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]

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]