KUALA LUMPUR (June 17): Pan Merchant Bhd is slightly overvalued at the initial public offering (IPO) price, Public Investment Bank said ahead of its listing on the ACE Market.
The industrial filter manufacturer is worth just 25 sen, below its IPO price of 27 sen per share, the research house said in a note on Tuesday. The fair value is based on 15 times its forward earnings, a 25% discount to the average multiple of 20 times of its more prominent global peers.
The valuation is “justified’ given Pan Merchant’s smaller market capitalisation, the house said.
Application for the IPO will close on June 17, with the company scheduled for listing on June 26.
Public Investment Bank joins TA Securities in valuing Pan Merchant below its IPO price. TA Securities values Pan Merchant at 23 sen, nearly 17% below its IPO price, flagging small revenue share in the industry, orderbook of less than RM70 million to be booked within 12 months, and trade wars that may disrupt supply chains and affect raw materials.
Pan Merchant is mainly involved in manufacturing filters for solid liquid filtration and the provision of steel works as well as technical support services. The filters are mainly used to separate solid particles from slurry in industries such as edible oil, industrial wastewater and food processing.
More than 80% of its products manufactured at its three facilities in Ipoh, Perak are exported to Asia, Europe, the Americas and Africa. Edible oil currently accounts for almost 90% of Pan Merchant’s total revenue in 2024.
The target to grow the non-edible oil segments such as sustainable fuels, potable water and mining could help the company to achieve 22% annual average growth in earnings for the next two years, according to Public Investment Bank’s forecasts.
The projection assumes that Pan Merchant would be able to maintain a gross profit margin of around 35% supported by order book replenishment, operational efficiency and productivity improvements, the house noted.
At the IPO price of 27 sen per share, Pan Merchant is expected to have a market capitalisation of RM247 million upon listing, valuing the company at 32 times its trailing earnings. Pan Merchant made a net profit of RM7.68 million in 2024.
The IPO will raise about RM62.69 million for Pan Merchant and another RM4.86 million for sole selling shareholder Budhi Sentoso Rachmat, a co-founder of Pan Merchant’s subsidiary PMI-Technology Sdn Bhd.
Pan Merchant has allocated 45% of the IPO proceeds for capital expenditure on manufacturing plants, including the acquisition of machinery, equipment, tools and manufacturing plant renovations.
The company has also set aside 11% for product development, close to 10% for business expansion in the Netherlands, 23% for working capital, and remaining 11% to defray listing expenses.
Affin Hwang Investment Bank Bhd is the principal adviser, sponsor, sole underwriter and sole placement agent for the IPO.