Executive Summary / Key Takeaways

• ZKH Group Limited is at the forefront of digitalizing China's vast Maintenance, Repair, and Operations (MRO) procurement market, leveraging AI-powered solutions and intelligent warehousing to streamline industrial supply chains.
• The company has demonstrated a clear trajectory towards profitability, significantly reducing net losses from -1.12 billion RMB in 2021 to -268.04 million RMB in 2024, alongside achieving positive operating and free cash flow in 2024.
• Strategic investments, such as the new Taicang Smart Manufacturing Base, underscore ZKH's commitment to integrating R&D and production, enhancing its technological moat in a competitive landscape.
• Despite recent quarterly declines in Gross Merchandise Value (GMV) and net revenues, ZKH has shown robust customer acquisition, with a 53.5% increase in total customers in Q2 2025, indicating strong underlying demand for its platform services.
• The company's share repurchase program signals management's confidence in its intrinsic value and a focus on shareholder returns, positioning ZKH as a compelling long-term play in China's evolving industrial procurement sector.

China's Industrial Backbone: ZKH's Digital MRO Transformation

ZKH Group Limited, established in 1998 in Shanghai, has evolved into a pivotal maintenance, repair, and operations (MRO) procurement service platform within the People's Republic of China. The company's core mission is to digitalize and optimize the complex MRO supply chain, offering a comprehensive suite of products ranging from essential spare parts and chemicals to manufacturing components, general consumables, and office supplies. This extensive product catalog is complemented by advanced MRO procurement and management services, AI-powered solutions, and integrated logistics and warehousing capabilities. ZKH's strategic journey has seen it expand beyond mere trading to become a full-service provider, even venturing into the production and sale of intelligent warehousing equipment. This foundational shift positions ZKH as a critical enabler of efficiency for China's vast industrial base, a market ripe for digital transformation.

The MRO market in China is characterized by its fragmentation and the immense scale of industrial demand. ZKH operates within this dynamic environment, competing with both established global players and local specialized providers. Its overarching strategy centers on leveraging technology to create a more efficient, transparent, and cost-effective procurement ecosystem. This approach is designed to capture market share by offering superior service and operational advantages, differentiating ZKH from traditional MRO suppliers and broader e-commerce platforms.

Technological Edge: The Power of AI and Smart Logistics

ZKH's competitive advantage is deeply rooted in its technological differentiation, particularly its AI-powered MRO procurement solutions and intelligent warehousing capabilities. These core technologies are not merely supplementary features; they are fundamental to the company's operational efficiency and customer value proposition. The AI-powered procurement solutions are designed to streamline the entire purchasing process, from demand forecasting and supplier selection to order placement and inventory management. While specific quantitative metrics on performance improvements are not publicly detailed, the strategic intent is clear: to enhance efficiency, improve accuracy, and reduce procurement costs for industrial clients. This technological edge allows ZKH to offer a more agile and responsive service compared to traditional MRO providers, fostering stronger customer loyalty through optimized operational workflows.

Further solidifying its technological moat, ZKH is actively involved in the production and sale of intelligent warehousing equipment. This vertical integration provides tangible benefits such as potentially significantly higher efficiency in logistics and faster fulfillment times. By controlling the development and deployment of its warehousing technology, ZKH can tailor solutions precisely to the unique demands of the MRO sector, enabling quicker innovation cycles and more robust supply chain management. A significant milestone in this regard was the official commissioning of its state-of-the-art Taicang Smart Manufacturing Base on June 4, 2025. This facility represents a strategic effort to integrate R&D and production for industrial products, aiming to enhance manufacturing capabilities and product innovation. For investors, these technological advancements contribute directly to ZKH's competitive moat, potentially leading to better margins through reduced operational costs, improved service quality, and a stronger market position in a rapidly evolving industrial landscape.

Financial Trajectory: A Path Towards Profitability

ZKH Group has demonstrated a compelling financial trajectory, marked by a consistent reduction in net losses and a recent shift to positive cash flow generation. The company's net losses have significantly narrowed from -1.12 billion RMB in 2021 to -735.68 million RMB in 2022, further improving to -304.31 million RMB in 2023, and reaching -268.04 million RMB in 2024. This trend underscores management's efforts to enhance operational efficiency and move towards sustainable profitability. In 2024, ZKH reported total revenue of 8.76 billion RMB, a slight increase from 8.72 billion RMB in 2023.

Gross profit also saw an improvement, rising to 1.51 billion RMB in 2024 from 1.45 billion RMB in the prior year. Crucially, the company achieved positive operating cash flow of 229.07 million RMB and positive free cash flow of 146.03 million RMB in 2024, a significant turnaround from negative figures in previous years. This positive cash flow generation indicates a strengthening financial position and the ability to fund ongoing operations and strategic investments internally. The company's liquidity remains robust, with total cash of 1.75 billion RMB and a current ratio of 1.90 as of TTM 2025, alongside a manageable debt-to-equity ratio of 0.18.

However, recent quarterly results present a mixed picture. For the second quarter ended June 30, 2025, ZKH announced a 3.7% decrease in net revenues to 2,166,774 RMB compared to the same period in 2024. Gross Merchandise Value (GMV) also declined by 12.1% to 2,420,233 RMB. This was largely driven by a 49.7% decrease in Marketplace (3P) GMV, while Product Sales (1P) GMV saw a more modest 2.4% decline. Despite these revenue and GMV pressures, ZKH's net loss improved by 19.3% to (53,509) RMB, and its net loss as a percentage of net revenues improved by 47.7 basis points to -2.5%. Furthermore, the company reported a substantial 53.5% increase in its total number of customers, reaching 74,854 in Q2 2025. This suggests that while overall transaction volume faced headwinds, ZKH's platform continues to attract and expand its customer base, a critical long-term growth driver. Similarly, in the first quarter of 2025, net revenues increased by 4.0% to 1,935,372 RMB, while net loss improved by 26.6% to (66,723) RMB. These quarterly trends indicate that ZKH is prioritizing efficiency and customer acquisition even amidst a challenging revenue environment, aiming to convert a growing user base into sustained profitability.

Competitive Arena: Differentiating in a Dynamic Market

ZKH operates in a highly competitive MRO market, facing both global giants and agile local players. Key direct competitors include W.W. Grainger Inc. (GWW) and Fastenal Company (FAST), both established distributors of MRO products with extensive networks. While MYR Group Inc. (MYRG) primarily focuses on electrical construction and infrastructure, its involvement in supply chain aspects for growing sectors like data centers could present an indirect competitive overlap.

ZKH's strategic positioning in China is distinct. Its emphasis on a digitalized MRO procurement platform and intelligent warehousing provides a specialized focus on streamlined supply chain solutions, potentially offering greater efficiency in procurement processes for industrial clients. In contrast, Grainger's strength lies in its broader global scale and comprehensive product availability, while Fastenal excels in localized direct-to-site delivery. ZKH's AI-powered solutions and integrated digital ecosystem allow it to potentially lead in innovation speed and adaptability to local market needs, particularly in customized procurement solutions.

A look at TTM financial ratios highlights the different stages of these companies. ZKH, currently unprofitable, has a negative P/E ratio, a P/S ratio of 0.38, and a P/B ratio of 1.10. In comparison, profitable competitors like MYR Group, Grainger, and Fastenal exhibit positive P/E ratios of 40.37, 23.99, and 46.98, respectively, along with significantly higher P/B ratios (5.29, 12.55, and 14.67). This stark contrast underscores ZKH's current position as a growth-oriented company still investing heavily in its platform and infrastructure, with the potential for substantial upside if its path to profitability continues. ZKH's lower price-to-sales and price-to-book ratios, relative to its profitable peers, could suggest an attractive entry point for investors anticipating a successful turnaround and market share gains driven by its technological advantages.

Strategic Initiatives and Future Outlook

Despite the absence of explicit quantitative guidance, ZKH's recent strategic initiatives provide clear signals about its forward-looking strategy. The launch of the Taicang Smart Manufacturing Base in June 2025 is a testament to the company's commitment to vertical integration and enhancing its core manufacturing capabilities. This move is expected to bolster ZKH's ability to innovate and control the quality of its industrial products, further strengthening its competitive position.

Furthermore, the board's authorization of a new share repurchase program on June 13, 2025, allowing for the repurchase of up to US$50 million worth of shares over the next 12 months, reflects management's confidence in the company's intrinsic value and its commitment to returning value to shareholders. This action, coupled with the consistent reduction in net losses and positive cash flow generation in 2024, suggests an internal outlook for continued operational improvement and value creation. The substantial increase in customer numbers in Q1 and Q2 2025, despite GMV declines, indicates a successful strategy in expanding its user base, which is foundational for future revenue growth as the platform matures and monetizes its services more effectively.

Key Risks and Investment Considerations

While ZKH Group presents a compelling investment thesis, several risks warrant careful consideration. The company has historically reported net losses, and while these have been significantly reduced, sustained profitability is yet to be achieved. The recent declines in GMV and net revenues in Q2 2025, particularly in the Marketplace (3P) segment, highlight potential challenges in scaling transaction volumes in certain areas. Dependence on the Chinese MRO market exposes ZKH to regional economic fluctuations and regulatory changes, which could impact its operational environment and financial performance.

Moreover, the intense competitive landscape, with established global players and agile local competitors, necessitates continuous investment in technology and market differentiation. While ZKH's AI-powered solutions and intelligent warehousing offer a competitive edge, the pace of technological innovation and market adoption will be critical. Investors should monitor ZKH's ability to convert its growing customer base into higher revenue and sustained profitability, as well as its capacity to navigate the dynamic MRO market effectively.

Conclusion

ZKH Group Limited is strategically positioned to capitalize on the ongoing digital transformation of China's MRO procurement market. Its foundational strengths in AI-powered solutions and intelligent warehousing, reinforced by investments like the Taicang Smart Manufacturing Base, provide a robust technological moat. The company's financial trajectory, marked by a significant reduction in net losses and a shift to positive cash flow in 2024, demonstrates tangible progress towards profitability. While recent quarterly revenue and GMV figures present some challenges, the substantial growth in customer acquisition underscores the underlying demand for ZKH's platform and its long-term potential.

The share repurchase program further signals management's confidence in the company's value. For discerning investors, ZKH represents an opportunity to invest in a technology-driven leader in a critical industrial sector, poised for continued operational improvements and market share expansion. The path to sustained profitability and market leadership will depend on ZKH's ability to consistently leverage its technological advantages, effectively monetize its expanding customer base, and adapt to the evolving competitive dynamics within China's industrial landscape.