IPO Watch: Pan Merchant targets new frontiers in filtration after 40 years in industry

The Edge Malaysia - 30 June 2025 View original article

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This article first appeared in Capital, The Edge Malaysia Weekly on June 23, 2025 - June 29, 2025

WITH nearly 40 years in the filtration industry, Pan Merchant Bhd (KL:PMIBHD) is poised to take its next leap of growth through an initial public offering (IPO) that could raise up to RM63 million.

The group plans to channel the bulk of the proceeds to automating its manufacturing plants, investing in research and development (R&D) for new products and strengthening its working capital to support its expansion into new markets.

Pan Merchant, which began in 1987 as a distributor of industrial filters for the palm oil industry, has since evolved into a homegrown provider of comprehensive filtration solutions. Today, the group specialises in the design, manufacture, installation and commissioning of industrial filters for a wide range of sectors, including edible oils, water and water treatment, sustainable oil, and mining.

“Back in the 1990s, the palm oil sector was still at an early stage in Malaysia. Many players were looking for technology that could increase their refining yields. So, we partnered with a Germany-based company to provide this industrial filtration system that raises their yield from 65-68% to 80%,” says managing director Wong Voon Ten.

“As the industry grew, the demand for larger industrial filters increased. In 2021, we began designing our own filters through in-house R&D,” he adds.

Despite being a relatively small player, the group says it currently commands a 0.5% share of the global market in a sector dominated by heavyweights.

Pan Merchant generates the bulk of its revenue by delivering customised solid-liquid filtration systems worldwide. Between 74% and 89% of its revenue comes from exports to markets such as Asia, Europe, the Americas and Africa. The group has offices in Malaysia, Singapore, the Netherlands and the US.

“Currently, our revenue mainly comes from the edible oils industry. We aim to increase our global market share to 2% to 3% by growing our business in the water and mining sectors over the next two to three years,” executive director Wong Nyeon Thiat tells The Edge.

“We see the water and mining sectors as our next growth areas. These industries are beginning to look for the kind of filtration systems that we produce. We see similar growth potential in these sectors today as we did in the palm oil sector 30 years ago.”

Many may not be familiar with the kind of manufacturing work that Pan Merchant is involved in.

Nyeon Thiat points out that edible oils are versatile and can be used in a wide range of applications, from food production to soap and even chocolate. “Almost every daily product we use contains edible oils, and we are part of that supply chain,” she says.

Pan Merchant is family run, with the co-founders being siblings and their relatives serving in senior management roles.

According to Pan Merchant’s prospectus, the ACE Market-bound company’s IPO comprises an issuance of 232.19 million new shares representing 25.35% of its enlarged issued share capital. Priced at 27 sen apiece, it expects to raise RM62.69 million from the listing exercise.

The company has earmarked 45% of the IPO proceeds for capital expenditure for manufacturing plants, including the acquisition of machinery, equipment and tools as well as renovations. Some 11% has been set aside for product development, close to 10% for business expansion in the Netherlands, 23% for working capital and the remaining 11% to cover listing expenses.

At the IPO price of 27 sen, Pan Merchant’s market capitalisation will amount to RM247 million upon listing on June 26, valuing the company at 32 times its trailing earnings. It made a net profit of RM7.68 million on the back of RM141.5 million revenue in 2024, or a net profit margin of about 5.4%.

A separate tranche of 18 million existing shares, which represents 1.96% of the group’s enlarged share capital worth RM4.86 million, will go entirely to the sole selling shareholder Budhi Sentoso Rachmat, co-founder of Pan Merchant’s subsidiary PMI-Technology Sdn Bhd.

“The bulk of the proceeds will be used to grow the business, not to pare down debt. We have been growing the business organically and steadily growing our revenue and presence through our cash flow,” says Nyeon Thiat.

“Over the years, we set up the foundation for the company. With the IPO proceeds, it can scale and compete with the big boys globally.”

Analysts appear mixed on the IPO, with Malacca Securities of the view that the company deserves a premium valuation, while Public Investment Bank rates it as “slightly overvalued”.

Malacca Securities values Pan Merchant at 33 sen per share — 22% higher than its 27 sen offer price — on the back of the group’s operating costs and product price advantage over that of its international peers.

Unlike its European counterparts, Pan Merchant incurs significantly lower production costs while delivering similar products, says Malacca Securities. “This cost advantage should not only support the group’s target global market share of 1% to 2% through competitive pricing but also bolster its ongoing global expansion efforts.”

Pan Merchant is Malaysia’s largest solid-liquid filtration firm by revenue, further reinforcing its strong market position, Malacca Securities notes.

Public Investment Bank surmises that Pan Merchant is worth 25 sen per share, with its fair value based on 15 times forward earnings and a 25% discount to the average multiple of 20 times of its more prominent global peers. 

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