Executive Summary

Info-Tech Systems is the leading cloud-based SaaS HRMS and accounting software provider for SMEs in Singapore and Malaysia. Listed on the SGX Mainboard in July 2025 at S$0.87 per share, it is the first pure-play SaaS HRMS company on the SGX. The business has excellent unit economics: 86% gross margins, 28% net margins, recurring subscription revenue with 91% customer retention, and strong cash flow generation. However, the stock trades at ~20x trailing earnings for a S$44M revenue business, leaving limited margin of safety for value investors despite the high quality.

Investment Thesis in 3 Sentences: Info-Tech Systems is a genuinely high-quality SaaS business with strong competitive positioning in the Singapore/Malaysia SME HR software market, demonstrated by 19% revenue CAGR, 91% customer retention, and industry-leading margins. However, the IPO valuation at ~18x adjusted earnings and current price of ~20x TTM earnings prices in much of the growth, leaving insufficient margin of safety for disciplined value investors. This is a business to admire and monitor for a better entry price, not one to buy at current levels.

Key Metrics Dashboard

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PHASE 0: OPPORTUNITY IDENTIFICATION (Klarman)

Why Does This Opportunity Exist?

Short answer: It does not clearly exist. The stock is a recent IPO (July 2025) priced by sophisticated underwriters (OCBC, CGS International) who know the Singapore market well. The IPO was 14.4x oversubscribed on the public tranche and 5.5x on the placement. Cornerstone investors include Dymon Asia, Lion Global, Nikko Asset Management, and Maybank Asset Management -- these are not naive buyers.

Potential sources of opportunity (weak):

1. Small-cap neglect: At S$247M market cap, this is too small for most institutional funds, and being a fresh IPO, may lack broad analyst coverage.
2. Singapore market discount: SGX-listed tech companies generally trade at a discount to US-listed peers of similar quality.
3. Pre-profit inflection misunderstanding: The accounting software, Academy, and Jobs Lah products are still early-stage and may be underappreciated by the market.

Counter-argument: The stock has actually traded up since IPO (S$0.87 to S$0.955), suggesting the market recognizes the quality. There is no forced selling, no complexity discount, and no temporary operational problem. This is a well-understood, well-promoted IPO.

Conclusion: No clear Klarman-style opportunity exists. Proceed with caution.

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PHASE 1: RISK ANALYSIS (Inversion Thinking)

"All I want to know is where I'm going to die, so I'll never go there." -- Munger

1. Competitive Disruption Risk

Severity: MODERATE | Probability: 30% over 5 years

The SME HR and accounting software market is highly fragmented and competitive. Info-Tech competes against both global players (BambooHR, Gusto, Xero, Zoho) and local competitors. The prospectus itself identifies key competitive risks:

• Existing competitors could increase market share through aggressive pricing, R&D, or acquisitions
• New entrants could emerge, particularly AI-native HRMS providers
• Enterprise-focused players (SAP SuccessFactors, Workday) could move downmarket to target SMEs

Mitigant: Info-Tech's localization (payroll compliance for Singapore CPF, Malaysia EPF, Hong Kong MPF, India PF) creates meaningful switching costs. The 91% retention rate supports this. Most non-renewals are due to business closure, not competitive loss.

2. Key Person Risk

Severity: HIGH | Probability: 15% over 5 years

The company is essentially a founder-led business. Mr. Lee Kim Heng Peter (Executive Chairman) and Mr. Setin Subramanian Dilip Babu (CEO) co-founded the company and have worked together for 19+ years. They were the Vendors in the IPO, selling existing shares. Post-IPO, Mr. Lee holds approximately 60.3% of shares. The business is deeply tied to their vision, relationships, and execution capability.

Mitigant: The co-founders have a 19-year track record of working together. The company has over 500 employees and appears to have professional management below the founders. Lock-up provisions apply post-IPO.

3. Valuation Risk (IPO Premium Erosion)

Severity: MODERATE-HIGH | Probability: 40% over 2 years

At ~20x TTM earnings for a S$44M revenue business growing at 15%, this is not cheap. The IPO was priced to sell, with significant dilution to new investors (89% dilution in NAV per share at IPO). If growth slows from the 19% CAGR to, say, 10-12%, the market may re-rate the stock downward.

4. Government Grant Dependency

Severity: MODERATE | Probability: 25% over 3 years

Info-Tech benefits significantly from Singapore government grants (Productivity Solutions Grant) that subsidize up to 50% of first-year costs for SME customers. The Academy also relies on WSQ (Workforce Singapore) funding. If these grants are reduced or eliminated, customer acquisition costs would increase and price sensitivity could intensify.

5. Technology Platform Risk (Microsoft Azure Dependency)

Severity: LOW-MODERATE | Probability: 10%

The entire cloud infrastructure runs on Microsoft Azure. Contract expires 31 December 2025 (likely renewed by now). Any significant Azure price increase would compress margins, as the company lacks price escalation clauses in customer contracts.

INVERSION SECTION

How could this investment lose 50%+ permanently?

• Revenue growth stalls as Singapore market saturates; Malaysia/HK/India expansion fails
• A well-funded competitor (Xero, Zoho, or a new AI-native player) offers free or much cheaper HRMS, triggering a price war
• Government grants withdrawn, creating a demand cliff
• Data breach or security incident destroys trust (the company handles sensitive employee/payroll data)
• Founders exit; professional management fails to maintain culture and execution

If I were short this stock, my 3-sentence bear case: "Info-Tech is a small, single-product company trading at 20x earnings in a hyper-competitive, low-barrier market. Its ~10% Singapore market share gives it nowhere to hide when AI-native HRMS tools arrive offering free or near-free alternatives. The IPO was designed to reward the founders; new investors got 89% NAV dilution and are paying for growth that may never justify the premium."

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PHASE 2: FINANCIAL ANALYSIS

Income Statement Analysis

Key observations:

• 86% gross margins are extraordinary and characteristic of a pure SaaS business
• HRMS subscription growth is slowing (10.3% CAGR) while newer products (Accounting Software, Academy) are driving incremental growth
• Employee costs dominate the expense structure (across COGS, S&D, Admin, and R&D)
• Effective tax rate of ~17% (Singapore's corporate tax rate)

Revenue Mix by Geography

Singapore still dominates with 75% of revenue. Malaysia at 19% is the key growth market (CAGR 30.2%).

Balance Sheet Analysis

Critical Balance Sheet Features:

• Negative working capital model: Contract liabilities (deferred revenue) of S$25.6M represent >50% of annual revenue collected in advance. This is the hallmark of a SaaS business -- customers pay upfront for 12-month subscriptions.
• Asset-light: PP&E of only S$4.3M. Intangible assets nearly written off at S$213K.
• Cash-rich: S$29.7M in cash vs. S$3.5M in lease liabilities (the only real debt). Net cash of ~S$26M.
• Tiny equity base: Only S$4.0M in total equity pre-IPO, almost entirely retained earnings. This makes traditional ROE calculations misleading (ROE would be >300%).

Cash Flow Analysis

• FCF generation is excellent. OCF of S$18.0M in FY2024 with minimal capex requirements.
• Free Cash Flow = ~S$17M (OCF minus maintenance capex of ~S$1M)
• FCF/EBITDA = 1.0x -- virtually all EBITDA converts to cash
• Investing activities in FY2022 included the purchase of the Singapore office; this has normalized.

Owner Earnings Calculation

Owner Earnings = Net Income + D&A - Maintenance CapEx - Working Capital Increases
               = 12,339 + 2,100 - 1,000 - 0 (WC is naturally funded by contract liabilities)
               = ~S$13,400

Note: Working capital is self-funding due to the advance-payment business model.

Valuation Trinity

1. Liquidation Value (Floor)

Net Current Asset Value = Current Assets - Total Liabilities
                       = 33,595 - 35,686
                       = -S$2,091 (Negative NCAV)

NCAV is negative because of the large contract liability balance. However, these are not real "debts" -- they represent revenue already collected that will be recognized over the subscription period. Adjusted for this:

Adjusted NCAV = Current Assets - (Total Liabilities - Contract Liabilities)
              = 33,595 - (35,686 - 25,565)
              = 33,595 - 10,121
              = S$23,474
NCAV per Share = S$23,474K / 258,780K shares = S$0.091

Tangible Book Value at IPO:

Post-IPO Equity = ~S$30M (S$4.0M + S$26M IPO proceeds)
TBV per share = S$30M / 258.78M shares = S$0.116

Liquidation value is essentially meaningless for a SaaS business -- the value is in the recurring revenue stream and customer relationships, not tangible assets.

2. Going Concern Value (DCF with Conservative Assumptions)

Assumptions:

• Starting Owner Earnings: S$13.4M
• Growth Rate Years 1-5: 12% (below recent 19% CAGR, reflecting maturation)
• Growth Rate Years 6-10: 8%
• Terminal Growth Rate: 3%
• Discount Rate: 10% (reflecting Singapore market, small-cap risk)

Intrinsic Value per Share = S$337M / 258.78M shares = S$1.30
Current Price: S$0.955
Margin of Safety: (1.30 - 0.955) / 1.30 = 26.5%

Sensitivity Table:

3. Private Market Value

SaaS businesses in Southeast Asia trade at 5-10x revenue in private markets (for profitable, growing businesses). Applying a conservative 5-7x revenue multiple:

Private Market Value = S$43.7M x 6x = S$262M
Per Share = S$262M / 258.78M = S$1.01

At 7x revenue: S$306M / 258.78M = S$1.18

4. Relative Valuation (Owner Earnings Multiple)

Owner Earnings per Share = S$13.4M / 258.78M = S$0.0518

At 15x: S$0.777
At 18x: S$0.932
At 20x: S$1.036
At 25x: S$1.295

Margin of Safety Summary

Weighted Intrinsic Value Estimate: ~S$1.15 Current Margin of Safety: ~17%

This is below the 20% minimum threshold for a catalyst-driven investment and well below the 30% threshold for a no-catalyst investment.

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PHASE 3: MOAT ANALYSIS

Moat Sources

1. Switching Costs (PRIMARY MOAT) -- NARROW

Once an organization implements an HRMS and loads employee data, payroll configurations, leave policies, and attendance rules, switching to a competitor is costly and disruptive. The prospectus explicitly states: "switching to a competitor becomes more costly and complex, and requires significant time spent on retraining." This is evidenced by:

• 91% customer retention rate (improving annually)
• Non-renewals primarily due to business closure, not competition
• 25% of accounting software customers are also HRMS customers (cross-sell stickiness)

Measurement: Cost to Switch / Annual Customer Value = HIGH (an SME with 50 employees using 5 modules would spend 2-4 weeks migrating data, retraining staff, and verifying payroll accuracy -- this exceeds the annual subscription cost).

2. Regulatory Localization (SECONDARY MOAT) -- NARROW

Each country has unique payroll tax rules, labor regulations, and filing requirements. Info-Tech has built compliance engines for Singapore (CPF, IRAS AIS), Malaysia (EPF, SOCSO, EIS), Hong Kong (MPF), and India (PF, ESI). New entrants must replicate this compliance layer, which requires domain expertise and ongoing regulatory monitoring.

3. Brand & Reputation (WEAK MOAT)

Market leader in Singapore (9.8% share) and Malaysia for SME-focused cloud HRMS. Enterprise 50 Award winner. ISO 27001 and MTCS certified. But brand alone is not a durable moat in software.

Moat Durability Assessment

10-Year Moat Trajectory: STABLE to SLIGHTLY NARROWING

The switching cost moat is real but not wide -- it protects against casual churn but not against a vastly superior product. AI has the potential to fundamentally change HR software within 5-10 years. Info-Tech is investing in AI (Info-Tech AI chatbot, AI Talent Acquisition), but its R&D budget of S$3.7M is tiny compared to global competitors.

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PHASE 4: MANAGEMENT & INCENTIVE ANALYSIS

Leadership Team

Insider Ownership (Post-IPO)

Mr. Lee Kim Heng Peter is the controlling shareholder with approximately 60.3% of shares post-offering. This is high insider ownership, which aligns interests with minority shareholders.

Compensation Analysis

The prospectus does not provide granular compensation details pre-IPO. Post-IPO, the company has established:

• Info-Tech Systems Performance Share Plan (share awards)
• Info-Tech Systems Employee Share Option Scheme (stock options)
• Maximum dilution from these plans not to exceed 15% of issued share capital

Capital Allocation Track Record

Pre-IPO capital allocation was heavily influenced by the private company structure:

• FY2022: S$7.8M in financing cash outflows (likely dividends/distributions to founders)
• FY2023: S$1.1M in financing cash outflows
• FY2024: S$3.3M in financing cash outflows (includes S$2.5M dividend declared April 2025)

Post-IPO Dividend Policy: Minimum 50% of net profit after tax for the period from Listing Date to 31 December 2025 and for FY2026. This implies ~S$6M+ in annual dividends, or ~S$0.023/share, or ~2.4% yield at current price.

Munger's Question

"If I were management with these incentives, what would I do?"

With 60% ownership and a freshly IPO'd company, the founder has strong incentive to grow the share price (his personal wealth is tied to it) while also extracting value through dividends and share sales. The IPO itself was partly a liquidity event (19.2M Vendor Shares sold). The lock-up period constrains near-term selling.

The risk is that the founder prioritizes revenue growth over profitability to justify the IPO multiple, potentially through acquisitions that may not create value. The company has explicitly stated interest in "inorganic acquisitions."

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PHASE 5: CATALYST ANALYSIS (Klarman)

Potential Catalysts

No Catalyst Assessment

The near-term catalysts are primarily organic growth stories that are already somewhat priced in. There is no specific event (spin-off, activist, acquisition) that would trigger a sharp re-rating. This necessitates a larger margin of safety (30%+).

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PHASE 6: DECISION SYNTHESIS

Megatrend Resilience Screen

Total: +5 | Tier 2 "Resilient"

Expected Return Scenarios

Expected 3-year return of ~16% (annualized ~5.1%) is below our 10% annual hurdle rate when adjusted for risk.

Position Sizing

Position Size = 3% x (17%/30%) x (75/100) x (1-0.3) x 0.7
             = 3% x 0.57 x 0.75 x 0.70 x 0.70
             = 0.63%

This is below the minimum meaningful position size (1.0%).

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INVESTMENT RECOMMENDATION

+---------------------------------------------------------------------+
|                     INVESTMENT RECOMMENDATION                        |
+---------------------------------------------------------------------+
| Company: Info-Tech Systems Ltd.    Ticker: ITS (SGX)                |
| Current Price: S$0.955             Date: 22 February 2026           |
+---------------------------------------------------------------------+
| VALUATION SUMMARY                                                    |
| +-------------------------+-----------+---------------------+        |
| | Method                  | Value/Shr | vs Current Price    |        |
| +-------------------------+-----------+---------------------+        |
| | DCF (Conservative)      | S$1.30    | 26.5% MOS           |        |
| | Private Market (6x Rev) | S$1.01    | -5.6% (overvalued)  |        |
| | Owner Earnings x 15     | S$0.78    | -22.4%              |        |
| | Owner Earnings x 20     | S$1.04    | 8.2% MOS            |        |
| | Owner Earnings x 25     | S$1.30    | 26.5% MOS           |        |
| +-------------------------+-----------+---------------------+        |
|                                                                      |
| INTRINSIC VALUE ESTIMATE: S$1.15 (weighted average)                 |
| MARGIN OF SAFETY: ~17% (INSUFFICIENT)                               |
+---------------------------------------------------------------------+
| RECOMMENDATION:  [X] WAIT                                           |
+---------------------------------------------------------------------+
| STRONG BUY PRICE:             S$0.69 (40% below IV)                |
| ACCUMULATE PRICE:             S$0.80 (30% below IV)                |
| FAIR VALUE:                   S$1.15                                |
| TAKE PROFITS PRICE:           S$1.38 (20% above IV)                |
| SELL PRICE:                   S$1.73 (50% above IV)                |
+---------------------------------------------------------------------+
| POSITION SIZE: 0% (WAIT for better entry)                           |
| CATALYST: None identified with sufficient probability               |
| PRIMARY RISK: AI disruption to HRMS market / valuation compression  |
| SELL TRIGGER: Revenue growth < 8% for 2 consecutive quarters        |
+---------------------------------------------------------------------+

Verdict

WAIT. Info-Tech Systems is a genuinely good business with excellent SaaS economics, strong market positioning in Singapore/Malaysia, improving customer retention, and multiple growth vectors. This is the kind of business Buffett would approve of qualitatively -- recurring revenue, high margins, switching costs, asset-light.

However, the current valuation of ~20x trailing earnings provides insufficient margin of safety. The business is small (S$44M revenue), operates in a competitive market with low barriers to AI-driven disruption, and faces potential government grant dependency. The IPO was priced to extract value for the founders, not to create bargains for new investors.

Wait for S$0.80 or below (a decline of ~16% from current levels). This could occur during:

• A broader SGX selloff
• Lock-up period expiry (if founders sell more shares)
• A disappointing quarterly result (the first few as a public company)
• A tech correction or rotation out of small-cap SaaS names

At S$0.80, the margin of safety would expand to ~30%, making this an ACCUMULATE with a 2% position.

Monitoring Metrics

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SOURCES USED

Primary Documents

Market Data

Independent Market Research

• Converging Knowledge Pte Ltd (commissioned by Info-Tech for prospectus): SME cloud-based HR/accounting software market data for Singapore, Malaysia, Hong Kong, India
• Combined SME market size: US$3.3B (2024), TAM: US$17.3B
• Market CAGR: 7.2% to 11.9% (2025-2029)