Core Viewpoint - Deutsche Bank maintains an optimistic outlook for Zhenkunhang (ZKH.US) in the second half of the year, keeping a "Buy" rating with a target price of $4.5, citing the company's long-term growth potential driven by the digital transformation of China's MRO procurement services [1][2] Group 1: Financial Performance - The company's Q1 2025 performance met expectations, with GMV growth expected to accelerate quarter by quarter [1] - Revenue from the U.S. business doubled month-on-month in Q1, with further acceleration anticipated in the second half [2] Group 2: AI and Technology Integration - AI technology has significantly enhanced customer service efficiency, with a 60.4% increase in the average order handling capacity per customer service team member in Q1 [1] - The AI product recommendation engine has provided purchasing demand analysis and product pool management services to over 200 clients since its launch in September 2024, generating additional revenue exceeding RMB 34 million [1] - The company plans to expand the coverage of the AI product recommendation engine to 14,000 clients by 2025 to further unlock its value [1] Group 3: Product and Market Expansion - As of the end of March, Zhenkunhang's U.S. independent site has launched over 500 SKUs across various categories, including PPE, hand tools, power tools, packaging materials, and HVAC systems [1] - The company aims to launch a mobile application in the second half of the year and increase the SKU count to 1,500 to enhance product coverage and user experience [1] - Zhenkunhang is strengthening its global supply chain by expanding its quality supplier network in Southeast Asia to address potential geopolitical uncertainties [1] Group 4: Private Label Strategy - In Q1 2025, the transaction volume of private label products grew approximately 40% year-on-year, accounting for 8.7% of the company's total GMV [2] - Deutsche Bank views the development of private label products as a core strategy for the company this year, with significant growth potential as the current share is still far from the long-term target of 30% [2]

Financial Performance - ZKH's Q1 2025 product sales gross margin increased by 580 basis points year-over-year to 166% on the ZKH platform and by 675 basis points to 62% on the GBB platform[13] - The marketplace (3P) take rate increased by 2359 basis points year-over-year to 140%[13] - Private label product revenue increased by 40% year-over-year and is on track to achieve a 50% growth target for FY2025[13] - Operating loss narrowed by 377% year-over-year to RMB 808 million, with a margin improvement of 2791 basis points from -70% to -42%[13] - Net loss narrowed by 266% year-over-year to RMB 667 million, with a margin improvement of 1439 basis points from -49% to -34%[13] Customer and Platform Growth - The customer base exceeded 60000 in Q1 2025, representing a 303% year-over-year increase[13] - GMV in 2024 reached RMB 105 billion, with a 2020-2024 CAGR of 205%[7] - The company has over 83900 customers and 32+ million orders[7] International Expansion and AI - US revenue and customer base nearly doubled each month since January 2025[13] - AI Product Recom Agent helped drive RMB 34 million in revenue growth since launch and is scaling to 14000 customers in FY2025 with target sales growth in the hundreds of millions of RMB[13] - AI Smart Workbench boosted per-customer-service staff order processing volume by 604% quarter-over-quarter in Q1[13]

Core Insights - The company, Zhenkunhang, reported a strong performance in Q1 2025, with revenue reaching 1.94 billion RMB, a year-on-year increase of 4% [1] - The gross merchandise volume (GMV) for its proprietary brand exceeded 190 million RMB, growing approximately 40% [1] - The total number of active customers surpassed 60,000, marking a 30.3% year-on-year increase [1] - The company achieved significant improvements in profitability, with gross margin at 17.2% and substantial reductions in operating and net losses [1] - Operating cash flow improved by over 50%, decreasing from 220 million RMB to 97 million RMB year-on-year [1] Financial Performance - Revenue for Q1 2025 was 1.94 billion RMB, reflecting a 4% increase compared to the previous year [1] - The gross margin stood at 17.2%, with operating losses reduced by 37.7% and net losses reduced by 26.6% year-on-year [1] - The company achieved monthly profitability in March across operating profit, net profit, and adjusted net profit [1] Domestic Business Growth - The company serves both large and small enterprises, with significant growth in sales and customer numbers in the MRO procurement sector [3] - Sales in sectors such as new energy vehicles, electronics, and pharmaceuticals grew over 20% year-on-year [3] - The GBB platform experienced explosive growth after a strategic partnership with Tmall, with sales increasing by over 260% quarter-on-quarter [3] International Expansion - The company has made significant progress in the U.S. market, with sales and customer numbers doubling month-on-month since January 2025 [2][4] - The U.S. independent site has launched over 500 SKUs, with plans to expand to over 1,500 SKUs by the end of the year [4] - The company is actively recruiting quality suppliers in Southeast Asia to enhance its overseas supply chain capabilities [4] AI and Technology Development - The company has developed over 10 AI applications aimed at enhancing operational efficiency and customer service [6][7] - The "AI Material Manager" and "AI Product Recommendation Brain" tools have shown significant value in improving order processing and customer insights [7] - The "AI Smart Workbench" has increased order processing efficiency by 60.4% in Q1 2025 [7] Future Outlook - The company aims to continue enhancing its product offerings, supply chain capabilities, and AI technology to drive sustainable growth [2][8] - Management expresses confidence in restoring growth in the second half of the year following structural adjustments in its business [3][8]

Financial Data and Key Metrics Changes - In Q1 2025, the company's revenue reached RMB1.94 billion, representing a 4% year-over-year increase [6] - The operating loss was approximately RMB18.8 million, a significant improvement from RMB129.6 million in the previous year, with margins improving to 4.2% from 7% [29] - Net cash outflow from operating activities was RMB97 million, compared to RMB220 million in the same period last year, indicating strong financial resilience [7][29] Business Line Data and Key Metrics Changes - The ZKH platform saw GMV from industry key accounts increase by 19.7% year-over-year, with over 20% growth in sectors like new energy vehicles and pharmaceuticals [9] - Sales and customer numbers from regional SME customers on the ZKH platform recorded double-digit growth, with notable regions like Guangdong and Zhejiang posting over 20% growth [10] - The GBB platform achieved a quarter-over-quarter sales growth of over 260% and customer growth accelerated to over 24,000, up 73% year-over-year [12][13] Market Data and Key Metrics Changes - The total GMV reached RMB2.17 billion, reflecting a modest decline due to a high comparison base from last year, but underlying GMV maintained robust double-digit year-over-year growth [23] - The company is expanding its U.S. operations with over 500 SKUs launched, and plans to scale this to over 1,500 items by the end of the year [15][16] Company Strategy and Development Direction - The company is focusing on a dual platform strategy to meet diverse customer demands, with the ZKH platform serving mid to large-sized enterprises and the GBB platform catering to micro and small businesses [8] - There is a strong emphasis on AI technology development, with over 10 AI-powered applications deployed to enhance operational efficiency and customer service [19][20] - The company plans to enter the European market in the second half of the year, focusing on online and offline strategies in Germany and Hungary [37][38] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in regaining growth momentum in the SOE and central SOE business in the second half of the year, following business optimization initiatives [11] - For Q2 through Q4, management anticipates double-digit growth for GMV and expects Q2 to see single-quarter breakeven, with positive profitability in Q3 and Q4 [51][52] - The company believes it has entered a new phase of long-term sustainable growth, supported by organizational strengthening and core competency solidification [22] Other Important Information - The gross profit margin slightly decreased to 17.2% from 18% in the prior year, primarily due to lower revenue contributions from the marketplace model [25] - Operating expenses decreased by 10.9% year-over-year to RMB412.9 million, reflecting reductions across all major expense categories [26] Q&A Session Summary Question: Impact of tariffs on domestic and U.S. business - Management indicated that U.S. tariffs are not a negative factor and may actually serve as a tailwind for expanding the U.S. business, with preparations made to source from Southeast Asia [34][35] Question: Timeline for entering new markets beyond the U.S. - The company plans to start its business in Europe in the second half of the year, focusing on online sales across Europe and offline in Germany and Hungary [37][38] Question: Updates on product strategy and key product categories - The company has 32 product lines across five categories and will focus on industrial-grade MRO products, particularly enhancing private label development [43][44] Question: Business and financial outlook for upcoming quarters - Management expects to achieve double-digit growth for GMV in the next three quarters and anticipates profitability improvements, with the entire group expected to break even for the year [51][52]

Financial Data and Key Metrics Changes - In Q1 2025, the company's revenue reached RMB1.94 billion, representing a 4% year-over-year increase [6][24] - The operating loss was approximately RMB18.8 million, a significant improvement from RMB129.6 million in the previous year [30] - The net loss was around RMB66 million, showing a year-over-year improvement of 37.7% [6] - Net cash outflow from operating activities was RMB97 million, compared to RMB220 million in the same period last year, indicating improved cash flow resilience [7][30] Business Line Data and Key Metrics Changes - The ZKH platform saw GMV from industry key accounts increase by 19.7% year-over-year, with over 20% growth in sectors like new energy vehicles and pharmaceuticals [9][11] - Sales to regional SME customers recorded double-digit growth, with notable regions like Guangdong and Zhejiang posting over 20% growth [10] - Sales to SOE and central SOE customers declined significantly year-over-year, attributed to a high comparison base and business optimization initiatives [5][10] - The GBB platform achieved a quarter-over-quarter sales growth of over 260% and customer growth accelerated to over 24,000, up 73% year-over-year [12][13] Market Data and Key Metrics Changes - The total GMV reached RMB2.17 billion, reflecting a modest decline due to a high comparison base from the previous year [23] - The marketplace revenue declined due to the prior year's high comparison base, while product sales revenue saw a high single-digit year-over-year increase [24] - The gross profit margin slightly decreased to 17.2% from 18% in the prior year, but the gross profit margin from the product sales model improved [25] Company Strategy and Development Direction - The company is focusing on a dual platform strategy to meet diverse customer demands, with the ZKH platform serving mid to large-sized enterprises and the GBB platform catering to micro and small businesses [8] - There is a strong emphasis on AI technology development, with over 10 AI-powered applications deployed to enhance operational efficiency and customer service [17][21] - The company plans to expand its product portfolio and deepen supply chain integration while implementing AI technologies across operations [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in regaining growth momentum in the SOE and central SOE business in the second half of the year [11] - For Q2 through Q4, management anticipates double-digit growth for GMV and expects Q2 to see single-quarter breakeven, with positive profitability in Q3 and Q4 [51][52] - The company believes it has entered a new phase of long-term sustainable growth, supported by organizational strengthening and core competency solidification [22] Other Important Information - The company has initiated global supplier recruitment efforts, securing high-quality suppliers in Southeast Asia to enhance sourcing flexibility [16] - The strategic partnership with Tmall has been fruitful, with plans to expand the number of stores on Tmall significantly by the end of the year [12] Q&A Session Summary Question: Impact of tariffs on domestic and U.S. business - Management indicated that U.S. tariffs are not a negative factor and could serve as a tailwind for expanding the U.S. business, with preparations made for sourcing from Southeast Asia [34][35] Question: Timeline for entering new markets beyond the U.S. - Management plans to start business in Europe in the second half of the year, focusing on online and offline strategies in Germany and Hungary [37][38] Question: Updates on product strategy and key product categories - The company has 32 product lines across five categories and will focus on industrial-grade MRO products, particularly enhancing private label development [44][45] Question: Business and financial outlook for upcoming quarters - Management expects to achieve double-digit growth for GMV in the next three quarters and anticipates profitability improvements, with the entire group breaking even for the year [51][52]

Core Insights - ZKH Group Limited reported a 4.0% increase in net revenues for Q1 2025, reaching RMB1,935.4 million (US$266.7 million) compared to RMB1,860.4 million in Q1 2024, driven primarily by growth in product sales [5][12] - The company experienced a decrease in Gross Merchandise Volume (GMV) by 7.5% to RMB2,171.997 million, with the ZKH platform GMV declining by 8.0% [2][5] - ZKH's international expansion, particularly in the U.S., has shown significant momentum, with revenue and customer base nearly doubling each month since January 2025 [2][5] Financial Performance - Net product revenues increased by 6.2% to RMB1,884.9 million (US$259.7 million), while net service revenues decreased by 43.1% to RMB37.9 million (US$5.2 million) [9][12] - Gross profit was RMB332.1 million (US$45.8 million), a slight decrease of 0.6% from RMB334.1 million in Q1 2024, resulting in a gross margin of 17.2% [7][12] - Operating loss narrowed to RMB80.8 million (US$11.1 million) from RMB129.6 million in the same period last year, with an operating loss margin of 4.2% [11][12] Customer Growth and Market Dynamics - The number of customers increased by 30.3% year-over-year to 60,102, with notable growth in the GBB platform customer base, which rose by 73.0% [2][5] - The marketplace model's contribution to GMV decreased significantly from 24.4% in Q1 2024 to 12.5% in Q1 2025, reflecting a strategic shift towards higher-margin product sales [3][10] Cost Management and Operational Efficiency - Operating expenses decreased by 10.9% to RMB412.9 million (US$56.9 million), with all categories of operating expenses showing reductions [10][12] - Fulfillment expenses decreased by 4.2% to RMB93.3 million (US$12.9 million), while sales and marketing expenses fell by 16.6% to RMB136.8 million (US$18.9 million) [15][12] Future Outlook - The company aims to enhance its product offerings and supply chain capabilities internationally while leveraging digitalization and big data analytics to meet evolving customer needs [2][5] - ZKH Group Limited remains committed to investing in its products, supply chain, AI capabilities, and global footprint to drive sustainable growth and reinforce its industry leadership [2][5]

SHANGHAI, April 17, 2025 /PRNewswire/ -- ZKH Group Limited ("ZKH" or the "Company") (NYSE: ZKH), a leading maintenance, repair and operations ("MRO") procurement service platform in China, announced that it filed its annual report on Form 20-F for the fiscal year ended December 31, 2024 with the U.S. Securities and Exchange Commission ("SEC") on April 17, 2025. The annual report in electronic format is accessible on the Company's investor relations website at https://ir.zkh.com as well as on the SEC's websi ...

Company Structure and Regulatory Environment - ZKH Group Limited is a Cayman Islands holding company with operations primarily through its mainland China subsidiaries, posing unique risks to investors regarding foreign ownership limitations[29]. - The company has completed the necessary permissions and filings for its initial public offering, including a cybersecurity review by the Cyberspace Administration of China[44]. - Future securities offerings outside of mainland China will be subject to CSRC filing requirements, and failure to comply may result in sanctions, including fines and operational limitations[49]. - Under the Holding Foreign Companies Accountable Act, if the SEC determines the company has filed audit reports from a non-inspected firm for two consecutive years, trading of its shares may be prohibited in the U.S.[51]. - The PCAOB has not issued new determinations regarding its ability to inspect audit firms in mainland China, which may affect the company's status under the HFCAA[53]. - The PRC Enterprise Income Tax Law imposes a 10% withholding tax on dividends distributed by foreign-invested enterprises to their immediate holding company outside of mainland China[41]. - The regulatory framework for data protection is rapidly evolving, with significant implications for the company's operations and compliance costs[82]. - The PRC Cybersecurity Law requires network operators to implement security measures to protect against unauthorized access and data breaches, necessitating substantial resources for compliance[84]. - The PRC Personal Information Protection Law, effective November 2021, imposes strict rules on processing sensitive personal information, which may impact the company's data handling practices[92]. - The evolving regulatory landscape may require the company to adapt its business practices, potentially incurring substantial costs[99]. - The company has not been involved in any investigations related to cybersecurity review as of the date of the annual report, indicating a current lack of regulatory scrutiny[88]. - Uncertainties exist regarding the impact of the PRC Foreign Investment Law on the company's corporate structure and operations, which could affect business viability[223]. Financial Performance and Challenges - The company incurred net losses of RMB731.1 million in 2022, RMB304.9 million in 2023, and RMB268.0 million (US$36.7 million) in 2024, indicating ongoing financial challenges[103]. - The ability to achieve profitability will depend on increasing gross margin by growing revenues faster than the cost of revenues or reducing costs as a percentage of net revenues[103]. - Net revenues increased from RMB 8,315.2 million in 2022 to RMB 8,721.2 million in 2023, and further increased to RMB 8,761.3 million (US$1,200.3 million) in 2024[68]. - Operating cash flow improved by RMB 797.0 million to a gain of RMB 229.1 million in 2024, compared to negative cash flow in previous years[104]. - Net cash used in operating activities was RMB 504.2 million in 2022, RMB 567.9 million in 2023, and net cash provided was RMB 229.1 million (US$31.4 million) in 2024[104]. - The company may need to raise additional funds to support its growth strategy, which could lead to significant additional funding needs if financing is not available on satisfactory terms[127]. - Future financing may be uncertain, impacting the ability to support business growth and operational needs[109]. Operational Risks and Challenges - The company faces significant risks related to customer retention and satisfaction, which are critical for its financial performance[61]. - The company faces challenges in maintaining customer experience and service quality, which could adversely affect customer retention and acquisition[64]. - The company is vulnerable to fluctuations in supply and demand for MRO products, which could impact trading volume and pricing on its platform[59]. - The online MRO procurement service industry in China is still in its early stages, with uncertainties regarding growth and profitability[66]. - The company operates under two business models: a product sales model and a marketplace model, with higher gross margins observed in the marketplace model[77]. - The company anticipates further expansion into overseas markets, which will increase operational complexity and resource strain[71]. - The company must continuously enhance its technology infrastructure to support growth and maintain system security[69]. - The company is exposed to risks related to geopolitical tensions and regulatory changes that could impact its operations and financial performance[66]. - The company faces risks related to the fulfillment of hazardous products, including potential liabilities from third-party service providers[115]. - The company relies on third-party suppliers for product sales, which poses risks to business performance if relationships are not maintained[105]. - The company is subject to potential government enforcement actions and investigations if it fails to comply with cybersecurity and data privacy requirements[88]. - The company faces risks related to the availability of products from foreign markets, which could adversely affect inventory levels and operating results[179]. - The company has limited insurance coverage, which may expose it to significant costs and business disruptions[204]. Market and Competitive Environment - The MRO procurement service industry in China is large and fragmented, with increased competition potentially leading to loss of market share and reduced profitability[128]. - Seasonal fluctuations in customer purchases have been observed, with generally fewer orders during public holidays, particularly during the Chinese New Year[141]. - Pricing decisions may adversely affect the company's financial performance and ability to attract and retain suppliers and customers[150]. - The company faces risks related to third-party online payment platforms, which could impact customer trust and result in a material adverse effect on business operations[138]. - The company is increasingly sensitive to environmental, social, and governance (ESG) issues, which may impose additional costs and risks, potentially affecting business operations and financial condition[218]. Technology and Data Management - The integration of artificial intelligence technologies is ongoing, but presents operational, compliance, and reputational risks due to the unpredictable nature of AI[120]. - The company has invested substantial resources in developing complex and innovative technology systems to enhance customer service and operational efficiency[153]. - The performance of the company's technologies is critical for supporting key functions such as online ordering and logistics information, but stability cannot be assured[153]. - The company relies heavily on internet infrastructure and telecommunications networks in China, with almost all access provided by state-owned operators[198]. - The company has processes in place to mitigate risks associated with open source software, but cannot guarantee all risks are managed effectively[196]. - The company is subject to evolving laws regarding online service provider liability, which could lead to potential legal challenges and financial penalties[201]. Human Resources and Internal Controls - Key employee retention is critical for success, with competition for talent in the MRO procurement service industry being intense[123]. - A significant risk exists due to the lack of sufficient and competent accounting personnel, leading to material weaknesses in internal control over financial reporting[206]. - The company has identified a material weakness in internal controls, which could affect investor confidence and market price of its ADSs[205]. Economic and Political Factors - Economic conditions in China and globally, including the impact of COVID-19 and geopolitical conflicts, could materially affect the company's financial condition[172]. - Changes in U.S. and international trade policies, particularly regarding China, may adversely impact the company's business and operating results[173]. - The slowing growth rate of the Chinese economy since 2012 may reduce demand for the company's products and services, adversely impacting business results[227]. - The PRC government maintains significant control over economic growth and resource allocation, which could introduce uncertainties for the company[226]. - Changes in China's economic, political, or social conditions could materially adversely affect the company's business and financial results[224].

Thank you, Operator. Thank you, everyone, and welcome to our call today. Joining us today are Mr. Eric Chun, our Founder, Chairman, and Chief Executive Officer, and Mr. Max Lai, our Chief Financial Officer. Before turning the call over to Eric, I would like to briefly review our Safe Harbor provision. Please note that the comments made during today's call represent management management view as of today and may include forward-looking statements. For further details, please refer to our latest Safe Harbor S ...

Core Insights - Deutsche Bank's report indicates that Zhenkunhang (ZKH.US) exceeded expectations for Q4 2024, with total revenue and adjusted net profit surpassing market forecasts by 4% and 19% respectively [1] - Based on strong Q4 performance, Deutsche Bank raised Zhenkunhang's revenue and adjusted net profit forecasts for 2025 by 3% and 55%, anticipating an 11% year-on-year revenue growth and an increase in adjusted net profit margin by 0.4% [1] - The management expressed confidence in rapid revenue recovery and achieving profitability for the full year 2025, following the completion of business adjustments [2] Revenue and Profitability - For FY 2024, total GMV is expected to decline by 5% year-on-year, with net income remaining flat; however, excluding the impact of business adjustments, total GMV is projected to achieve double-digit growth [1] - Key verticals such as electrical, electronics and communications, new energy vehicles, transportation, and public utilities are expected to perform well, with GMV growth exceeding 20% year-on-year in 2024 [1] Margin and Growth Drivers - The company anticipates a 1-1.5 percentage point increase in gross margin for its 1P business over the next few years, aiming for a long-term target of 20% (16% in 2024), while the commission rate for 3P business is expected to remain around 11% [2] - Key drivers for margin improvement include economies of scale, increased share of private label products, and overseas expansion [2] Artificial Intelligence and Digitalization - Zhenkunhang's "AI Material Manager" has standardized over 2 million material entries with an accuracy rate exceeding 90%, while the "AI Expert Assistant" has improved order processing efficiency by 23% for over 12,000 enterprises [2] - The growth of AI technology is expected to continue benefiting the company by enhancing service efficiency and accelerating customer penetration [2] Overseas Expansion - Since the launch of ZKH's independent website in the U.S. in December 2024, the number of registered customers has surpassed 1,500, with 412 SKUs currently available and an additional 1,800 SKUs set to launch [2] Private Label Growth - In 2024, Zhenkunhang's private label GMV grew by 29%, accounting for 6.7% of total GMV (up from 4.9% in 2023), with a long-term goal of increasing this share to 30% [3] - The company aims to enhance its product innovation and research capabilities to support this growth [3] Industry Positioning - Zhenkunhang is recognized as a leading industrial procurement service platform in China, providing one-stop procurement and management services while facilitating digital transformation in the supply chain for the manufacturing sector [3]