Recently, China's leading MRO procurement service platform, Zhenkunxing, was officially listed on the New York Stock Exchange under the stock code "ZKH", becoming the first Chinese MRO to go public in the United States. Chen Long, Chairman and CEO of Zhenkunxing, stated that becoming a public company will shoulder more social responsibility, be more open, transparent and compliant, and also require higher standards of corporate governance. He believes that "whether it is providing better returns to shareholders or achieving success for employees and partners, we need to adhere to customer centricity, continuously cultivate the supply chain, and create greater value for customers."
Accelerating Digital Empowerment and Building an Industry moat
According to the introduction, 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. MRO procurement is directly related to the daily operation of manufacturing enterprises.
Public information shows that Zhenkunxing was established in 2014 and headquartered in Shanghai. It provides customers with one-stop industrial product procurement and management services by establishing industry infrastructure, as well as digital and fulfillment solutions for upstream and downstream enterprises in the industry. Through the digital supply chain construction of the MRO industry, we serve China's manufacturing and real economy, helping customers reduce costs, improve efficiency, and achieve digital transformation of the supply chain.
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; The market size of China's online MRO procurement services 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.
Industry insiders point out that China's relatively low online penetration rate and market concentration among online platforms have brought huge market opportunities for leading MRO procurement service platforms. As an early entrant, Zhenkunxing has a significant first mover advantage. The traditional MRO procurement service industry in China is relatively scattered and has a low level of digitalization. This provides a huge market opportunity for Zhenkunxing's digital industrial goods service platform. Zhenkunxing can provide enterprises with a one-stop solution, easily and quickly find various MRO products in its vast product range, and provide transparent prices and product information, as well as timely and reliable delivery experience.
It is worth mentioning that Zhenkunxing digitizes the "core production factor" of industrial products, breaks down the information barriers caused by different coding methods at both ends of supply and demand through one code universal, unifies the language system of upstream and downstream products in the industry, facilitates cross brand product selection and replacement, improves the efficiency of the entire industry chain operation, and promotes the standardization level of industry data.
Unlike traditional MRO procurement service providers that only focus on product sales, Zhenkunxing provides one-stop MRO procurement management services such as production procurement plan matching, product pre screening, intelligent recommendation, and inventory optimization. Customers can enjoy a convenient and efficient one-stop purchasing experience by accessing official websites, apps, and WeChat mini programs.
Building a fulfillment and service network to connect the "last mile"
Professional, timely, and reliable performance is crucial for MRO procurement. In order to reduce end-to-end performance costs, improve delivery efficiency, and enhance the B2B delivery experience of industrial supplies in the last mile, Zhenkunxing has built a nationwide performance and service network.
As of September 30, 2023, Zhenkunxing has 30 national warehouses in major cities in China such as Shanghai, Wuhan, Chengdu, and Xi'an. Its comprehensive fulfillment facilities 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.
It is worth mentioning that in order to ensure efficient and high-quality performance, Zhenkunxing has a certain amount of spot products in these warehouses and transfer stations. Based on the product insight ability based on scale trading, as of September 2023, about 78% of SKU orders of Zhenkunxing were completed in the form of spot delivery, which fully reflects its accurate demand forecasting and excellent inventory management capabilities. Meanwhile, data shows that the average time from shipment to delivery (excluding direct transportation from suppliers to customers) is about two days, demonstrating Zhenkunxing's industry-leading performance capability.
In addition, the "Intelligent Warehouse Management" solution independently developed by Zhenkunxing achieves zero inventory and unmanned management of industrial supplies and materials through the deployment of intelligent small warehouses and intelligent management platforms on the production line. Based on Internet plus, real-time online monitoring and all-weather on-site supply can effectively reduce inventory pressure, reduce procurement costs and time, and improve the efficiency of material storage management.
High customer retention rate and overall improvement in gross profit margin
It is understood that the number of customers of Zhenkunxing has increased from over 30000 in 2020 to over 58000 in 2022, and as of September 30, 2023, the number of customers has increased to 64000.
From the perspective of customer base, Zhenkunxing shows a diversified trend, with both industry-leading large enterprise customers and small and medium-sized enterprises and micro enterprises keen on digital MRO procurement processes. From the perspective of the industry to which the clients belong, among the top 500 clients in 2022, the GMV (Gross Merchandise Volume) 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, chemicals, 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 GMV ranked customers in 2020, about 91% of them continued to complete transactions on the Zhenkunxing platform in 2022, with a high retention rate of 91%; 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 addition, data shows that from 2020 to 2022, the average expenditure of the top 500 customers of Zhenkunxing increased significantly, reflecting that Zhenkunxing has a high-quality and highly viscous customer base.
From financial data, from 2020 to 2022, Zhenkunxing's net income was 4.686 billion yuan, 7.655 billion yuan, and 8.315 billion yuan, respectively. In the first three quarters of this year, Zhenkunxing's net income was 6.277 billion yuan, which was significantly higher than the same period in 2022.
It is worth noting that the scale benefits of the development of Zhenkunxing have been demonstrated. From 2020 to 2022, the gross profit margin of Zhenkunxing was 14.5%, 13.6%, and 15.8%, respectively. In the first three quarters of 2023, the company's gross profit margin increased again to 16.5%, and the overall gross profit margin level showed an upward trend. Thanks to the increase in gross profit margin, the decrease in management expense ratio and performance expense ratio, Zhenkun Bank's adjusted net loss has significantly narrowed, and the overall profit trend is improving. It is also reported that the US independent station of Zhenkunxing will be launched early next year, serving more global customers with more industrial product manufacturing partners.