Sealand Securities Co.,Ltd. released a research report forecasting that KINETIC DEV (01277) will achieve operating revenues of 5,406.45/6,118.27/6,815.50 million yuan for 2025-2027, with net profits attributable to shareholders of 1,288.04/1,879.75/2,143.48 million yuan, representing year-on-year changes of -38.95%/+45.94%/+14.03% respectively. Earnings per share (EPS) are projected to be 0.15/0.22/0.25 yuan, corresponding to a price-to-earnings (PE) ratio of 7.83/5.36/4.70 times based on the current share price. The company's primary asset, the Dafanpu Coal Mine, boasts strong profitability, and it has maintained a high and stable dividend payout ratio in recent years. A substantial equity incentive plan helps reduce agency costs. With the upcoming commencement of operations at the Yong'an and Weiyi coal mines, and the orderly advancement of the acquisition of South Africa's MC Mining, the company still possesses room for earnings growth. Coupled with its currently low valuation, the company presents investment value, leading to a first-time "Buy" rating.
KINETIC DEV is a privately-owned enterprise integrated across coal production, transportation, and sales, characterized by four key strengths: high profitability, high dividends, high capacity growth potential, and high equity incentives. 1) High Profitability: From 2018 to 2024, the company's Return on Equity (ROE) consistently outperformed major thermal coal peers, primarily driven by a high net sales margin (averaging 36.97% from 2018-2024, compared to a 5%-20% range for major peers). This superior per-tonne coal profitability underpins the high net margin; the company achieves a higher selling price per tonne than peers due to the high quality of coal from the Dafanpu Mine and efficient sales strategies, while its cost per tonne remains relatively low. From 2021 to 2024, gross profit per tonne remained high, in the range of 400-600 yuan/tonne, approximately 80-110 yuan/tonne above the average of major thermal coal peers (noting that KINETIC DEV's sales cost may include government surcharges potentially containing resource taxes, suggesting its gross profit per tonne might be understated).
2) High Dividends: Benefiting from low leverage and strong cash conversion from revenue, the dividend payout ratio increased annually from 2022 to 2024, reaching a high level of 56.57%. As of the 2025 interim report, the company has announced a combined interim and special dividend for 2025 totaling 657.68 million yuan, implying a dividend yield of 6.56% based on the market capitalization as of December 23. The dividend distribution rhythm is stable, with the company implementing both interim and final dividends for eight consecutive years from 2017 to 2024, and paying additional special dividends for three consecutive years starting from 2023. Furthermore, based on our analysis, the overall scale of the company's property acquisitions appears manageable and is being gradually absorbed.
3) High Capacity Growth Potential: The company currently possesses 6.5 million tonnes of operational thermal coal capacity and has 2.1 million tonnes of coking coal capacity under construction (Yong'an and Weiyi mines, expected to reach full production in 2026 and 2027, respectively). Additionally, it is progressively acquiring a 51% stake (on a fully diluted basis) in the South Africa-based MC Mining project, whose key projects include thermal and coking coal. The flagship Makhado project is expected to begin joint commissioning in January 2026, targeting a raw coal mining rate of 3.2-4.0 million tonnes per year. The new domestic and international capacities both include higher-value-added coking coal, which is expected to enhance the performance of the coal business both in volume and price.
4) High Equity Incentives: As of mid-2025, the company had granted 263.50 million reward shares to employees (representing 3.13% of the issued shares on the grant date) under the 2023 Share Award Scheme. This is conducive to aligning management interests with those of shareholders, thereby reducing agency costs.
Risk warnings include: 1) Unexpected fluctuations in coal prices; 2) Risks associated with coal imports; 3) Risks of new project delays or underperformance; 4) Risks from ongoing substitution by renewable energy; 5) Risks of stricter-than-expected environmental regulations; 6) Differences in valuation systems between Hong Kong and A-shares; 7) Risks related to connected transactions with major shareholders.
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