ZKH Group Limited American Depositary Shares, each representing thirty-five (35) Class A Ordinary Shares

Good day, and welcome to ZKH Group Limited's fourth quarter and fiscal year 2024 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jin Li, head of investor relations. Please go ahead.

Thank you, operator. Thank you, everyone, and welcome to our call today. Joining us today are Mr. Eric Cheung, our Founder, Chairman, and Chief Executive Officer, and Mr. Max Lai, our Chief Financial Officer. Before turning the call over to Eric, I'd like to briefly review our Safe Harbor provisions. Please note that the comments made during today's call represent management views as of today, and may include forward-looking statements. For further details, please refer to our latest Safe Harbor statement. in the earnings release on our IR website. We will also discuss certain non-GAAP financial measures for comparison purpose only. Please refer to the earnings release for definitions of these measures and a reconciliation of GAAP to non-GAAP results. With that, I will now turn the call over to Eric. Eric, please go ahead.

Hello, everyone. I would like to thank everyone for attending and the annual performance conference. In the fourth quarter, our GMV is 26.9 billion RMB. In the whole year of 2024, GMV is 104.8 billion RMB. The same ratio has dropped slightly, mainly due to the impact of business optimization adjustment. If we exclude the impact of business adjustment, in the fourth quarter of 2024 and the whole year, GMV has achieved a double-digit increase.

Hello, everyone. Thank you for joining ZKH's fourth quarter and full year 2024 earnings conference call. In Q4, we achieved a GMV of 2.69 billion RMB, bringing our full year 2024 GMV to 10.48 billion RMB. While both figures show a slight decline compared to the previous year, this was primarily a result of our business optimization initiatives. Excluding the impact of those optimizations, both Q4 and the full-year GMV for 2024 delivered double-digit year-on-year growth.

In terms of profits, Shijidu has adjusted its loss by 1,580 RMB and achieved a single-month profit in December. In 2024, In terms of profitability, we narrowed our adjusted net loss in Q4 to 15%

million RMB and achieved profitability in December 2024 on a single month basis. For the full year 2024, we substantially narrowed our adjusted net loss by approximately 44% year over year, bringing it down to 160 million RMB. Our adjusted net loss margin also improved from 3.3% in 2023 to 1.8% in 2024, reflecting a substantial enhancement in our profitability.

In terms of cash flow, in the fourth quarter, we recorded 1.7 billion RMB in cash flow in business activities. Cash flow cash flow in three consecutive quarters. In 2024, cash flow in business activities throughout the year Moving on to cash flow.

In Q4, net cash inflow from operating activities reached 171 million RMB, marking the third consecutive quarter of positive cash flow. For the full year 2024, Net cash inflow from operating activities totaled 229 million RMB, achieving positive operating cash flow for the full year for the first time, which highlights the improvement in our financial stability and resilience.

截止2024年四季度,我们已基本完成相关业务的战略性调整和优化。 As of Q4 2024, we have essentially completed the strategic optimizations of our relevant business sectors.

The impact of these adjustments on revenue growth is expected to gradually diminish moving forward, and we are confident to achieve rapid growth in 2025 and achieving full-year profitability for our China business.

接下来,我介绍我们在客户拓展, 产品力建设,以及AI智能化三个关键领域的进展。 客户拓展方面,

Now, let's dive into our progress in customer acquisition, product capability development, and AI-driven growth. Starting with customer acquisition, we remain committed to our three-pronged strategy, deepening engagement with industry key account customers, prioritizing coverage in key regional markets, and expanding into overseas markets. This approach has yielded notable results.

In the operation of large companies in the industry, we have deepened the application scene of the industry, optimized the product pool, and made a breakthrough in product innovation by closely cooperating with strategic companies. In managing our industry key accounts, we focused on thoroughly understanding and addressing application scenarios in key industries.

refining our product pool, and fostering closer collaboration with strategic suppliers. These efforts drove breakthroughs in cost reduction and product innovation, enabling us to offer industry customers more cost-effective procurement solutions. For the full year 2024, we achieved over 20% GMB growth in these industries, electricals, electronics, and telecommunications, new energy vehicles, transportation, and public utilities.

In the coverage of the area, we have developed a network-based deepening strategy, deepening local operations, further enhancing the efficiency of business, strengthening customer engagement, and promoting the transformation of trading through economicization. Based on these points, in 2024, our total number of total trading customers

In terms of regional coverage, we implemented a grid-based strategy for deep penetration and advanced localized operations, further elevating fulfillment efficiency while extending customer reach. We also further boosted transaction conversions through precision marketing. Driven by these coordinated initiatives, the total number of our transacting customers rose to approximately 84,000 in 2024, a year-over-year increase of 26%, marking four consecutive years of rapid growth.

在海外市场方面, 美国独立站于去年年底正式上线运营, As for overseas markets, our U.S.

independent website was officially launched at the end of last year, covering multiple product categories, including personal protective equipment, hand tools, power tool accessories, and material handling and storage solutions. Since its launch in December 2024, the US website has maintained rapid month-over-month growth in the number of transacting customers. demonstrating both the growth potential of the U.S. market and the competitiveness of our products in this market.

In terms of product competitiveness, we have built a joint laboratory with state-of-the-art quality monitoring institutions to strengthen the development and quality system construction of independent brands. In 2024, the sales of independent brands will increase by 29%, To boost our product capabilities, we have established a joint laboratory with the National Quality Supervision Authority.

strengthening our R&D capabilities and the quality system of our private label products. In 2024, the GMV of our private label products increased by 29% year over year, now accounting for 6.7% of our total GMV, up from 4.9% in the same period of the previous year. In addition, we have optimized our supply channels integrated upstream resources, and enhanced cost control, driving improvements in overall gross margin.

In terms of the application of AI technology, based on the accumulated product data and industry experience, we have developed a series of intelligent tools that effectively improve the operation efficiency and customer experience. In terms of negative energy customers, Now let's turn to AI applications.

Leveraging our extensive product data and industry expertise, we have crafted a suite of intelligent tools that have effectively elevated operational efficiency and customer experience. For customer enablement, we focused on addressing the challenge of material standardization for our customers through an AI material manager. Within just three months of its launch, it has enabled customers to standardize over 2 million material entries, achieving an identification accuracy rate of more than 90%, greatly improving the efficiency of material management for our customers.

内部体效方面, 针对于客户和供应商日常咨询的场景, 我们开发的AI行家助手 已实现了日常咨询的自动化应答。 目前累计服务企业已超过1.2万家。 在流程自动化方面, For internal efficiency, we have developed an AI expert assistant

which automates responses to routine inquiries from customers and suppliers. To date, this tool has served over 12,000 enterprises. In the area of process automation, as of the end of February 2025, we have developed and deployed over 1,200 RPA robots covering major business processes. reducing the need for manual intervention. Thanks to the adoption of AI tools, the productivity of our customer service team members in handling order processes has increased by 23%.

Looking forward to 2025, we will continue to promote top-level development in all aspects, focusing on organizational structure, business flow, and optimization of talent positions. Looking ahead to 2025,

We are committed to driving progress across these key areas, prioritizing the refinement and upgrade of our organizational structure, business workflows, and workforce management. These efforts will elevate operational efficiency and workforce productivity, ultimately enabling us to reduce operational costs. We are confident that this approach will lead to strong revenue growth and help us achieve our full-year profitability target for our China business in 2025. Now, I will turn the call over to our CFO, Max Lai, to present our financial results. Thank you, everyone.

Thank you, Eric, and thanks, everyone, for making time to join our earnings call today. I will now provide an overview of our 2024 fourth quarter and full year financial results. Despite facing challenges in demand environment and the effect of our business optimization, we conclude the year with resilient results. Our total GMV reached RMB 2.7 billion in the fourth quarter and RMB 10.5 billion for the full year, representing a year-over-year decrease of 16.1% and 5.4% respectively. If we exclude the fact of our strategic business optimization initiatives, we achieved a double-digit year-over-year growth for both of the fourth quarter and the full year of 2024, made it attributable to the continued growth in SMB customer numbers and increased the contribution of GMV from industry key customers, driven by our enhanced service capabilities. We believe that the impact of this adjustment has gradually lessened, putting us on a stronger position towards solid and sustainable growth. Total net revenue experienced a slight decrease of 3% in the fourth quarter, amounting to RMB 2.4 billion, while full-year revenue remained steady at RMB 8.8 billion. This was primarily due to lower revenues from the marketplace model, resulting from optimization of our low margin and long customer credit term business, partially mitigated by the increased revenues from the product sales model. While we continue to refine our revenue mix, we are equally committed to enhancing operational efficiency and driving probability growth. For gross profit, it was RMB 405 million in the fourth quarter, reflecting a decrease of 2.9%, while gross profit margin held steady year-over-year at 17.1%. Looking at details, the gross profit margin of product sales model with the ZK platform increased from 14.4% to 16.4%, and the take rate of marketplace model rose from 11.1% to 14%. These improvements were mainly due to our business optimization efforts, reduced procurement costs, and an increased proportion of GMV from higher margin private label products. For the full year, gross profit was RMB 1.5 billion, marking an increase of 4%. Gross profit margin improved to 17.2% compared to 16.7% in 2023. primarily driven by enhanced gross profit margin in the product sales model with the DISA-KH platform, resulting from business optimization, lower procurement costs, and high proportion of GMV from more profitable private label products. For the operating expenses, it amounts to RMB 437.6 million in the fourth quarter, representing 18.5% of net revenues and increased from 17.3% in the same period of 2023, mainly due to higher share-based compensation expenses. If we exclude share-based compensation expenses, operating expenses amount to RMB 423.5 million, accounted for 17.9% of total net revenues. compared to 17.1% in the prior year. For the entire year of 2024, total operating expenses reached RMB 1.85 billion, representing 21.1% of net revenues, a slight decrease from 21.2% in 2023. If we exclude share-based compensation expenses, operating expenses amounted to 1.74 billion to constitute 19.9% of net revenues, compared to 21% in 2023. As a result, for the fourth quarter, loss from operations was RMB 32.6 million, resulting in an operating loss margin of 1.4%. For the full year of 2024, the total loss from operations amounts to RMB 338.8 million, compared with RMB 398.7 million in 2023, leading to an operating loss margin of 3.9% and improvement from 4.6% in 2023. For the fourth quarter, the non-GAAP adjusted net loss was RMB 15 million, resulting in non-GAAP adjusted net loss margin of 0.6%. For the full year of 2024, The non-GAAP adjusted net loss totaled RMB 159.5 million, an improvement of 44.5% from RMB 287.5 million in 2023, with a non-GAAP adjusted net loss margin of 1.8% compared to 3.3% in the prior year, making us very close to and approaching to a full-year breakeven point. Our cash position has also strengthened as we generated net cash of RMB 170.7 million from operating activities in the fourth quarter and RMB 229.1 million in 2024, making our third consecutive quarter and our first full year of positive net cash inflow from operating activities. Before I conclude, I would like to reiterate our commitment to the referring value to our shareholders. Throughout this quarter, we continue to execute our share repurchase program as announced in the June of 2024. These ongoing efforts underscores our strong confidence in the company's growth prospects and respect our dedication to creating long-term value for our shareholders. With that, I would now like to open the call to Q&A. Operators, please go ahead.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. For the benefit of all participants, on today's call, If you wish to ask your question to management in Chinese, please immediately repeat your question in English. At this time, we will pause momentarily to assemble our roster. The first question comes from Leo Chang with Deutsche Bank. Please go ahead.

谢谢管理层接受我的提问。 我有兩個問題,第一個是可以請管理層跟我們分享一下2025年對於中國MRO市場的展望以及對於這個市場長期的展望。 我的第二個問題是可以請管理層分享一下2025年我們公司的GMV的outlook還有各個分行業品項的表現會是怎麼樣。 Thank you, management, for taking my questions. I have two questions. The first one is, can management share China's MRO industry outlook in 2025 and the long-term growth outlook? My second question is, could management share the 2025 outlook of companies' GMB and performance by customer verticals? Thank you. All right.

Sure. China's manufacturing industry is enormous, and now what's in front of us is this opportunity of doing

business globally as well as in China. I think that is a better opportunity for us.

Although the reason for the low-income policy has a certain impact on product tariffs in various aspects, but in fact, most of the MRL products in the United States and Europe are basically no longer produced. The main production capacity is still in China. Or China to overseas companies in Southeast Asia. So from this point of view, although there is a reason for the tax increase, but the advantages of Chinese companies in the field of MR are not lost. Even for companies with global industrial integration capabilities, it is a better new development opportunity. Please translate.

Yes, we do have geopolitics and tariffs are exerting some impact, but I would say the vast majority of MROs in Europe and the U.S. are no longer produced locally. The manufacturing capabilities congregate in China or Chinese companies that have relocated to Southeast Asia. So despite the fact that there's tariffs, the Chinese MRO companies have not lost their advantages. Quite to the contrary, for those Chinese companies that have the capabilities to integrate global supply chains, this is a better, this is a great time for them.

Please continue. From another perspective, the entire MRO industry, with the progress of digitalization, its concentration is gradually increasing. And on the other hand, digitalization is only happening more rapidly in this space, and we're seeing more consolidation in the MRO space.

So that is to say, for leaders in this space, we will definitely be able to enjoy longer term and sustainable growth.

From a competitive perspective, I think we have established a relatively good leading advantage in the professional field of MR. And in terms of market expansion overseas, we are basically in the leading position. We should be the first domestic company to directly expand its business in the United States. At the same time, we are fully prepared for the supply of the global supply chain. In addition, we have built our product innovation center in Taichung. We are also the first company in China to take the initiative to participate in product research and product innovation in the MR industry, which makes our products more competitive. In summary, China has a more comprehensive advantage in MRO.

So we are enjoying a very good leading edge in the MRO space. And we are also a leader when it comes to expanding business overseas. We are the first Chinese-based MRO company to ever set up shop in America. and we have fully prepared for having a globalized supply chain. We have also set up a production innovation center in Taichung and so we are the first Chinese MRO company to ever engage in R&D and innovation to make our product offerings more competitive. So basically we have enjoyed and we are enjoying a leadership position in the MR space on practically all fronts.

From the development stage of the company, we have successfully passed through the uncertainty of the early stage of entrepreneurship and entered a more stable development stage. At the edge of profitability in 2024, in 2025, we are sure to achieve full profitability. In terms of advanced flow, we are also very stable. So under such a foundation, And in terms of where we are in our journey, this early stage of uncertainty of starting up a business is already behind us.

In 2024, we were on the verge of profitability and we are fully confident that we will be able to turn a profit in 2025. And our cash flow and cash reserves are both going very strongly. So what we are going to do and what we need to do going forward is to keep improving our operational efficiency, expand our market share to enjoy a very good developmental period.

So to answer your second question, as of right now, as of the first quarter of 2025,

In terms of order value or order GMV coming from our large clients and the regional SME clients, they have both recorded close to 20% year-on-year growth.

其中来自电气,新能源汽车,通信电子,医药新材料,钢铁有色,交通运输,

Specifically, the GMV of purchase orders from large clients in sectors such as electrical equipment, EVs, telecommunication electronics, New pharmaceutical materials, steel and non-ferrous metals, and transportation has grown by over 20% year-over-year as of the first quarter.

虽然我们之前小整的业务预计还会影响一两个月, 但是我们预计2025年比2024年我们的业务会有一个明显的加快的增长。 请翻译。

Even though the impact from the business adjustment that was mentioned earlier would continue to have about one to two months of impact, we expect the business in 2025 to grow much higher than 2024. That were my answers to your two questions. Thank you.

The next question comes from Kai Zhao with CICC. Please go ahead.

管理长好,我这边一共是两个问题。 第一个想请教一下我们海外和美国业务的最新的一些进展以及我们二五年对于海外业务的预期。 Then the second question, I would like to ask how we see the impact of tariffs on the overall business of the company and the relevant progress of domestic suppliers replaced by overseas suppliers. These are my two questions. Thank you. So I have two questions here. First, could you provide some updates on overseas and U.S. business operations since the independent website launch in December? And in the color on 235, overseas business outlook will be great. And the second one is, could you share some views on tariff impacts on the company's overseas business and any progress on replacing the domestic suppliers with overseas suppliers? Thank you.

Okay. When we set up a strategy to go out to sea, we mainly consider two aspects. One aspect is to go out to sea with large customers. Some of our large customers go to Southeast Asia, Europe, and other regions of the world for manufacturing. This is a very good opportunity for us to go out to sea with them. We have established a new company in Thailand. We expect to serve local Chinese companies in Thailand soon. At the same time, we hope to cover some companies in Southeast Asia from Thailand to Malaysia. This is a way of development. Another way is that we will evaluate which markets in the MOU area are more limited in terms of global market, more profitable, and higher prices. Generally speaking, there is no MOU to make this kind of business. In contrast, its profit margin will be higher. That's basically the market of developed countries such as the United States, Europe, and Japan. So we also developed a strategy to establish a localized company in the United States, establish a localized brand, and establish a local team. We are developing this business in the United States. After the success of the business in the United States, we want to synchronize the products of the American market with those of the European market.

So when it comes to developing our business overseas, there's two things we primarily consider. Firstly, we follow Chinese companies, large Chinese companies wherever they go. So when Chinese companies go to Southeast Asia or Europe to set up shop there, we will follow them. and we have already registered a subsidiary in Thailand, and very soon this company will be able to, or this subsidiary of ours, will be able to serve Chinese companies there and some local companies in Southeast Asian countries, including Thailand and Malaysia. Second point is we always track where high value, high margins, high prices lie, And our conclusion is when it comes to the MRO market, those high-margin products tend to exist in markets where there's no existing manufacturing capacity. And specifically, I'm talking about markets like Europe, the U.S., Japan, so basically those developed markets, right? So we have decided and have already gone to those – we decided – to go to those markets and we will be setting up a local company, a local brand and localize the team and manufacturer and supply our MRO products to those customers in those markets. And we have already done that and are doing that in the U.S. and we plan to replicate Once we succeed in the U.S., we plan to replicate that success in the European market as well.

具体在美国的市场方面, 我们的策略是打造工业用品的Costco。 考虑到当地的供电的能力, 我们觉得如果再复制中国的产品的方式, 在美国的难度是比较高的。 So we want to select the way to develop ML products in the United States. So far, the United States has already launched 412 SQs. There are 1,800 SQs waiting to be launched. It covers personal protection, hand tools, power tools, packaging, and other products. Of course, we will gradually increase with the growth of business. Please translate.

Specifically for our strategy in the U.S. market, our goal is to become a cost goal in the MRO space. And given the local realities, given the local supply chain capabilities, it is impractical for us to replicate our model in China. So we decided to cherry-pick MRO SKUs in the U.S. market. And so far, we have made 412 SKUs available in the U.S. market, and 1,300 SKUs are yet to be launched. And we have covered sectors including PPE, hand tools, power tools and accessories, packaging, HVAC, and the refrigeration equipment and office supplies. and of course we'll be adding more SKUs as our business evolves.

In terms of our U.S.

e-commerce website, It was launched in December 2024, and since its launch, the number of registered, excuse me, the number of registered customers has exceeded 1,500, and both weekly and monthly customer orders have seen rapid growth.

To further improve the quality and technical level of the product, Zeng Guohang has been working with companies and the cooperation of suppliers have established a innovative R&D center in Taichung. The center has accumulated the R&D, testing, testing, production, and storage of one-to-one functions of many types of products, in order to continue to issue solutions for industrial products with international competitiveness. In this respect, I believe that in the world, only China has a huge engineering power.

To further improve our product quality and the technological capabilities and competitiveness, we have set up an innovation R&D center in Taitung as was alluded to earlier. And we're working with research institutions, companies, and suppliers And this center integrates R&D, testing, prototyping, production, and warehousing functionalities for a wide range of product categories. So we are able to continually or continuously deliver internationally competitive MRO products. And I believe China is the only country that has such a large, vast engineering or engineers dividend And as long as we work really hard and achieve a lot in terms of R&D, we will be able to have a lot of say in the global supply chain.

To answer your second question at the same time, I think we have done a good job of product development. Development in China is relatively low in terms of global cost and efficiency. But manufacturing can be based on So to answer your second question, R&D in China enjoys very high efficiency and low costs.

So yes, there might be tariffs and the different restrictions, imposed on where we can manufacture products, but we can always do R&D in China. So manufacturing locations can be restricted, but we will stay nimble and adjust according to the realities and policies.

In terms of tax risks, we have established a global sourcing team As of now, we already have 40% of the supply of US SQ that can be supplied by suppliers outside of China, including South Korea, Vietnam, Malaysia, and other different regions and countries. Even considering tariffs and changing to suppliers outside of China, our products still have a great price advantage in the US market.

So we are indeed proactively tackling these risks arising from tariffs. So we have established a global sourcing team, and this team is allowing us to diversify our supply chain risks and expand our product categories. And as of now, approximately 40% of SKUs supplied to the US market can be sourced from suppliers from outside of Burma and China, including South Korea, Vietnam, and Malaysia. And even if we factor into tariffs, factor in tariffs, and factor in the possibility and the reality of shifting to suppliers outside of China, ZKH's products still enjoy significant price advantages in the U.S. market.

Please continue. Okay, this is my answer to the above two questions. Thank you.

That was all from me for your two questions. Thank you.

The next question comes from Ella Ji with China Renaissance. Please go ahead.

Thank you, Manager Chen, for accepting my question. I also have two questions. First of all, Manager Chen, can you talk about the company's overall net profit in 2025? And the second question is, So two questions from me as well. First, can management discuss the 2025 outlook of the company's growth profit margin? Second question is, can management discuss the top three focus and the targets of the company and the CEO for year 2025? Thank you.

Okay. Regarding the increase in net profit, we are currently judging that the net profit of the government platform, that is, the company's business, EP's business, we have a chance to increase with an increase of 1% to 1.5%. I think there is no problem with an increase of more than 20% in the future. In fact, from the point of view of GMV, last year, our interest rate also increased by 1.4 points. The platform 3P's commission will basically remain at 11%. There will be a big change. I still hope that there will be more third-party partners in the future to cooperate with us. Our other platform, Gongbangbang, is now gradually increasing in terms of small customers. We judge that the net profit here in the future will also have the opportunity to increase to more than 10%. In terms of long-term development, our business type increases net profit on the one hand because of the growth in scale, to give us better support. The other is the gradual increase in the proportion of free brands. We now have only 6% of free brands. If we plan to do at least 30% of free brands in the long term, it will be very helpful to increase the interest rate. I think now there is a new opportunity to increase the interest rate, which is the European and American markets. As we increase sales in the European and American markets, it will also lead to further increases in our interest rate.

To your first question regarding gross margin, our ZKH 1P ZKH platform, in the next few years, our gross margin is likely to increase by 1 to 1.5 percentage points annually. And we are able to exceed 20% gross margin, and we're confident to achieve that. And actually last year, in terms of GMB, our gross margin in the 1P platform grew by 1.4 percentage points. If we look at the VKH platform for our 3P business, our take rate is likely to be steady at around 11%, and we hope to work with more high-quality third-party merchants. Speaking of our GBB platform focused on serving smaller businesses, we also have an opportunity to further increase its gross margin to over 10%. Our long-term profitability growth is going to be driven by mainly three factors. First, as our scale grows, we are likely to receive more supplier support, thus helping us improving margin. And secondly, Our private label products is another strong driver of gross margin. Currently, private label only accounts for about 6% of our total sales, and our goal is to increase it to over 30%. And this high margin product category or business category is likely to further drive our overall profit margins. And finally, but also importantly, as we expand globally, the U.S. and the European markets will become further stronger drivers for gross margin as we increase sales in those markets.

Okay. Regarding the second question, we have already determined the most important three aspects of the company's work this year. The first aspect is the construction of product competitiveness. I think this is our core competitiveness construction. The more we promote AI with digitalization, the higher the requirements for products will be. In addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction of product competitiveness, I think in addition to the construction We have already established our top three priorities for this year in terms of our company's work.

The first one is to further strengthen our product competitiveness. I believe that this is the most important core competitiveness for our company, especially in this age of AI and digital technologies. Customers are going to place a higher demand on our product quality and product capabilities. And I believe with our stronger R&D, capabilities and further growth in private label products, as well as driving costs lower and margin higher, we are confident that our product capabilities will further improve going forward. And that will help us transform our business truly from a sales-driven one to a supply-driven one.

With the improvement of our product competitiveness, the second main task is the improvement of our market debt rate. I think the improvement of market debt rate mainly includes two aspects. One aspect is the deepening of the pockets of our old customers. Everyone knows that the M2 industry is a huge market. The deepening of the pockets of our old customers still has a lot of room. On the other hand, Our second top priority for this year is to increase our market share.

We will, on the one hand, further increase our wallet share with our existing customers. Given the enormous scale, our size of the MRO market, we believe that there is still ample space for us to further increase wallet share with our existing customers. On the other hand, we will also continue to rapidly acquire new customers, and that will help us further expand our market share.

The third is the improvement in operating efficiency. We think there are three aspects to improving performance. One aspect is the progress of our technology, the progress of AI intelligent technology, which helps us improve our efficiency. Another very important point is talent. We have done a lot of work in recent years to continue to optimize and improve our talent. I think this is also a very important point. Of course, the third point is the improvement of management ability. I think the three aspects of the same progress Our third top priority for this year is to further improve our operational efficiency.

And this is also going to be achieved through three main ways. Number one, to leverage new technologies, including AI and intelligent technologies and advancement in these areas to further improve efficiency. And number two, our talent. In the past year, we have already done a lot of work to improve the capabilities of our people and this is going to be an ongoing effort. And the third driver for operational efficiency is again our management, the overall management of the company and our management capabilities. I believe that with these three initiatives going on in 2025, we are hopeful that our operational efficiency will further improve and our cost will go down further. And we will be able to nurture a disciplined and highly capable team, talent team, ready for the future growth and long-term growth of our company.

Okay, this is my answer to the above question. Thank you.

That's my response to your questions. Thank you.

And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments.

Thank you once again for joining us today. You can find the webcast of today's call on our iOWAS site. If you have any further questions, please feel free to contact us. Our contact information can be found in today's press release. Thank you and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.