Vehicles Equipment
71.21% 2019E 11,037.23
2.68% 68.53%
(35.6bn) 2020F 12,202.67
2021F 13,403.23
2022F 14,676.36
Source: Company Data, Team estimates
2023F 33,880.25
2024F 35,120.95
Source: Team estimates

Will APU raise a new debt in the near future ?

We highly doubt that APU will raise a debt due to following reasons:
1) Able to generate sufficient cash flow to invest on CAPEX.
APU is generating enough cash to sustain its short and medium term operations without putting itself into a debt. Over the last
four years, APU has generated cash on average 57 billion MNT a year (CAGR 22.96%) and we expect that APU will generate an
average of 146 billion MNT a year (CAGR 15.42%) between 2019E-2024F, which is sufficient to finance any necessary projects.
2) Significant amount of loss due to currency fluctuations in last debt.
APU borrowed two significant USD denominated loans from EBRD and Credit Suisse in 2013. Tugrik has been unstable and
depreciated by 9% over the last two quarters of 2018. As a result of currency fluctuations, APU’s interest payments on these
loans were hurting the company, given that per annum payment was approximately 7.5 % + 6 months USD Libor.

Forecasted WACC Assumption

2019 2020 2021 2022 2023 2024

26.03% 24.35% 24.78% 24.23% 24.19% 24.38%

Source: Team estimates

Appendix 5-5: Terminal Growth Rate
Long term average RGDP growth in targeted
regions (1)
Expected Mongolian beverage production
growth (2)
Mongolian household consumption growth (3)
Average
Sources: World Bank, IMF, NSO, Company data, Team estimate
The terminal value calculation was based on
4.74%
(1) Long-term average RGDP growth in targeted regions:
APU’s current export look is mainly focused on China and
6.45% Russia. In the long-term, we’re assuming that the company
will target the other Asian Pacific countries, this is taken into
9.39% consideration of terminal growth rate.
(2) Long-term growth in Mongolian household expenditure is
6.86% estimated from the historical CAGR based on NSO data base.

(3) Long term Mongolian beverage production growth: The projections of production growth were taken from the historical
CAGR of each beverage segments and assigned weights according to the latest (FY 2019) sales data of the company.

Appendix 5-6: Monte Carlo Simulation

MONTE-CARLO KEY STATISTICS
ASSUMPTIONS FOR MONTE CARLO SIMULATION
Mean ₮ 748.05
Max ₮ 902.27
Min ₮ 586.62 Historical stock price Terminal growth
Median ₮ 749.56
Standard Deviation ₮38.75 Mean 0.15% 6.86%
Percentage of Simulation > ₮ 640 89.80% St.dev 2.97% 2.08%
600< Percentage of Simulation <640 10.08% Source: Team Estimates
Percentage of Simulation < ₮ 600 0.12%
Trials 100,000
Source: Team Estimates 17
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 Appendix 5-7: Criteria for peer company selection
We chose peer companies based on 3 criteria; Firstly, similar revenue source; secondly, similar revenue amount; thirdly,
country classification by income level.
Nominal GDP
Ticker Name Business Description per capita in
2018 (USD)

Namibia Breweries Ltd. engages in the brewing and distribution of beer and is also active in the
manufacturing of soft drinks. It operates through Beer and Other segments. It offers its products
Namibia
through following brands: Windhoek Beer, Tafel Lager, Hansa Draught, Heineken, King Lager,
ZWC:PL Breweries 5,923.50
Club Shandy, Amstel, Camelthorn Weizen & Urbock, Code, Vigo, McKane Mixers, and
Limited
Aquasplash. The company was founded by Hermann Ohlthaver on October 20, 1920 and is
headquartered in Windhoek, Namibia.

Guinness Ghana Breweries Ltd. engages in the manufacture, distribution, and sale of beverages.
Guinness It operates through the following segments: Alcoholic Beverages, Non-Alcoholic Beverages, and
GH:GGBL Ghana Spirits. It offers its products through the Alvaro, Baileys, Ciroc, Guinness, Gulder, Johnnie 1,786.70
Breweries Ltd. Walker, Malta Guinness, Orijin, Smirnoff, and Top Malt brands. The company was founded on
August 29, 1960 and is headquartered in Kumasi, Ghana.
PT Delta Djakarta Tbk engages in the manufacture and distribution of pilsner and stout beer. Its
PT Delta
DLTA:IJ products include Anker, Carlsberg, San Miguel, San Mig Light, and Kudah Putih beverage brands. 3,789.00
Djakarta Tbk
The company was founded in 1932 and is headquartered in Bekasi Timur, Indonesia.
The principal activities of the PBF Group are the manufacture and sale of beer, ready-to-drink
Paradise
alcoholic beverages as well as the distillation and sale of portable and industrial alcohol. PBF
SPSE: PBF beverages (FIJI) 5,876.60
was formerly known as Foster's Group Pacific Limited and changed its name in 2012 after Coca
Limited
Cola Amatil (Fiji) Limited bought majority shares in the company.

Caribbean Producers (Jamaica) Ltd. engages in the wholesale and distribution of food and
Caribbean
beverages, and non-food supplies. The firm offers meats, seafood, dairy, wines, spirits,
Producers
JM:CPJ beverages, and groceries. It operates through the Jamaica and St. Lucia geographical segments. 5,393.40
Jamaica
The company was founded by A. Mark Hart and Thomas Tyler in April 1994 and is
Limited
headquartered in Montego Bay, Jamaica.

PT Multi Bintang Indonesia Tbk is an Indonesia-based company primarily engaged in the

manufacture of beers. The brands of its beers include Bintang, Heineken and Guinness. The
Multi Bintang
Company also produces soft drinks; some of which are marketed under the brand name of
MLBI:IJ Indonesia Tbk 3,789.00
Bintang Zero, Green Sands and Green Sands Recharge. It has manufacturing facilities in
PT
Tangerang and Mojokerto, Indonesia. Through its subsidiaries, PT Multi Bintang Indonesia
Niaga, the Company markets and distributes its products.

Source: IMF, Bloomberg

Appendix 5-8: M-Score Appendix 5-9: Altman Z-Score

M-SCORE FOR APU JSC 2018A Z-SCORE 2018A
Day’s sales receivables index /DSRI/ 0.43 A = Working capital/total assets 0.22
Gross margin index /GMI/ 1.08 B = Retained earnings/total assets 0.23
Asset quality index /AQI/ 0.89 C = EBIT/Total assets 0.13
Sales growth index /SGI/ 1.85 D = Market value of equity/ Total liabilities 7,409.21
Depreciation index /DEPI/ 1.98 E = Sales/Total assets 0.79
Altman Z score 4447.32
SGA expenses index /SGAI/ 1.85
Leverage index /LVGI/ 0.59 Altman Z score formula= 1.2 A + 1.4 B + 3.3 C + 0.6 D +1 E
In Altman Z score interpretation, Z score above 2.99 indicates
Total accruals to total assets /TATA/ -0.08
company has low possibility of bankrupcy.
M-Score -2.52 Safe Zone: Z > 2.99
M-Score Formula = −4.84 + 0.92 × DSRI + 0.528 × GMI + 0.404 × Grey Zone: 1.8 < Z < 2.99
AQI + 0.892 × SGI + 0.115 × DEPI −0.172 × SGAI + 4.679 × TATA − Distress Zone : Z < 1.8
0.327 × LVGI
Source: Team Estimates Source: Team Estimates

Created by Professor Messod Beneish, the M-Score is a Published by professor E.I.Altman, Altman Z-score identifies
statistical model used to identify whether the company has the probability of default for a publicly traded manufacturing
manipulated its earnings. Based on our calculations, company. Therefore, likelihood of APU of defaulting in next 2
probability of APU manipulating its earnings is low. years is very low.

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University of Finance and Economics
 Appendix 5-10: Scenario Analysis
Base Case Upside Case Downside Case
DCF valuation (85%) DCF valuation (85%) DCF valuation (85%)
PV of FCFF 351,973.38 PV of FCFF 394,478.48 PV of FCFF 338,649.25
PV of Terminal Value 321,931.83 PV of Terminal Value 356,177.61 PV of Terminal Value 278,184.12
Implied Enterprise Value 673,905.21 Implied Enterprise Value 750,656.08 616,833.37
Implied Enterprise Value
Implied Value of Equity 673,905.21
Implied Value of Equity 750,656.08 Implied Value of Equity 616,833.37
Number of Shares (in Number of Shares (in
1,064.00 1,064.00 Number of Shares (in
millions) 1,064.00
millions) millions)
Current Price 620.00 Current Price 620.00 Current Price 620.00
Target price 633.37 Target price 705.50 Target price 579.73
Relative Valuation (15%) Relative Valuation (15%) Relative Valuation (15%)
Target price 1,461.35 Target price 1,461.35 Target price 1,461.35
Weighted 12 month target Weighted 12 month target Weighted 12 month
757.57 818.88 711.97
price price target price
Upside potential 19.61% Upside potential 32.08% Upside potential 14.83%
Expected capital gain 29.61% Expected capital gain 39.50% Expected capital gain 22.25%
Source: Team estimates

Appendix 6: Financial Analysis

Appendix 6-1: APU financial ratios
Year 2015A 2016A 2017A 2018A 2019E 2020F 2021F 2022F 2023F 2024F
Ratios
EPS 1511.80 3.85 27.82 45.38 57.94 70.11 81.54 92.12 104.08 117.41
Current ratio 1.26 1.16 1.76 2.77 3.01 3.29 3.63 3.97 4.31 4.80
Quick ratio 0.39 0.43 0.97 1.45 1.71 1.99 2.32 2.65 2.96 3.44
Liquidity ratio
Cash ratio 0.10 0.22 0.52 0.92 0.99 1.27 1.59 1.92 2.24 2.72
Cash conversion cycle 94.77 98.08 99.88 57.26 47.53 50.29 51.63 53.03 54.49 56.01
Solvency Debt-to-equity 1.11 1.03 0.39 0.20 0.20 0.19 0.19 0.18 0.18 0.17
ratios Interest coverage 3.77 1.61 6.68 21.86 No interest bearing debts
Performance CF to net revenue 3.60 16.75 2.03 1.91 1.54 1.64 1.61 1.59 1.57 1.56
ratios Cash return on equity 29% 33% 18% 22% 20% 23% 23% 23% 23% 22%
Debt coverage 0.25 0.32 0.32 1.03 0.95 1.11 1.16 1.18 1.20 1.22
Coverage Reinvestment 8.03 16.04 9.45 7.28 2.56 2.93 3.24 3.41 3.46 3.55
ratio Dividend payment 65.01 126.75 908.25 83.62 77.25 90.21 93.71 95.51 97.41 96.29
Investing and financing 1.06 1.52 1.11 1.11 1.15 1.33 1.39 1.42 1.43 1.69
Receivables turnover 12.62 11.15 7.73 10.92 10.93 9.51 9.45 9.42 9.41 9.38
Days of sales outstanding 28.91 32.74 47.22 33.42 33.40 38.38 38.61 38.74 38.78 38.91
Inventory turnover 2.33 2.64 2.71 3.38 3.56 3.67 3.57 3.47 3.39 3.30
Days of inventory on hand 156.9 138.34 134.85 107.94 102.43 99.53 102.35 105.11 107.78 110.61
Activity ratios
Payables turnover 4.01 5.00 4.44 4.34 4.13 4.17 4.09 4.02 3.96 3.90
Number of days of payables 91.12 73.00 82.19 84.11 88.30 87.62 89.33 90.81 92.07 93.51
Fixed asset turnover 0.97 1.05 1.04 1.65 1.75 1.75 1.74 1.74 1.74 1.74
Working capital turnover 11.12 13.53 5.38 4.51 3.62 3.17 2.76 2.42 2.16 1.91
Gross profit margin 30% 32% 29% 42% 43% 44% 44% 45% 46% 46%

Profitability Operating profit margin 12% 5% 15% 16% 18% 19% 21% 21% 22% 22%
ratios EBITDA margin 12% 5% 24% 26% 27% 29% 30% 31% 31% 32%
ROA 7.9% 0.95% 5.73% 8.86% 10.74% 11.66% 12.09% 12.16% 12.23% 12.16%
Net profit margin 5% 1% 10% 11% 13% 14% 15% 15% 16% 16%
DuPont Total asset turnover 0.65 0.69 0.56 0.79 0.84 0.83 0.82 0.80 0.78 0.75
analysis Financial leverage 2.31 2.09 1.56 1.28 1.20 1.20 1.19 1.19 1.18 1.17
Return on equity 8.0% 2.0% 9.0% 11.0% 13.0% 14.0% 14.5% 14.5% 14.5% 14.29%
ROIC 4% 1% 5% 10% 12% 13% 14% 15% 15% 16%
Source: Company data, Team estimates
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University of Finance and Economics
 Appendix 6-2: Peer financial ratios
Caribbean Paradise Multi Guinness
PT Delta Namibia
Producers beverages Bintang Ghana Peer Peer
Ratios Peer Ratios Djakarta Breweries APU JSC
Jamaica (FIJI) Indonesia Breweries Average Median
Tbk Limited
Limited Limited Tbk PT Ltd.
Current ratio 7.20 2.10 2.49 3.70 0.20 1.58 2.88 2.30 2.77
Liquidity ratios Quick ratio 5.19 1.14 1.05 1.53 0.58 0.74 1.71 1.10 1.45
Cash ratio 5.01 0.72 0.21 0.25 0.20 0.58 1.16 0.41 0.92
Cash conversion cycle 239.22 54.47 104.30 235.04 58.63 36.70 121.39 81.47 57.26
Debt-to-equity 0.19 0.67 1.47 0.17 1.47 0.86 0.81 0.77 0.20
Solvency ratios
Interest coverage - 14.15 2.65 45.01 55.34 2.58 23.94 14.15 21.86
Performance CF to net revenue 1.01 0.90 2.09 1.15 1.15 3.31 1.60 1.15 1.91
ratios Cash return on equity 28% 24% 21% 10% 127% 28% 40% 26% 22%
Debt coverage 1.43 0.33 0.14 0.58 0.82 0.31 0.60 0.45 1.03
Reinvestment 20.48 2.17 1.85 1.75 5.12 1.29 5.44 2.01 7.28
Coverage ratios Dividend payment 1.65 2.20 9.26 3.37 1.26 - 3.55 2.20 83.62
Investing and
1.53 1.11 0.28 1.15 0.33 1.10 0.92 1.11 1.11
financing
Receivables turnover 37.50 12.45 7.40 4.50 6.26 31.00 16.52 9.93 10.92
Days of sales
9.73 29.31 49.31 81.05 58.27 11.77 39.91 39.31 33.42
outstanding
Inventory turnover 1.26 4.39 4.06 2.08 6.90 5.75 4.07 4.22 3.38
• Expanding domestic market share in each business segments
Days of inventory on
• Positive lookout for domestic milk and beer industry83.11
290.12 89.96 175.28 52.87 63.49 125.80 86.53 107.94
hand
•Activity
Growth ratios
in regional market, especially in Inner Mongolia
Payables turnover 6.02 6.30 10.44 17.14 6.95 9.46 9.39 8.21 4.34
• Increasing household consumption
Number of days
• Increasing growth in regional wealth of
60.63 57.95 34.96 21.29 52.51 38.57 44.32 45.54 84.11
payables
Fixed asset turnover 9.91 2.68 8.97 1.23 2.53 1.69 4.50 2.60 1.65
Working capital
0.79 4.50 4.08 2.35 -4.87 11.88 3.12 3.22 4.51
turnover
Gross profit margin 73% 54% 26% 33% 67% 25% 46% 43% 42%
Operating profit
49% 23% 4% 12% 45% 8% 24% 18% 16%
Profitability ratios margin
EBITDA margin 51% 29% 6% 22% 53% 18% 30% 25% 26%
ROA 24% 15% 4% 8% 45% 4% 17% 11% 8.86%

Net profit margin 38% 15% 2% 12% 34% 4% 17% 13% 11%

Total asset turnover 0.62 1.03 1.91 0.66 1.35 1.16 1.12 1.10 0.79
DuPont analysis
Financial leverage 1.18 1.72 2.48 1.20 2.42 1.90 1.82 1.81 1.28

Return on equity 28% 26% 10% 9% 110% 8% 32% 18% 11.0%

ROIC 60% 17% 4% 164% 47% 5% 24% 13% 10%

Source: Company data, Peer company data, Team estimates

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University of Finance and Economics