On the evening of December 15th Beijing time, the MRO procurement service platform Zhenkunxing was officially listed on the New York Stock Exchange, with the stock code "ZKH", becoming the first Chinese MRO to go public in the United States. MRO (Maintenance, Repair, Operation) refers to non productive materials that do not directly constitute products in the production process of an enterprise, but are only used for maintenance, repair, and operation purposes.
Zhenkunxing will issue 4 million American Depositary Shares (ADS) in this IPO at a price of $15.5 per ADS. Based on this issuance price, Zhenkunxing raised $62 million ("Green Shoes Front") through this IPO, and the underwriters have an additional 600000 shares of ADS overallocation rights. Deutsche Bank, Huaxing Capital, and CICC are the joint underwriters for this event. Based on the issuance price, the market value of Zhenkunxing is approximately 2.5 billion US dollars. Zhenkunxing's existing shareholders Tencent and Canada Pension Plan Investment Board are both participating in this subscription and issuance; Among them, the Canadian pension fund subscribes to ADSs worth $10 million, while Tencent subscribes to ADSs worth $5 million.
The size of China's MRO market is expected to reach nearly 4 trillion yuan by 2027
Zhenkunxing provides customers with one-stop industrial goods (MRO) procurement and management services by establishing industry infrastructure, as well as digital and fulfillment solutions for upstream and downstream enterprises in the industry. Zhenkunxing was founded in 2014 and is headquartered in Shanghai. The company serves China's manufacturing and real economy through the digital supply chain construction of the MRO industry, helping customers reduce costs, improve efficiency, and achieve digital transformation of the supply chain.
MRO procurement is directly related to the daily operations of manufacturing enterprises. This industry originated in the United States, and early established companies such as Gu'anjie and Fasinor are representative companies of MRO.
According to the CIC report, China is the country with the largest industrial output value in the world and the only country to have all industrial categories listed in the United Nations International Standard Industrial Classification. The market size of MRO procurement services in China was 3004.1 billion yuan in 2022, with a compound growth rate of 5.8% from 2022 to 2027. It is expected to reach 3976.6 billion yuan in 2027. With the rapid development of technologies such as the Internet, SaaS, intelligent logistics, and IT infrastructure, MRO procurement is gradually becoming digitized, with enormous potential. According to a CIC report, the market size of online MRO procurement services in China reached 235.4 billion yuan in 2022, with a compound growth rate of 29.2% from 2022 to 2027. It is expected to reach 847 billion yuan in 2027. The online penetration rate in 2022 is 7.8%, and it is expected to reach 21.3% in 2027.
Promote the standardization level of industry data
According to Zhenkunxing, based on years of industry accumulation, the company's trading services cover a large number of SKUs, mainly including five categories: spare parts, general consumables, administrative materials, processing and manufacturing, chemicals, and a total of 32 product lines. Zhenkunxing has a comprehensive and diversified product supply system, including brand products with highly competitive prices, a selected product line based on big data models called "Expert Selection", self owned brand products, and long tail products that meet diversification and unplanned needs.
Zhenkunxing has digitized the "core production factor" of industrial products and established a tens of millions level industrial standard product data dictionary, the ZKH MRO Dictionary, covering 17.2 million SKUs (minimum inventory unit). Each industrial product is equipped with a "digital ID card", which breaks down the information barriers caused by different coding methods at both ends of the supply and demand, unifies the language system of upstream and downstream products in the industry, facilitates cross brand selection and replacement, improves the efficiency of the entire industry chain operation, and promotes the standardization level of industry data through one code universal use.
To continuously enhance its supply capacity, Zhenkunxing has developed a proprietary "price comparison system" to achieve product competitiveness. At present, Zhenkunxing's unique "Expert Selection" product line has managed over 383000 SKUs, including 347000 SKUs for its own brand products, such as the wholly-owned subsidiary brand "Andanda" that focuses on the PPE sub market. As of the first three quarters of 2023, the GMV contribution of the selected product lines on the Zhenkunxing platform was 8.2%, while the GMV contribution of domestic brand products during the same period was 5.0%.
According to company data, as of September 30, 2023, Zhenkunxing has 30 national warehouses in major Chinese cities such as Shanghai, Wuhan, Chengdu, and Xi'an, with a total construction area of approximately 200000 square meters; Operate 96 transfer stations with an area of approximately 52000 square meters. The comprehensive performance facilities of Zhenkunxing cover most of China's major industrial centers, committed to achieving "wherever there are factories, Zhenkunxing" and always providing one-stop nearby services around industrial enterprises.
Overall increase in gross profit margin level
According to the company's prospectus, the number of clients of Zhenkunxing has increased from over 30000 in 2020 to over 58000 in 2022. As of September 30, 2023, the number of clients has increased to 64000 in the past 12 months. Its customer base is diverse, including industry-leading large enterprise customers, as well as small and medium-sized enterprises and micro enterprises that are passionate about digital MRO procurement processes. From the perspective of customer industry, among the top 500 customers in 2022, the GMV industry contribution values are: 24% in the mechanical and electronic industry, 22% in the energy industry, 21% in the resource industry (including steel and non-ferrous metals, chemical industry, building materials and minerals), 5% in the construction industry (including construction and infrastructure), 12% in the automotive industry, and 16% in other industries.
It is worth mentioning that among the top 500 customers in terms of GMV (total commodity transaction volume) in 2020, about 91% continued to complete transactions on the Zhenkunxing platform in 2022; From 2018 to 2021, the one-year retention rates (calculated in GMV) of Zhenkunxing's clients were approximately 140%, 130%, 150%, and 100%, respectively.
In terms of financial data, from 2020 to 2022, the GMV of Zhenkunxing was approximately 5 billion yuan, 8.6 billion yuan, and 9.4 billion yuan, with a compound annual growth rate of 37.3%; In the first three quarters of this year, the GMV of Zhenkunxing was approximately 7.9 billion yuan, an increase of 17.5% compared to the same period in 2022. In the first three quarters of this year, Zhenkunxing's net income was 6.277 billion yuan, a significant increase compared to the same period in 2022. From 2020 to 2022, the company's gross profit margin was 14.5%, 13.6%, and 15.8%, respectively; In the first three quarters of 2023, the company's gross profit margin was 16.5%, and the overall level of gross profit margin increased.
Zhenkunxing stated in its prospectus that about 30% of the net proceeds from the company's IPO will be used to further expand its business, especially to continue developing the selected product line of experts; About 30% is used to strengthen supply chain capabilities and further improve performance efficiency; Approximately 30% for potential strategic investments and acquisitions; The remaining portion is used for general corporate purposes, including working capital needs, investment in research and development to continue building infrastructure and improving digital services, as well as expanding overseas markets.