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]

Core Insights - Shell has launched the "Shell Expert Selected Product Series" in collaboration with Zhenkunhang, aiming to provide comprehensive industrial lubrication solutions tailored to various operational scenarios [1][3] Group 1: Product Launch and Collaboration - The product series was unveiled at Zhenkunhang's Shanghai headquarters, emphasizing the partnership's strategic significance and the innovative service model [3][5] - Shell's General Manager for Industrial Lubricants in China highlighted the initiative as a new attempt in the e-commerce model for industrial oils, focusing on high cost-performance and quality assurance [3][5] - The collaboration aims to leverage Zhenkunhang's extensive distribution network and digital platform to deliver quality products efficiently to customers [3][5] Group 2: Strategic Meetings and Global Cooperation - Prior to the product launch, Shell's global market team visited Zhenkunhang to discuss industry trends and global market dynamics [5] - The meeting underscored China's strategic importance in the global industrial lubricant market and aligned Zhenkunhang's 2025 strategy with Shell's global insights [5] - Both companies plan to enhance their global presence and digital procurement processes, aiming to integrate technology resources and improve supply chain efficiency [5]

Core Viewpoint - Huaxing Capital reports that Zhenkunhang (ZKH.US) has met expectations for GMV in Q4 2024, with revenue and net profit exceeding forecasts, leading to a "Buy" rating and a target price of $4.50 per share [1][3]. Financial Performance - In Q4 2024, ZKH's total GMV was RMB 2.69 billion, with contributions from ZKH platform and GBB platform at approximately RMB 2.44 billion and RMB 255 million, respectively, showing year-on-year declines of 16.1%, 16.2%, and 14.9% [1]. - The non-GAAP operating loss for Q4 was RMB 19 million, with a net loss of RMB 15 million; operating profit margin (OPM) and net profit margin (NPM) were -0.8% and -0.6%, respectively, showing improvement from Q3 2024 due to a focus on high-margin businesses and cost control [2]. Business Expansion - ZKH currently has 412 SKUs in the U.S. market, with an additional 1,300 SKUs set to launch, covering areas such as PPE, hand tools, power tools, packaging materials, HVAC, and office supplies [2]. - The company aims to enhance customer growth, with over 1,500 registered users on its e-commerce site launched in December 2024 [2]. Supply Chain and Pricing Strategy - Approximately 20% of SKUs for the U.S. market can be sourced from outside China, including South Korea, Vietnam, and Malaysia, mitigating potential tariff impacts [2]. - Despite tariff considerations, ZKH's products maintain a significant price advantage in the U.S. market [2]. AI Development - ZKH has integrated 2 million material items with an accuracy rate exceeding 90%, aiming to improve material management efficiency for customers [3]. - The internal AI assistant enhances order processing efficiency by approximately 23% [3]. Future Projections - Huaxing Capital adjusts ZKH's Q1 2025 GMV growth forecast to -10.1% and full-year growth to +7.0%, with revenue forecasts of -0.8% for Q1 and +11.1% for the full year [3]. - Expected gross margins for Q1 and full year 2025 are 17.9% and 18.2%, respectively, with non-GAAP net profit margins projected at -3.0% for Q1 and +0.4% for the full year [3]. - ZKH is anticipated to achieve positive GMV and revenue growth in Q2 2025, with net profit expected in the second half of 2025 [3].

Core Viewpoint - ZKH Group Limited, a leading MRO procurement service platform in China, is set to release its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2024, on March 18, 2025, before U.S. market opening [1] Group 1: Financial Results Announcement - The unaudited financial results will be announced on March 18, 2025 [1] - An earnings conference call will be held on the same day at 8:00 A.M. U.S. Eastern Time to discuss the financial results [2] - The call will be accessible via multiple international phone numbers and will also be available as a live and archived webcast on the company's investor relations website [2] Group 2: Company Overview - ZKH Group Limited is focused on the digital transformation of the MRO industry, aiming to reduce costs and improve efficiency [3] - The company offers digitalized, one-stop MRO procurement solutions, providing customers with access to a wide selection of quality products at competitive prices [3] - ZKH Group Limited enhances product delivery through professional fulfillment services, catering specifically to the needs of MRO suppliers and customers [3]

Core Viewpoint - ZKH Group Limited has entered into a strategic partnership with Zhejiang Tmall Technology Co., Ltd. to enhance cooperation in the industrial product market, effective until October 31, 2026 [1][2]. Group 1: Partnership Details - The partnership aims to explore commercialization models for industrial products and facilitate the upgrade and expansion of both parties' industrial product supplies [2]. - ZKH will arrange for flagship stores of leading industrial product brands to join Tmall's platform, while Tmall will provide tailored services and support [2]. Group 2: Company Overview - ZKH Group Limited is a leading MRO procurement service platform in China, focusing on digital transformation to improve cost efficiency across the industry [3]. - The company offers digitalized, one-stop MRO procurement solutions, enabling customers to access a wide selection of quality products at competitive prices [3]. - ZKH emphasizes timely and reliable product delivery through professional fulfillment services, catering specifically to the needs of MRO suppliers and customers [3].

Core Viewpoint - ZKH Group Limited reported its third-quarter financial results for 2024, showing a slight increase in net revenues despite a decline in gross merchandise volume (GMV) and a focus on operational optimization to improve profitability metrics [1][3]. Financial Performance - Net revenues for Q3 2024 were RMB 2,280.7 million (US$ 325.0 million), a 0.7% increase from RMB 2,265.0 million in Q3 2023 [3][4]. - Gross profit increased by 5.1% to RMB 388.4 million (US$ 55.3 million), with a gross margin of 17.0%, up from 16.3% in the same period last year [7][8]. - The company reported a net loss of RMB 81.8 million (US$ 11.7 million), an improvement from a net loss of RMB 97.7 million in Q3 2023 [15][16]. Operational Highlights - The total GMV decreased by 7.2% to RMB 2,685.996 million, with the ZKH platform GMV down by 7.5% [2]. - The number of customers increased by 16.9% year-over-year, reaching 47,876 [2]. - The company generated net cash from operating activities of RMB 160.5 million in Q3 2024, compared to net cash used in the same period of the previous year [21]. Cost Management - Cost of revenues slightly decreased by 0.2% to RMB 1,892.3 million (US$ 269.7 million), indicating effective cost management strategies [6]. - Operating expenses increased by 0.6% to RMB 493.8 million (US$ 70.4 million), with a slight decrease in the percentage of operating expenses relative to net revenues [9]. Strategic Focus - The company emphasized ongoing optimization efforts to enhance business quality and reduce loss margins, with a notable improvement in gross margin and adjusted net loss margin [1][2]. - ZKH Group is committed to long-term growth and value creation for stakeholders, focusing on strengthening product capabilities and customer relationships [1][2].

Core Viewpoint - ZKH Group Limited, a leading MRO procurement service platform in China, is set to release its unaudited financial results for Q3 2024 on November 22, 2024, before U.S. market opening [1]. Group 1: Financial Results Announcement - The unaudited financial results for Q3 2024 will be announced on November 22, 2024 [1]. - An earnings conference call will be held on the same day at 7:00 A.M. U.S. Eastern Time to discuss the financial results [2]. - Access to the conference call will be available through various toll-free numbers for the U.S., international, and Mainland China [2][3]. Group 2: Company Overview - ZKH Group Limited is focused on the digital transformation of the MRO industry, aiming to reduce costs and improve efficiency [4]. - The company offers digitalized, one-stop MRO procurement solutions, providing customers with access to a wide selection of quality products at competitive prices [4]. - ZKH Group Limited enhances product delivery through professional fulfillment services, catering specifically to the needs of MRO suppliers and customers [4].

Investment Rating - The report assigns an "Overweight" rating to ZKH (首次覆盖) [1] Core Views - ZKH's scale advantage is driving profit improvement, and the share buyback plan demonstrates confidence in future development [1] - ZKH's platform operations remain stable, with the Gongbangbang platform showing strong growth [2] - Revenue is growing rapidly, with marginal improvement in profit levels [2] - The company has completed multiple rounds of financing, attracting well-known institutions such as Zhongding Capital and Genesis Capital [2] - The share buyback plan reflects management's confidence in the company's long-term development [2] Financial Performance - In Q2 2024, ZKH achieved revenue of 2.25 billion yuan, a year-on-year increase of 8.5% [2] - Non-GAAP adjusted net profit was -35 million yuan, a reduction in loss of 95 million yuan compared to the same period last year [2] - Gross margin was 17.0%, up 0.8 percentage points year-on-year [2] - The ZKH platform's GMV was 2.48 billion yuan, up 4.4% year-on-year, with revenue of 1.893 billion yuan, up 7.8% year-on-year, and a gross margin of 15.5%, up 1.81 percentage points year-on-year [2] - The Gongbangbang platform's GMV was 270 million yuan, up 17.8% year-on-year, with revenue of 270 million yuan, up 17.3% year-on-year, and a gross margin of 5.6%, down 0.29 percentage points year-on-year [2] Revenue and Profit Forecast - Forecasted revenue for 2024-2026E is 9.77 billion yuan, 10.82 billion yuan, and 11.76 billion yuan, respectively [3] - Forecasted net profit attributable to the parent company for 2024-2026E is 86 million yuan, 402 million yuan, and 724 million yuan, respectively [3] - The corresponding P/E ratios are 47.9X, 10.3X, and 5.7X, respectively [3] Valuation Metrics - ROE is expected to improve from -9.5% in 2023A to 16.4% in 2026E [4] - Gross margin is forecasted to increase from 17% in 2023A to 20% in 2026E [5] - Revenue growth rate is projected to be 12% in 2024E, 11% in 2025E, and 9% in 2026E [5] - Net profit growth rate is expected to be 128% in 2024E, 366% in 2025E, and 80% in 2026E [5] Share Buyback Plan - ZKH announced a share buyback plan on June 14, 2024, intending to repurchase up to $50 million worth of ADS within the next 12 months [2]