ZKH Group Limited Q3 FY2025 earnings call

• Business showed signs of stabilization and recovery after proactive optimization, with transacting customers exceeding 70,000 and GMV/revenue recovering to prior year levels. • Total operating expenses down 14% YOY to RMB 420 million, profitability improved with operating loss, net loss, and adjusted net loss narrowing. Achieved monthly breakeven in September and on track for Q4 profitability. • Generated net cash of approx. RMB 100 million from operating activities. • Advanced AI capabilities, launched Expert Linglong AI large model and intelligent agent suite for MRO industry. AI Smart Workbench boosted productivity. • Added over 2.3 million sellable SKUs, onboarded over 1,200 new suppliers. Launched over 600 new private label SKUs, with private label GMV growing double-digit and aiming to increase contribution to total GMV to 30%. • Chemical product line has 13 specialized warehouses and in-house fleet, achieving double-digit GMV growth.

In the third quarter, GMV was RMB 2.62 billion, down 2.3% year-over-year, and total revenues were RMB 2.33 billion, up 2.1% year-over-year. The number of transacting customers exceeded 70,000, a new quarterly high. Private label GMV grew 16.7% year-over-year, reaching 8.2% of total GMV. The chemical product line achieved double-digit year-over-year GMV growth. Gross margin was 16.8%, with GMV-based gross margin expanding by 41.5 basis points year-over-year to 14.9%. Adjusted net loss narrowed to RMB 14.1 million from RMB 66.2 million.

• Expect top line growth to continue in quarters ahead. • On track for quarterly profitability in Q4. • Aim to increase private label products contribution to total GMV from ~8% to ~30%. • Overseas business expected to achieve breakeven in 2026. • Continue to invest in AI and data capabilities, enhance product and supply chain capabilities, and advance international expansion.

Q: According to publicly available information, JD Industrial is preparing for an IPO in Hong Kong. Could management share views on the competitive landscape of MRO market in China?

A: JD MRO's IPO is good for the industry. China's size allows leading MRO companies to exist. ZKH specializes in spare parts, chemicals, etc., has innovation center in Taichung, built warehouses and last-mile delivery, and advantages are becoming marked.

Q: Management just mentioned committing to advancing profitability improvement. What are reasons the company has not been profitable so far and how to balance profitability and mid- to long-term development investment?

A: Early days focused on cash flow and infrastructure/build-out of core competencies, leading to losses. Now entering phase of profitability, with operating leverage increasing (expense ratio dropping, fulfillment gross margin rising). Balance by controlling expenses, improving efficiency, enhancing customer acquisition, and investing in core competencies like AI, product capabilities, and overseas expansion while ensuring profitability.

Q: Looking out on latest developments and future plans for overseas expansion, how to think about developing business in the States versus serving Chinese companies as they go abroad?

A: Two parts to overseas expansion: serving Chinese companies going abroad (already doing MRO purchasing/delivery for Chinese companies in regions like Thailand, Malaysia, etc.) and developing business in the US (mid- to long-term play, controlling investment pace). Overseas business expected to breakeven in 2026.