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

Ladies and gentlemen, good day and welcome to ZKH Group Limited Second Quarter 2025 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.

Good morning and welcome to our call today. With me, I'm Mr. Eric Chen, our Founder, Chairman, and CEO. and a mixed max line, our CFO. Today's discussion may include forward-looking statements. Related factors are described in our today's press release. And 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 turn the call over to Eric. Eric, please go ahead.

大家好,欢迎各位参加政婚行2025年第二季度业绩发布会。 面对宏观经济的挑战,凭借战略定理与高效执行, 二季度我们实现了稳健的业务发展。 首先,我们平台继续保持高度活跃, The number of customers has increased by one quarter. This is due to the growth of our new customers and the continued increase in the number of old customers. Since the beginning of the second half of last year, the improvement and adjustment of the health care business has been affected. The GMV of the second quarter is 24.2 billion yuan, which has dropped significantly. If the technology of basic business adjustment is affected, our GMV will still grow significantly.

Hello, everyone. Thank you for joining our second quarter 2025 earnings conference call for ZKH. Despite ongoing macroeconomic challenges, we achieved solid business development in the second quarter through strategic focus and strong execution. Customer activity on our platform remained high, with a number of customers reaching a new quality record driven by growth in new customer acquisition and a sustained increase in repeat purchases from existing customers. Due to the business optimization initiative related to state-owned enterprise or SOE and central SOE customers in the second half of last year, our GMB for the second quarter declined year over year to RMB 2.42 billion. However, Excluding the impact from this initiative on the total GMV base, our underlying GMV still demonstrated year-over-year growth.

Our business quality has steadily increased. The overall net profit rate under the second quarter GMV is 14.8%. The net profit increase is 0.8%. This is the net profit increase in the sixth quarter in a row. This is due to the optimization of our purchase cost and the rapid growth of GMV, a free brand. In terms of profit and loss, the second quarter net loss is about 53 million yuan, and the same reduction is about 20%. This is to mention that after March this year, we will once again achieve a one-month profit and loss balance in June. This result is in our core competitiveness such as product power, AI, end-to-end delivery, The quality of our business also continued to improve.

In the second quarter, our gross margin on a GMB basis reached 14.8%, representing a 0.8 percentage point year-over-year increase. This marked our sixth consecutive quarter of year-over-year gross margin expansion. driven by procurement cost optimizations and our high margin private label products robust GMB growth. In terms of profitability, our net loss narrowed to approximately RMB 53 million in the second quarter, a 20% year-over-year reduction. Notably, we once again achieved monthly break-even in June, following our first monthly break-even in March this year. What's even more impressive is that we attained this milestone while continuing to invest in strengthening our core competencies, including product capabilities, AI, and last mile delivery, as well as expanding our overseas business.

At the same time as we continue to invest in our core competencies, We have actively used the organization of structural components, process improvement, and the promotion of AI tools to enhance the overall operating efficiency and personnel efficiency to increase profitability. For example, in the second stage, our customer service personnel processing order number increased by 48% in the same way, and the turnover rate decreased by about 18% in the same way. The turnover, turnover, operating efficiency, and cost control have reached the leading level of the industry.

While maintaining our forward-looking investment to support our medium to long-term growth, we have also optimized our organizational structure, streamlined processes, and promoted the adoption of AI tools to enhance overall operational and workforce efficiency, all aimed at bolstering profitability. For example, in the second quarter, the average number of orders processed per customer service representative grew by 48% year-over-year, while through warehouse fulfillment cost decreased by approximately 18%. Our warehouse fulfillment efficiency and cost management have now reached industry-leading levels.

接下来,我将具体介绍一下二季度我们在国内和海外业务的表现。 In terms of domestic business, our dual platform model continues to release co-effectiveness. Zhengguan Hang platform deepens large and medium-sized enterprise customers. Gongbangbang platform enriches small and medium-sized enterprise customers to meet and cover the needs of different types of customers. First of all, regarding Zhengguan Hang platform, from the customer dimension, in the second quarter, the number of large and medium-sized enterprise customers and sales customers respectively increased by about 1.1 billion and 22%. The growth of GMV in the automotive, new energy, electrical equipment manufacturing industry and the logistics industry is more than 15%. This benefits us from continuing to build and improve the industry and customer business value. Through AI technology to survey customer needs, achieve precise selection and recommendation, so as to dig deeper into the customers' pockets.

next i would like to provide a detailed update on our domestic and global business performance in the second quarter starting without domestic business our dual platform model continued to generate strong synergies the vkh platform remained focused on serving large and medium-sized enterprise customers while the gbb platform empowered sme and microenterprise customers, enabling us to meet the needs of a diverse customer base. First, let's discuss the DKH platform. From a customer perspective, in the second quarter, GMB from industry key accounts rose by approximately 11% year-over-year, and the number of these transacting customers increased by around 22% year-over-year. Notably, GMB in sectors such as automotive, new energy, electrical equipment manufacturing, and property management and tourism grew by more than 15%. These results were driven by our ongoing efforts to curate and refine industry-specific and customer-specific product pools. leveraging AI technologies to gain deeper insights into customer needs and provide tailored product selections and recommendations, thus further increasing customer wallet share.

In the area of SMEs, our service-oriented organizational management and network-oriented personnel layout continue to play a role. In the second stage, the GMV of SMEs and the number of sales customers For regional SME customers,

Our region-based service and grid-based staffing strategies continue to yield strong results. In the second quarter, GMV from regional SME customers grew by approximately 7% year-over-year, and the number of these transacting customers grew 13% year-over-year. Key regions, including Guangdong, Anhui, Henan, Shanghai, Jiangsu, and Zhejiang, each saw GMV growth of over 10%. This achievement stems from our efforts to enhance our service capabilities for regional customers, accelerating both coverage and customer acquisition.

In terms of domestic customers, due to the technical impact of business optimization adjustments in the second half of last year, GMV fell by more than 50%. For SOE and central SOE customers,

GMV in the second quarter declined by over 50% year over year, primarily due to a high comparison base from business optimizations in the second half of last year. As mentioned in previous earnings calls, these business adjustments are now complete and their impact is subsiding. Our SOE and central SOE business recorded sequential growth in the second quarter. We remain confident that building on our supply chain advantages and the proven value we deliver to customers, this business segment will gradually regain growth momentum.

公邦邦平台整体业务规模保持稳健扩张, 成交客户数继续实现高速增长, 公邦邦平台的盈利能力也到了持续提升, 通过覆盖更多终端中小客户和聚焦高毛利率MO品类, The net profit of Gongbangbang platform has increased by 1.4%. The net profit has increased by 23.3%. In the near future, we will further promote Gongbangbang's strategic focus, focusing more on building five-star products. These products will be used in large-scale markets that are not well satisfied. We will rely on our supply chain advantages through online marketing channels. turning to the GBB platform.

We drove continued scale growth with a rapidly increasing number of transacting customers in the second quarter. Profitability also improved thanks to broader coverage of SMEs and micro enterprises and our strategic focus on higher margin MRO categories. The GBB platform's growth margin expanded by 1.4 percentage points year over year, and gross profit rose by more than 23%. Recently, we have been further sharpening GBB's strategic focus, placing greater emphasis on construction materials and hardware, a large and underserved market. By leveraging our online marketing channels and supply chain advantages, we aim to deliver high-quality, competitively priced construction materials and hardware products to both B2B micro-enterprise customers and B2C individual consumers.

At the same time, we have made good progress in terms of product power and AI. In terms of product power, Our Shuzhou Taichung Smart Manufacturing Foundation officially invested in operation. As the key strategic layout of the company in the field of smart manufacturing, the foundation will enhance and strengthen product research, testing, and transfer capabilities to introduce innovative capabilities for the development and competitiveness of free brands. In the second quarter, our free brand GMV reached RMB2.1 billion, with a growth of 25%. GMV increased to 8.7%.

In the second quarter, we have also achieved significant progress in product and AI capabilities. In terms of product capabilities, we launched our smart manufacturing base in Taichung, Suzhou. As an integral part of our strategic smart manufacturing initiatives, this facility will further enhance our capabilities in product research and development, testing, and production. We believe it will serve as a key driver in strengthening our private label product development capabilities and their competitiveness. During the quarter, GMB from private label products rose to RMB 210 million, a growth of 25% year-over-year. and its contribution to our total GMB increased to 8.7%. Looking ahead, we remain committed to our long-term target of increasing the share of private label products in total GMB to approximately 30%.

In terms of AI, we see AI in material management, product selection, sales transformation, data standardization, process efficiency improvement and other aspects to become a more and more important driving force for the growth of these business indicators. In the second quarter, we will continue to promote AI intelligent construction, especially in the field of data construction. We strive to improve the quality of commercial data, including rich commercial attribute parameters, standard attribute rules, optimize picture quality, etc., and successfully complete high-quality data labels for more than 1 million commercial data. Combining our deep optimization in AI large model and algorithmic level, we have significantly improved the markup of product line business. We are also building a set from data growth, markup, governance, to the application of product data management, the whole life cycle platform. The goal is to achieve a significant growth in high-quality product data this year. In the AI era, the most comprehensive and professional Moving on to AI.

We've seen that AI is becoming an increasingly important driver of growth across various business metrics, including material management, product selection and recommendation, sales conversion, data standardization, and process efficiency improvement. In the second quarter, we continue to advance our AI infrastructure with a particular focus on data development. We are consistently improving the quality of our product data by enriching attribute parameters, standardizing attribute rules, and optimizing image quality. and we've completed high quality annotation for over one million product data points. In combination with our deep optimization of LLMs and algorithms, these annulated data sets have led to significant improvement in key business metrics. Furthermore, we are building a comprehensive product data management platform that spans the entire data lifecycle. from collection and adaptation to governance and application. Our goal is to achieve substantial growth in the generation of high-quality product data this year and to establish the industry's most comprehensive and advanced large-scale database for MROs, which we call the ZKH Data Dictionary, providing our industrial customers with highly specialized data services.

In terms of overseas business, first of all, in the U.S. and European markets, we have implemented a local business strategy to cut into the market with the advantages of supply chain, high-tech products, and innovative technology advantages. As of the end of June, the number of registered customers for our U.S. independent mouse platform has reached 6,000, and the number of listed ITQs has reached 600, covering about 12 production lines. Turning to our overseas business, we have adopted a localized operating strategy in both the U.S.

and European markets. capitalizing on our supply chain strength, a curated portfolio of high-quality and cost-efficient products, and innovative technologies to accelerate market entry. By the end of June, our U.S. standalone website, North Sky, had attracted approximately 6,000 registered customers, with around 600 SKUs launched across a dozen product lines. In the second half of the year, we will expand the SKU base to enhance product coverage and customer experience. In terms of sales performance, our U.S. revenue grew by 260% in the second quarter from the first quarter.

同时,我们正积极筹备开展欧洲市场,计划今年年底欧洲业务和独立站将开始运营, In the markets outside of the U.S. and Europe, such as Southeast Asia, South America, Africa, and the Middle East, we have joined forces with major Chinese clients to serve their strategy of shipping out, and to serve their demand for M.O.s in local factories. So far, we have started to receive orders from these major Chinese clients in 10 countries such as Thailand, Indonesia, Malaysia, and Mexico. Our goal is to provide global customers with advantageous and stable industrial products. Therefore, we actively expand the diversified supply network. Currently, for the overseas market, overseas suppliers account for up to 70% of the total supply chain layout area dynamic balance, effectively avoiding the risk of current geopolitical risks, marking our practical progress in the construction of global purchasing systems.

We are also actively preparing for our entry into the European market with our European business operations and standalone website expected to launch by the end of this year. Beyond the US and Europe, we are pursuing a strategy of partnering with major Chinese customers to support their overseas expansions in regions such as Southeast Asia, South America, Africa, and the Middle East, providing targeted services to fulfill their MRO procurement needs in local factories. To date, we have begun receiving orders from these Chinese customers' overseas plants in 10 countries, including Thailand, Indonesia, Malaysia, Mexico, and the UAE. To provide global customers with a high-quality, reliable supply of MROs, we're actively diversifying our supplier network. Currently, 70% of our suppliers for overseas business are based outside of China, creating a more balanced and resilient supply chain and mitigating potential geopolitical risks. This achievement marks meaningful progress in the development of our global sourcing system.

Don't hear him. In the past few seasons, we have maintained stable development under the background of business adjustment. Domestic business profitability has been further improved. Overseas business has also achieved gradual progress, fully manifesting the resilience of our execution and MR industry. Next, we will continue to focus on product digitization, core competitiveness such as trade and delivery, accelerate the expansion of overseas business, and promote the long-term sustainable development of companies. In summary, we have sustained steady growth despite recent quarter's business adjustments.

We have continued to strengthen profitability in our domestic operations while driving meaningful progress in our overseas business, demonstrating our ability to execute, and the inherent resilience of the MRO industry. Looking ahead, we will remain focused on advancing our core capabilities across products, digitalization, and fulfillment, while also accelerating the expansion of our global footprint. These efforts will support our company's long-term sustainable growth and deliver enduring value to our shareholders. Now, I'll 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 second quarter earnings call today. I'm pleased to walk you through our solid financial performance, highlighted by enhanced revenue quality and optimized operational efficiency. Let me start with the top-line performance. Both GMV and revenues came under pressure in the quarter, with GMV declining by 12.1% year-over-year to RMB 2.42 billion, and total revenues decreasing by 3.7% to RMB 2.17 billion. This was largely due to last year's high comparison base, which includes low-margin business from SOE and central SOE customers with extended credit terms. that we have seen optimized. However, excluding these factors, our underlying GMVs do show year-on-year growth. We anticipate these challenges will continue to ease, setting the stage for potential turnaround in top-right growth in the second half of this year. Turning to business quality, our business quality remains strong and healthy. Our growth margin was at 16.5% slightly down from 17% in the previous year, primarily due to lower revenues from our marketplace model, which carries a 100% gross margin under the net revenue recognition basis. However, on a GMV basis, our gross profit margin continues to improve, expanding by 84.6 basis points year-over-year to 14.8%. Specifically, gross profit margin for our product sales 1P model increased by 45.2 basis points to 16% on ZKH platform and 137.6 basis points to 7% on GBB platform. Additionally, the takeaway of marketplace model 3P model rose by 206.7 basis points. to 14.2% year-over-year. These gains reflect our successful business optimization, procurement efficiency, and focus on high-margin private label products. On operational efficiency, we made solid progress. Operating expenses decreased by 5.6% year-over-year to RMB 454.2 million. making up 19.8% of total revenues, down from 20.2% in the prior year period. This improvement was achieved even with approximately RMB 25 million in overseas business-related expenses, which were almost absent in the prior year period. Breaking this down further, fulfillment expenses were RMB 90.8 million, down 8.4% year-over-year, reflecting lower employee benefits and warehouse rental costs. Sales and marketing expenses declined by 5.3% to RMB 149.3 million, primarily driven by lower employee benefits and travel expenses. R&D expenses increased by 7.9% to RMB 41.5 million, primarily attributable to higher employee benefit expenses. General and administrative expenses were RMB 147.3 million, down 7.3% year-over-year, mainly due to lower share-based compensation and credit loss allowance, partially offset by higher employee benefits. It is worth noting that Our G&A expenses also include salaries for product line personnel and other related costs, which supports the development and enhancement of our product competitiveness. Turning to probability metrics, while our loss from operations increased modestly to RMB 72 million, we see positive signs of improvement. Non-GAAP EBITDA loss narrowed to RMB 38.7 million from RMB 47.1 million, with margin improving to negative 1.8% from negative 2.1%. Net loss decreased to RMB 53.5 million from RMB 66.3 million, with the net loss margin improved to 2.5% from 2.9%. Lastly, an update on our share buyback activity. On the 13th of June, 2025, our board approved a new share repurchase program, operating up to US dollar 50 million for the buyback of ADS. As of 20th August, 2025, we have repurchased approximately 2.65 million ADS for about US dollar 9.18 million under the two programs. We remain committed to actively buying bad shares subject to market conditions and other considerations as part of our ongoing commitment to returning value to our shareholders. In conclusion, the shift towards high margin private label products combined with gradual easing of prior challenges positions us for our return to top-line growth in the second half of this year. Our investment in AI and process optimization are already delivering tangible improvements and gains. Recent interest from capital markets highlights glowing confidence in our business model and long-term potential. For instance, around 8 million ADS were traded through blockchains on the 7th and 8th of August 2025 between new institutional investors and a PIPO shareholder, reflecting a significant endorsement of our market positioning. This transaction also represents a disciplined and professional full exit by this PIPO shareholder, structured to facilitate auditory price discovery and address a technical overhead. Looking ahead, our priorities remain focused on maintaining financial stability and achieving near-term probability in our domestic operations in China, while positioning us for sustainable long-term growth. Thank you. I would 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 two. 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. The first question comes from Leo Chang and Deutsche Bank. Please go ahead.

Thank you for accepting my question. My question is about growth. We know that China's MRO market is huge, and the penetration rate of online purchases is still early, and there is still a lot of growth space. We have seen that in the past few seasons, the growth of the company's business has been suppressed. One of the reasons is that it may have been optimized by state-owned enterprises. As the impact of this adjustment gradually decreases, So my question is regarding growth strategy. The Chinese MRO market is huge and online penetration is still in its early stage, suggesting significant room for growth. However, we have observed that the company's business growth has been under pressure in the past two quarters, primarily due to the optimization and adjustment of business from SOE as the impacts of this adjustment gradient diminished. What strategies does the company have for short, mid, and long-term business growth? Also, can management provide an overview of the company's business outlook for the second half of this year? Thank you.

Okay. As you all know, in the past few weeks, our performance has been under a lot of pressure. During this process, We have adjusted a lot of businesses that we think are not of high value for the long term. These adjusted businesses have once again accounted for about 20% of our GMV. So in the past few seasons, we have digested this 20% business. As a result, we can adjust this 20% business without causing a decline in performance. In fact, it is mainly due to our new customers. our important TA customers and a large number of small and medium-sized customers. For the next step of business growth, I think our strategy is very clear. On the one hand, continue to expand and cover a large number of small and medium-sized customers, especially using online technology. On the other hand, cover more large TA customers. We have already developed There are 670 of our customers. I think these customers have a deep pocket. He has a chance to grow further. There is still a lot of potential. In addition, there are more than 300 customers. It also leads us to further development. This is about large customers and medium and small customers. On the other hand, there is Gongwangbang. Our Gongwangbang is now more focused on five-star building materials. In this case, we hope to serve small customers. and CEDAW customers to achieve a very good progress. The market that is slightly medium to long term, I think it is the overseas market. We have expanded from the overseas market to the European and American market, including Southeast Asia now, and so on, following the strategy of large companies going out of the sea. I believe that in the second half of the year, we will gradually see this effect. What about the future growth of this business? In fact, we can already see To the beginning of June and July, our overall business has basically reached the bottom because of the adjustment. In August, we observed that the order and delivery situation began to grow steadily. So we are confident that the recovery of the entire business will grow in the second half of the year. We believe there is no problem. This is my answer to this question.

Thank you very much for that question. Yes, indeed. Our performance for the last few quarters has been under a lot of pressure, primarily due to the aforementioned business adjustment and optimization. And we decided to optimize this part of the business because we didn't believe it was going to be very valuable and meaningful for our long-term competitiveness. And this part of the business used to account for more than 20% of our total GMB. So as we were phasing out of this 20% of GMB, the reason our total GMB didn't decline severely was primarily due to the fact that we added a lot of new large customers as well as SMEs and the business from these two groups have made up for the loss from the adjusted and optimized business. So it's been very clear that our business has been driven primarily by these two groups of customers, and we are greatly increasing the number of SMEs thanks to our online technologies and capabilities, and we're also trying to cover more KAs or key accounts, large customers. Out of the top 1,000 manufacturer customers in China, we have already covered 670 of them, and we are proactively increasing our water share with them. And so there's a lot of potential to tap in there. and we are proactively reaching out to penetrate the other 300 as well. So in terms of another aspect, which is GBB, our GBB platform has been focusing more on construction materials and hardware in order to serve the needs of SMEs and consumers better. And of course, From our perspective, in order to grow more sustainably and strongly in the mid to long term, a lot of the growth drivers will come from overseas markets, including Europe and America. So our investment efforts in those overseas markets, I believe, will start to show effect starting the second half of this year. And starting June and July this year, our performance from the central SOEs and local SOEs have pretty much bottomed out in June and July. And starting August, we have seen from data that things started to turn around and rebound. So we are very, very confident that recovery and the growth, positive growth for the second half is very likely.

Leo, did that answer your question? Did you have a follow-up?

Yes, that answered it. Thank you.

Thank you. The next question comes from Xiaodan Zhang and CICC. Please go ahead.

Thank you. So in the increasingly competitive landscape of platforms, There is significant concern about the long-term competitive advantages of enterprises. Beyond scale, what do you believe are the true competitive barriers or modes that VKH has built in the China's MRO sector that are difficult to imitate or surpass? The company has consistently emphasized the construction and investment in the long-term core competitiveness. Please share specific investments made in these areas. special experience that can result on that business development. Thank you.

好的,谢谢。 跟传统的贸易商,五金店相比呢, 我们在人才的储备, IT数字化的能力, 产品的竞争力, 尤其是全国供应链的能力, 我相信我们都有绝对的竞争优势。 那这个我就不 . . . . . We have absolute advantages in manufacturing and manufacturing real ML fields. Second, our company has a professional product expert team of 600 people. I believe that in the domestic ML industry, our talent team is definitely leading. The third is about ML products. innovation and research. We also have a research team for ML products, especially because we have built Taichung's smart leadership center. In this way, we can not only do product selection, detection, and recommendation, but we will also have the ability to innovate the product. I think these points together will make us

Okay, so compared to traditional trading companies and hardware stores, we have absolute advantages when it comes to things like our product capabilities, our IT capabilities, and our nationwide supply chain, as well as our talent reserves. I'm not going to delve into the details, but compared to other MRO e-commerce marketplaces, I would like to focus on three areas where we have an edge. First is our product capabilities. Due to historical reasons, we are very versed when it comes to real industrial grade MROs. So these are real MROs by definition. And specifically, we have an absolute advantage when it comes to things like spare parts, chemicals, and the manufacturing. Second, we have a 600 strong persons of product expert team. And we absolutely take a lead in the industry. And they are very specialized, have specialized know-how about various industries and products. Thirdly, we have very strong R&D capabilities. And our Taitan factory is definitely going to increase our advantage. Planned in Taitung enables us to do innovation of product as well as product selection, testing and recommendations. That was the end of the answer.

第二条,这是有关数字化和AI能力的建设。 那我们现在已经有了1700万的IGQ的工业用品数据。 Because of our recent investment, our product data is increasing rapidly. I think there is a high-quality, large-scale, vertical field of industrial use data is a very important foundation to achieve the leading AI ability in this vertical field in the future. Another one, we have a team of IT technology experts who are more than 200 people and deeply understand the ML industry. They have a algorithm I think this is also a very powerful IT team in the ML field. Based on the above two points, I believe that our company can build a very important competitiveness in product and AI digitalization. Understand that we are not a traditional ML public chain company. The second point I would like to stress is our digitization and AI capabilities.

We have a data dictionary built based on 17 million SKUs. of MRO and this database is still quickly expanding. And I believe firmly that in the future, in order to have success in the MRO space, having a highly sophisticated and large database for the MRO vertical definitely lays the groundwork. And we also have a very large very large MRO IT team, about 200 something people. They include algorithm engineers, data engineers, development engineers from both front and back ends, and system maintenance engineers. So among the MRO companies in China, we have one of the largest IT teams. So with these two aforementioned points, we will be able to build a very strong edge when it comes to AI product capabilities and digitization. And this will propel us to become an MRO company. And it's not an MRO company in its traditional sense, but rather an MRO company that is truly digitized and smart and AI-enabled.

The third one, I think, is the ability to expand our overseas market. We are also the first Chinese company Go to the United States and immediately go to the European market of developed countries to expand such a company in the local M2 market At the same time, we also started to serve China's major enterprises around the world. On the other hand, we also basically established such an ability to purchase in the world So we should have the opportunity to become a global M2 company in China I believe this is also based on the advantages of our talents to be able to establish such a core competitiveness. In summary, based on the above three points, we, Zheng Kunhang, insist on true long-termism, truly create value for our customers, and build a business culture that focuses on customer value with a leading team of talents. I believe this is our truly longer-lasting core competitiveness.

So my third point is our capabilities when it comes to expanding our business overseas in overseas markets. So we are the first Chinese MRO company that set up shop in the US and we are soon going to do that in Europe as well. And we have built our abilities to source products globally. And we are also tracking large Chinese companies and follow them wherever they go to serve them locally there. And so we are soon going to become the first Chinese company that is going to become a truly global MRO company thanks to our advantages in talent. And so based on these aforementioned three points, we are truly upholding long-termism and we are creating value for our customers and we truly value talent. So these points are our true moat and we believe these are very difficult to emulate and be surpassed.

Thank you, that's very clear.

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

Thank you for accepting my question. My question is about your overseas business. Our overseas business has been operating in the U.S. for more than half a year. Next, it will expand to Europe and Southeast Asia. What are the main competitive advantages of the company compared to the local players? When expanding our overseas business, what are the biggest challenges and relative strategies we encounter? So my question is regarding your overseas business. Your U.S. business has been running for over half a year, and you also plan to expand to the European and the Southeast Asian markets. What are the main competitive advantages of ZKH comparing to the local players? what are the biggest challenges as well as the strategies to counter with those challenges. And then lastly, is there a timetable for the revenue and maybe profit of overseas operations? Thank you.

好的,谢谢。我们在前面介绍过 Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan Taiwan I think these two business models, the biggest challenge is still the first business model, to create an e-commerce service platform in China, to create our own brand. I think the biggest challenge in this is our local popularity, because we are a new startup company. This is a start-up again. One is the challenge of popularity, the other is the challenge of learning for a certain time. If we talk about our competitive advantage, I think the most important advantage is the advantage of our supply chain. Relatively speaking, the advantage of cost. But I think as an entrepreneur in China, there is another very important advantage, which is the entrepreneurial spirit of our Chinese people. Our Chinese people's high efficiency and rapid response ability. I think this is comparable to other companies in any country. Our advantage is also very obvious. As for the future business planning, Thank you very much for your question.

So when it comes to our overseas expansion, we primarily adopt two models which were mentioned in my presentation earlier. First is to go into advanced economies and to do localized operations there, namely to set up our own e-commerce marketplaces. Second is to follow Chinese large customers wherever they go. Like was mentioned earlier, we already started receiving orders from plants of Chinese customers that have set up shop in geographies such as Thailand, Indonesia, Malaysia, and Mexico. But I believe, relatively speaking, out of the two models, model one is the more challenging one because we have to build our own brand there, right? And being a new startup from China, our reputation locally, we have to build that from scratch. And the learning curve is going to be pretty steep, so it's going to take some time for us to learn about the local cultures and the customers. But our advantages come from different places, primarily because we have a strong supply chain and relatively low cost. But another factor which is equally important and cannot be neglected is entrepreneurship from being Chinese. And so being Chinese and being a Chinese startup, we have a high efficiency and we are very quick to react to things. And these things make us stand out among companies globally. And we have already passed some learning periods, and we are already entering a phase of acceleration. So I believe in the second half of this year, both models, Model 1 and Model 2, will start to pick up some pace and truly accelerate.

Did that answer your question, Ms. G?

Yes, 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 ir.zkh.com. 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.