Investment Rating - The report assigns an "Accumulate" rating for the industry, indicating a potential increase of over 15% relative to the CSI 300 index [5][44]. Core Insights - The MRO market in China is entering a rapid growth phase, with the market size expected to reach 3.7 trillion yuan in 2024, reflecting a year-on-year growth of 5.7%. By 2029, the market size is projected to reach 4.5 trillion yuan, with a CAGR of 4.2% [2][15]. - Zhenkunhang, as a leading MRO e-commerce platform in China, has established a strong delivery capability and digital supply chain solutions, continuously expanding its customer base and maintaining high customer retention [2][5]. - The company has successfully listed on the New York Stock Exchange in December 2023, becoming the first MRO enterprise from China to go public in the U.S. [5][17]. Summary by Sections 1. MRO Market Expansion - The MRO market is transitioning from traditional fragmented procurement to centralized procurement, which significantly reduces costs and improves efficiency for clients [9][11]. - The digital transformation in the MRO industry is accelerating, with e-commerce procurement expected to save companies 15-20% in costs and 70% in time [11][15]. - The current market is highly fragmented, with the top 10 companies holding only 1.5% of the market share by transaction value [16]. 2. Zhenkunhang Overview - Zhenkunhang has transformed into an MRO e-commerce platform since 2014, offering a wide range of industrial products with over 17 million SKUs [17][20]. - The company operates two platforms: Zhenkunhang for large clients and Gongbangbang for small and micro clients, ensuring comprehensive service coverage [17][19]. - The GMV reached 11.083 billion yuan in 2023, doubling since 2020, although a slight decline was noted in 2025 due to business optimization efforts [20][24]. 3. Competitive Advantages - Zhenkunhang has built a robust delivery network with 30 distribution centers and 100 transit warehouses, covering major industrial centers in China [32]. - The company offers a comprehensive digital supply chain solution, integrating various digital tools and AI technologies to enhance procurement efficiency [34][35]. - The self-owned brand business is expanding, with a GMV growth of 16.7% in 2025, contributing to 8.2% of total GMV [38]. 4. Financial Performance - The company's revenue has grown rapidly from 4.686 billion yuan in 2020 to 8.761 billion yuan in 2024, with a CAGR of 17% [24][28]. - The net loss has been narrowing, with a reduction from 2.68 billion yuan in 2024 to 1.45 billion yuan in the first three quarters of 2025 [24][28]. - The gross margin improved from 14.52% in 2020 to 16.78% in the first nine months of 2025, indicating enhanced profitability [28]. 5. Future Growth Opportunities - The company is actively expanding its self-owned brand and overseas business, with a focus on the U.S. market and local operational strategies [38]. - Zhenkunhang aims to provide high-cost performance products and services, targeting key categories such as hand tools and PPE [38].

Core Viewpoint - CITIC Securities initiates coverage on Zhenkunhang with an "Accumulate" rating and a target price of $4.3, highlighting its potential for growth as it expands its customer base and accelerates overseas business development [1]. Financial Performance - Zhenkunhang reported revenue of 2.328 billion yuan for Q3 2025, a year-on-year increase of 2.1%. The Non-GAAP adjusted net loss was 14 million yuan, with the loss narrowing by 78.7% year-on-year [1]. - The company's GMV (Gross Merchandise Volume) decline has slowed, with both large and small to medium-sized enterprise customer transaction volumes increasing [1]. Business Strategy - Zhenkunhang is focusing on high-margin proprietary brand products, with proprietary brand GMV increasing by 16.7% year-on-year, accounting for 8.2% of total GMV in Q3 2025 [1][3]. - The number of customers reached 70,800 by Q3 2025, representing a 48.0% year-on-year growth, while over 2.3 million new SKUs were added, bringing the total available SKUs to over 19 million [1][3]. AI Integration - The company is leveraging artificial intelligence across various operational aspects, with its core application "AI Product Recommendation Brain" set to launch in Q4 2024. By Q3 2025, it had recommended over 20 million items, generating over 100 million yuan in incremental revenue [1][3]. International Expansion - Zhenkunhang is expanding its distribution channels in the U.S., having established its own North American platform, Northsky, and entered third-party platforms like Amazon [1][3]. - CITIC Securities is optimistic about the company's proprietary brand and overseas strategy enhancing profit margins, with AI driving quality improvements in its core business [1].

Financial Data and Key Metrics Changes - The company's GMV declined by 12.1% year over year, while total revenues decreased by 3.7% to RMB 2.17 billion, largely due to last year's high comparison base [21][22] - The gross margin on a GMV basis reached 14.8%, representing a 0.8 percentage point year over year increase, marking the sixth consecutive quarter of gross margin expansion [5][22] - Net loss narrowed to approximately RMB 53 million, a 20% year over year reduction, with the net loss margin improving to 2.5% from 2.9% [5][26] Business Line Data and Key Metrics Changes - GMV from industry key accounts rose by approximately 11% year over year, with the number of transacting customers increasing by around 22% [7] - GMV from regional SME customers grew by approximately 7% year over year, with the number of transacting customers growing by 13% [9] - GMV in sectors such as automotive, new energy, and electrical equipment manufacturing grew by more than 15% [8] Market Data and Key Metrics Changes - The U.S. revenue grew by 260% in the second quarter from the first quarter, indicating strong market entry performance [16] - The company has begun receiving orders from Chinese customers' overseas plants in 10 countries, including Thailand and Mexico, diversifying its supplier network [18] Company Strategy and Development Direction - The company is focused on enhancing its core competencies, including product capabilities, AI, and last-mile delivery, while expanding its overseas business [6][19] - A strategic emphasis on high-margin private label products aims to increase their share in total GMV to approximately 30% [12] - The company is adopting a localized operating strategy in the U.S. and European markets to capitalize on supply chain strengths [15] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in a potential turnaround in top-line growth in the second half of the year, as the impact of previous business adjustments diminishes [21][34] - The company anticipates that growth drivers will increasingly come from overseas markets, particularly Europe and America [33] Other Important Information - The average number of orders processed per customer service representative grew by 48% year over year, while warehouse fulfillment costs decreased by approximately 18% [6] - The company has repurchased approximately 2,650,000 ADS for about dollars under its share buyback program [26] Q&A Session Summary Question: Growth strategy in the Chinese MRO market - Management acknowledged recent business pressures due to optimization but highlighted new customer acquisitions compensating for losses from adjusted business [31][32] Question: Competitive advantages in the MRO sector - Management emphasized advantages in product capabilities, IT capabilities, and a nationwide supply chain, along with strong R&D capabilities [39][41][44] Question: Overseas business challenges and strategies - Management discussed two models for overseas expansion, emphasizing the challenges of building a brand in advanced economies while leveraging strong supply chains [48][49]