Undervaluation and Growth Potential of Info-Tech Systems (SGX:ITS): A DCF-Based Investment Opportunity

In the dynamic landscape of technology-driven markets, identifying undervalued equities requires a nuanced understanding of both macroeconomic trends and company-specific fundamentals. Info-Tech Systems (SGX:ITS), a recently listed entity on the Singapore Exchange, presents a compelling case for intrinsic valuation and discounted cash flow (DCF) analysis. This article examines the company's growth trajectory, financial health, and valuation metrics to assess its potential as a long-term investment.

A Foundation of Transparency and Growth

Info-Tech Systems, which listed on July 4, 2025, has emphasized transparency and corporate governance from its inception. While its 2024 annual report remains unpublished, the 2025 IPO prospectus provides critical insights into its projected growth. According to the prospectus, the company anticipates a compound annual growth rate (CAGR) of 6% in revenue and 7.2% in earnings over the next three years, with earnings per share (EPS) expected to rise by 7.4% annually. By 2028, revenue is forecast to reach SGD 55 million, supported by earnings of SGD 15 million and free cash flow of SGD 15 million. These projections, if realized, suggest a robust expansion of operating margins and capital efficiency.

DCF Analysis: Inputs and Assumptions

A DCF model hinges on estimating future cash flows, discounting them at an appropriate rate, and comparing the result to the current market value. For Info-Tech Systems, the absence of a 2024 annual report complicates the derivation of historical cash flow data. However, the IPO prospectus and post-listing financials offer a partial framework.

The company's enterprise value (EV) as of January 2026 stands at SGD 174.97 million, with a market capitalization of SGD 205.73 million and a modest debt burden of SGD 3.48 million. This low leverage-reflected in a debt-to-equity ratio of 0.52-reduces financial risk and implies a lower cost of debt. With an EBIT of SGD 15.02 million and an interest coverage ratio of 74.36, the firm's ability to service debt is robust.

The Weighted Average Cost of Capital (WACC), a critical DCF input, remains challenging to compute due to missing parameters such as the cost of equity. The WACC formula, $ \text{WACC} = \left(\frac{E}{V} \times Ke\right) + \left(\frac{D}{V} \times Kd \times (1 - Tc)\right) $, requires estimates for the cost of equity ($ Ke $) and cost of debt ($ Kd $). While the company's low debt load suggests a minimal impact from $ Kd $, the absence of $ Ke $ necessitates reliance on industry benchmarks or market risk premiums. Assuming a conservative $ Ke $ of 10% (aligned with Singapore's technology sector risk profile), the WACC could approximate 9–10%, factoring in the company's low debt and stable cash flow visibility.

Undervaluation: Bridging the Gap Between Projections and Reality

The key to assessing undervaluation lies in comparing the intrinsic value derived from DCF with the current market price. Using the 2028 revenue and free cash flow projections of SGD 55 million and SGD 15 million, and applying a terminal growth rate of 2–3% (consistent with long-term GDP growth in Singapore), the implied intrinsic value exceeds the current EV of SGD 174.97 million. Even under conservative assumptions-such as a 10% discount rate and a 3% terminal growth rate-the DCF model suggests a significant margin of safety.

This discrepancy may stem from market skepticism about the company's ability to meet ambitious growth targets. However, the IPO prospectus highlights a projected return on equity (ROE) of 34.7% by 2028, a metric that historically correlates with strong shareholder returns. Such performance would not only validate the DCF assumptions but also justify a premium valuation.

Risks and Considerations

While the DCF analysis is promising, investors must remain cognizant of risks. The absence of detailed historical financials for 2024 introduces uncertainty about the company's operational resilience. Additionally, the cost of equity assumption is inherently speculative without direct data. Macroeconomic headwinds, such as interest rate volatility or sector-specific regulatory changes, could also impact growth trajectories.

Conclusion: A Strategic Buy for Long-Term Investors

Info-Tech Systems (SGX:ITS) embodies the characteristics of a high-conviction investment: strong projected growth, low leverage, and a transparent governance structure. The DCF model, though constrained by data gaps, underscores an intrinsic value that outpaces the current market valuation. For investors with a medium-term horizon and a tolerance for moderate risk, ITS represents an attractive opportunity to capitalize on its potential to deliver outsized returns.

As the company progresses through its early years of public trading, continued monitoring of its quarterly disclosures and alignment with IPO projections will be critical. In a market where patience and precision are rewarded, Info-Tech Systems offers a rare blend of promise and prudence.