ZKH Group Limited

Ladies and gentlemen, good day and welcome to ZKH Group Limited's Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jin Lee, Head of Investor Relations. Please go ahead, ma'am.

Good morning and welcome to ZKH's Fourth Quarter and Four Years 2025 earnings conference call. With me are Mr. Eric Chen, our founder, chairman, and CEO, and Mr. Max Lai, our CFO. Today's discussion may include forward-looking statements, related factors as 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 gap to non-gap results. With that, I will turn the call over to Eric. Eric, please go ahead.

Hello, everyone. Welcome to the 4th quarter of 2025 and the full-year monthly release. In 2025, we will actively promote the optimization of the business structure At the same time, we insist on core ability construction, continuous deepening of products and investment in technology. The overall performance of the company in the second half of the year has seen an obvious steady recovery trend. GMV and revenue in Q3 have basically recovered to the same level as last year, and have achieved rapid growth in the fourth quarter. At the same time, the profit quality continues to improve, and in the fourth quarter, the loss is reduced to profit, 14,800,000 yuan. This is the first time to achieve a half-year annual balance. In terms of cash flow, the four seasons and the whole year of 2025, the cash flow of the Junruder business activities has been further strengthened. The stability and flexibility of finance have been further strengthened. The company marked by this series of results has entered a healthier and more resilient stage of development with the influence of business adjustment.

Hello, everyone. Thank you for joining our fourth quarter and full year 2025 earnings conference call. Throughout 2025, we advanced our strategic optimization efforts while strengthening core capabilities across product offerings and technological innovation. As these initiatives took hold, we began to see clear signs of stabilization and recovery in the second half of the year. Both GMB and revenue largely recovered to prior year levels in the third quarter, then accelerated into solid year-over-year growth in the fourth quarter. At the same time, our earnings quality continued to strengthen. We successfully returned to profitability in the fourth quarter with an adjusted net profit of 14.8 RMB million. and achieved half year break even for the first time. Our cash flow profile also strengthened meaningfully. We recorded positive operating cash flow in both the fourth quarter and full year 2025, further enhancing the resilience and flexibility of our financial position. These results signal that we have moved past the transitional effects of strategic optimization and entered a healthier, more resilient phase of development.

接下来,我将重点介绍一下四季度我们在业务层面的主要进展。 从基本面来看,我们的增长底数更加稳固。 四季度,公司GMV同比增长8.5%。 with a growth of about 11% compared to the previous year. According to the current order and delivery trend, we expect that in the first quarter of this year, GMV will accelerate the growth of double-digit. The core driving force of the growth of GMV comes first from the continuous expansion and deepening of our customer base. In the fourth quarter, the number of customers sold by the company is nearly 74,000, with a growth of 60% compared to the previous year, and the growth rate of the same quarter is new. Now, let me walk you through some of the business highlights in the fourth quarter.

At a fundamental level, our growth foundation has continued to strengthen. In the fourth quarter, overall GMV grew 8.5% year over year and approximately 11% sequentially. Based on order pipeline and shipment trends, we expect year over year GMV growth to accelerate into double digits in the first quarter this year. A key driver of our GMV growth was a continued expansion and deepening of our customer base. In the fourth quarter, the number of transacting customers approached 74,000, representing a year-over-year increase of 60%, the fastest quarterly growth in recent years. By customer segment, GMB from both key accounts and SME customers on our ZKH platform maintained year-over-year growth during the quarter.

In terms of big customers, China's strong manufacturing group We have covered more than 680 customers. Many major customers in the key industries, such as GMV, have shown good growth. For example, customers in electrical equipment manufacturing, chemical engineering, steel and iron, as well as in the transportation industry have surpassed 20% in total. It is worth mentioning that some of the central enterprises that have been affected by business optimization in the past have also shown significant recovery in this quarter.

Among key accounts, we have now covered over 680 of China's top 1000 manufacturers, with several core industry verticals delivering particularly strong momentum. specifically GMV from customers in electrical equipment manufacturing, chemicals, steel, and non-ferrous metals, as well as transportation, increased by more than 20% year-over-year. Notably, certain SOE customers previously affected by strategic optimization showed clear recovery, with GMV returning to year-over-year growth and expanding by over 20% sequentially.

In terms of small and medium-sized customers, business growth is very strong. In the fourth quarter, GMV has increased by more than 20%. This is mainly due to the continuous decline in our regionalized service network, the continuous strengthening of online digital marketing capabilities, and the effective performance of AI tools in customer identification, absorption, matching, and transfer rate. The rapid expansion of small and medium-sized customers and small and medium-sized business customers has not only further enhanced the company's growth dynamic, Among SME customers, growth momentum remained strong, with GMV increasing by more than 20% year over year in the fourth quarter.

This growth was primarily driven by the continued expansion of our regional service network, the strengthening of our digital marketing capabilities, and the broader application of AI tools that enhance customer identification, demand matching, and conversion efficiency. Beyond reinforcing our growth trajectory, rapid SME expansion also contributes positively to our margin profile. As this segment continues to scale, we believe it will become an increasingly meaningful driver of both our overall growth and margin expansion.

In terms of overseas, in the fourth quarter, in the service of China's manufacturing industry and overseas, we have achieved relatively significant stage-level results. In comparison, the growth of relevant business DMV is about 50%. The number of customers has increased by about 20%, and the network has expanded to 17 countries. In 2022, we will continue to promote overseas business layout, deepen local service capabilities, and continue to expand the overseas market map. The deepening of customer base and the increase in business scale will continue to polish and systematize companies' supply and demand capabilities. In the fourth quarter, we will surround the product category, brand, supply and business ecosystem, Internationally, we made encouraging progress.

Sequentially, GMV from this business grew by approximately 50%, while the number of customers grew by around 20%. At the same time, our fulfillment network continues to expand and now covers 17 countries. Looking ahead to 2026, we will advance our international strategy by deepening localized service capabilities and further expanding our global footprint. Underpinning this customer and market expansion is the systematic bolstering of our supply-side infrastructure. During the quarter, we enhanced our platform ecosystem across product assortment, brands, supplier partnerships, and fulfillment network. These efforts reinforced our product competitiveness and fulfillment capabilities, enabling us to deliver a truly one-stop procurement solution while supporting profitability improvement over time.

首先,在品类建设上,我们持续打磨产品, We insist on deeply participating in the long-term construction of product competitiveness, deepening the scenario, and standardizing industry products. By the end of 2025, the number of HQ platforms will increase to 23 million, which will increase by 33% by the end of next year. The main increase will be the professional hard core MR products, such as factory automation, chemical technology, and equipment and formwork production lines. From the product structure point of view, we will continue to deepen the supply and demand of chemical products, Starting with product assortment, we continued to strengthen our category capabilities

by building long-term competitiveness in scenario-driven and standardized solutions. By the end of 2025, the number of SKUs on our platform had expanded to 23 million, up 33% from the end of 2024. This growth was primarily concentrated in highly specialized MRO categories, such as factory automation, chemical reagents, and instrumentation, From a product mix perspective, we further deepened our presence in technically demanding high entry barrier MRO segments, such as spare parts, industrial chemicals, as well as processing and manufacturing components. In the fourth quarter, we saw over 20% year-over-year GMV growth, in several professional categories, including power transmission equipment, instrumentation, and chemical reagents. These results further strengthen our moat in the specialty MRO supply market.

自由品牌方面,我们进一步拓展产品矩阵。 设计度,自由品牌上线349个新品, We will continue to deepen the free brand strategy and steadily promote the long-term goal of about 30% of the total GMV ratio. Free brands not only provide customers with higher cost-effectiveness choices, but also enhance customer flexibility, strengthen the control of the supply chain, and optimize the overall business structure. . . .

Our private label product business saw continued expansion in the fourth quarter with the launch of 349 new SKUs. For the full year, private label GMV rose 21% year-over-year. increasing its contribution to total GMB from 6.7% in 2024 to 8.3%. We remain committed to our long-term strategy as we steadily work toward our goal of 30% GMB share. Private label products do more than just provide customers with high-quality alternatives at a compelling value. They're also essential to building customer loyalty, enhancing supply chain control, and optimizing our overall product mix. Over time, we expect this business to become a meaningful driver of our margin expansion. Turning to our supplier ecosystem, we had established partnerships with nearly 20,000 suppliers by the end of 2025. Building on this foundation, we also established strategic partnerships with multiple leading brands and industry players on a deeper level, expanding relationships beyond simple transactions into broader collaborations across supply chain, data, and market development to build a truly integrated industrial services ecosystem.

and end-to-end network. Currently, more than 100 medium and short-range warehouses have been formed, consisting of a multi-layer warehouse network system. At the same time, more than 200 self-propelled vehicles are operated. The last 1 km of delivery and coverage capacity continues to increase. At the same time, our operating efficiency has also significantly improved. In the fourth quarter, the number of warehouses has decreased by about 13%. On the fulfillment front,

We further strengthened our warehousing and end-to-end delivery network. Our multi-tier fulfillment infrastructure now comprises 30 distribution centers, over 100 transit warehouses, and a self-operated fleet of over 200 delivery vehicles, further enhancing our last mile delivery capabilities. At the same time, our operational efficiency improved significantly. During the quarter, our through warehouse fulfillment cost declined by around 13% year over year, marking this the eighth consecutive quarter of double digit reductions. Warehouse labor productivity and space utilization at our distribution centers also increased by around 20% year over year, bringing our operational efficiency to industry leading levels. As we continue to optimize our warehouse network and in-warehouse operations, we expect our through-warehouse fulfillment cost to improve further this year.

At the same time as we continue to strengthen our supply and demand capabilities, we actively promote AI-based digitalization capability construction. Full-face-to-face supply and demand for each part of the chain is constantly upgrading to a more efficient and intelligent direction. Design degree. We surround the data base, industry model, scene landing, continue to evolve, drive AI ability, from technology innovation. The company's total data asset size continues to expand, and has reached the PD level. With AI applications fully promoted in the company, and AI coding in the development team, the token transfer volume tripled in 2025. The current monthly transfer size is more than 8 billion. AI reasoning ability, application depth, and automation level are significantly improved. We expect that in the next two to three years, the token drop will achieve at least 10 times the growth. At the same time, the average cost of every million tokens is gradually decreasing. With the continuous improvement of data professionalism and completeness, AI is significantly enhanced in the key business scenarios such as AI at the smart alert price, accurate orders, and pricing optimization.

While continuing to strengthen our supply side capabilities, we have also been strengthening our AI and digital capabilities to make our value chain more efficient and intelligent. During the quarter, we deepened our AI strategy across three layers, data infrastructure, industry-specific models, and scenario applications. These measures are accelerating the translation of AI innovation into scalable business value creation. At the data layer, we have made significant strides in building our proprietary data foundation through the ZKH data dictionary, with total data assets expanding to the petabyte level. As AI applications were deployed more broadly across our operations and AI coding tools became increasingly integrated into our R&D workflow, total token consumption doubled year over year in 2025. Monthly usage now exceeds 80 billion tokens. This reflects the increasing depth of AI inference, broader application scope, and greater automation across our platform. Looking ahead, we expect token usage to increase by at least tenfold over the next two to three years. At the same time, our average cost per million tokens continues to decline on a year-over-year basis. As the depth, specialization, and integrity of our data assets continue to improve, our AI capabilities across key operational scenarios have also strengthened significantly. In particular, we're seeing notable performance improvements in areas such as intelligent RFQ processing, precise product identification, and pricing optimization.

In terms of industry models, in 2025, we will launch the first ML-based model, Hangjia Linglong, At the model layer, we launched

H-NIMBL in 2025, the industry's first large language model purpose-built for the MRO sector. The model completed regulatory filing with the Cyberspace Administration of China in September and has since begun scaled deployment. In specialized industrial settings, H-NIMBL is already demonstrating clear advantages in handling complex professional MRO scenarios. At the application layer, AI is increasingly embedded into our core business processes, strengthening both our platform capabilities and service efficiency.

在对外服务上, AI已在多个关键业务环节实现显著的价值落地。 例如,在物料管理环节, AI物料管家已累计帮助近万家客户完成超过1500万行的 In the past, an average of about 15 people filled every 1,000 lines of logistics. Now, AI only takes about three minutes to complete. In terms of selection recommendations, AI pushes the brain to improve shared matching and transfer efficiency. In 2025, the total number of service customers will exceed 30,000, creating a sales volume of more than 200 million yuan.

For customer-facing services, AI is already delivering tangible value across several key operational scenarios. For example, our AI material management agent has helped nearly 10,000 customers organize and standardize more than 15 million lines of material data. Previously, processing 1,000 lines of material data required roughly 15 person days of manual work. Today, AI can complete the same task in roughly three minutes. In product selection and recommendation, our AI product RECOM agent has improved supply-demand matching and conversion efficiency. In 2025 alone, this agent served more than 30,000 customers and generated over 200 million RMB in sales.

In internal operations, we continue to promote the scale-up of AI smart workstations and RPA digital employees to build a more intelligent and automated operating system. By the end of 2025, RPA digital employees will exceed 5,000. The scale has exceeded the total number of official employees in the company and has become an important foundation for the company's intelligent operation. The annual accumulated savings of human labor is nearly 1 million hours. At the same time, Our AI smart workstation has significantly reduced cross-system artificial operation to achieve high artificial intervention mode and low artificial intervention mode in the business process. In 2025, AI smart workstation will automatically complete the system operation more than 520,000 times, significantly improving the production efficiency of the process and the key positions. Among them, customer service efficiency will increase by 45%, purchasing efficiency will increase by 50%, and led to a decline in the relevant labor rate. In 2026, the AI artificial intelligence workstation will continue to enhance the understanding and operation ability of the artificial intelligence system for business processes, promote the operating mode, from low artificial intervention mode to no artificial intervention mode, and further drive the improvement of operating efficiency to support the larger-scale development of business in the future.

Internally, we are accelerating the deployment of our AI smart workbench and RPA digital workforce at scale, building a more intelligent and highly automated operational infrastructure. By the end of 2025, the number of RPA digital employees had exceeded 5,000, already surpassing the size of our full-time workforce. and becoming a key pillar of our intelligent operations framework. Over the course of the year, these digital employees helped save nearly 1 million man-hours. At the same time, our AI workbench has significantly reduced the need for manual cross-system operations. This is driving a fundamental shift in our business as we move from high-touch to low-touch workflows. In 2025, the AI Smart Workbench autonomously executed more than 520,000 system operations, delivering substantial productivity gains in process-intensive roles. For example, our productivity in customer service and procurement increased by approximately 45% and 50% year over year, respectively. improving labor cost efficiency in these functions. In 2026, we expect the AI Smart Workbench to further enhance the ability of our AI agents to understand and execute increasingly complex business processes. This will continue the evolution of our operating model from a low touch to a no touch model, unlocking further operational efficiencies and providing a stronger foundation for our scalable growth.

Looking forward to the future, we will firmly surround product power, delivery power, and AI capabilities, and continue to consolidate long-term competitiveness, and make Zenghuang a reliable base for manufacturing and MRO procurement. At the same time, we will continue to focus on core business, Looking ahead, we'll continue to build on our core strengths in products, supply chain, and AI.

This will further reinforce our long-term competitive advantages as we work to establish VKH as a trusted infrastructure for industrial MRO procurement. At the same time, we'll focus on improving the quality and efficiency of our core business, enhancing our organic growth drivers, and further optimizing our customer mix and cost structure. positioning us to achieve full-year profitability in 2026. 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 earnings call today. I'm pleased to walk you through our financial performance for the fourth quarter and full year 2025. We concluded the year with strong momentum across key financial metrics. In the fourth quarter, we delivered accelerated top-line growth, improved operational efficiency, and achieved a return to probability. These results reflect the improvement of our core business fundamentals and the growing benefits of business optimization we've implemented over the past several quarters. Let me begin with our top-line performance. In the fourth quarter, we generated a solid year-over-year and sequential growth, signaling strengthening momentum in our business and robust market demand. GMV grew by 8.5% year-over-year and 11.3% sequentially to RMB 2.92 billion, while total revenues grew by 7.9% year-over-year and 9.8% sequentially to RMB 2.56 billion. This performance was supported by the continued expansion of our customer base, as well as our enhanced product offering and fulfillment capabilities. For the full year, GMV declined by 3.3% year-over-year to RMB 10.1 billion, primarily due to the impact of strategic optimization that continued to wait on results in the first half of the year. But the company's Operation performance showed clear signs of inflection points in the second half of 2025. Total revenues increased by 2.6% year-over-year to RMB 9 billion. Turning to our margin profile, gross profit margin in the fourth quarter was 15.5% compared with 17.1% in the same period last year. primarily reflecting temporary unfavorable change in product mix. That being said, the underlying drivers of our long-term margin expansion remained well in place. The ongoing growth of our high-margin SME customers and private label products provides a structural tailwind for our margin profile. In addition, our continued progress in procurement efficiency and supply chain capabilities is expected to further support gradual margin improvement over time. For the full year, gross profit margin was 16.4% compared with 17.2% in 2024. The decrease was mainly due to a lower contribution from our marketplace model, which carries 100% gross profit margin under the net revenue recognition basis. However, On a GMB basis, our gross profit margin improved by roughly 15 basis points year-over-year to 14.6%. Notably, gross margin for GBB platform increased by 98.6 basis points year-over-year to 6.5%. Meanwhile, the takeaway of marketplace model rose by 57.4 basis points year-over-year to 13.1%. highlighting continued monetization improvement across our platform ecosystem. On operational efficiency, we generated solid operating leverage in the fourth quarter as cost efficiency continued to improve with scale and applications. Total operating expenses decreased by 3% year-over-year to RMB $424.6 million. and decreased to 16.6% of net revenues, compared with 18.5% in the same period last year. For the full year, total operating expenses declined by 8.7% year over year, while operating expenses as percentage of net revenues improved to 18.8% from 21.1%. These operational efficiency gains translated into meaningful improvements in probability. In the fourth quarter, operating loss narrowed by 13.4% year over year to RMB 28.2 million, with the margin improving to negative 1.1% from negative 1.4%. Non-GAAP EBITDA turned positive at RMB 19.7 million, compared with a loss of RMB 13.3 million in the prior year period. with the margin improving by roughly 133 basis points. Most notably, we achieved a non-GAAP-adjusted net profit of RMB 14.9 million in the fourth quarter, representing a very significant turnaround from a non-GAAP-adjusted net loss of RMB 15 million in the same period last year. For the full year, operating loss narrowed by 37% year-over-year to RMB 213.5 million. 13.3 million, with the margin improving to negative 2.4% from negative 3.9% in 2024. Non-GAAP EBITDA improved by 58.9% to negative RMB 79.3 million, with margin improving to negative 0.9% from negative 2.2%. Adjusted net loss narrowed by 46%. 0.1% year-over-year to RMB 85.9 million, with margin improving to negative 1% from negative 1.8%. Turning to our balance sheet and cash flow, we maintained a strong and healthy cash position. As of December 31, 2025, our cash and cash equivalents restricted cash and short-term investments totaled RMB 1.92 billion. This provides us with ample liquidity to support ongoing operations and strategic initiatives. Operating cash flow also improved sequentially. In the fourth quarter, net cash generated from operating activities reached RMB 116.1 million, reflecting improved operating performance and disciplined working capital management. In closing, 2025 marks a year of meaningful financial and operational progress for the company. We strengthened our financial fundamentals, improved operational efficiency, and significantly narrowed loss while continuing to invest in capabilities that support long-term growth. As a result, we returned to profitability in the fourth quarter and closed the year with stronger operating leverage, renewed growth momentum, Our operational model today is structurally more resilient, supported by enhanced product and supply chain capabilities, a more disciplined cost base, and deeper integration of AI across our operations. Looking ahead, our strategic focus remains clear. Continue to drive high-quality growth, expand margins, and maintain disciplined execution as we advance towards sustainable profitability. Thank you. I would now like to open the call for 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. The first question comes from Leo Chang with Deutsche Bank. Please go ahead.

Thank you, Manager Chen, for accepting my question. Congratulations to the company for achieving a strong fourth quarter performance. My question is about the interest rate. We saw a greater decline in the interest rate of Q4 companies than before. Manager Chen, please explain the reason for the decline in the Q4 interest rate and whether there will be changes in the goals and trends of long-term interest rates. I translate myself. Thanks, management, for taking my questions, and congratulations on the robots for Q results. My question is about gross margin. We noted a decline in the gross margin over year in Q4. Could management please explain the reason behind this? And additionally, will the long-term goal and the trend for improving gross margin be affected? Thank you.

Okay, thank you. There are two reasons for the change in the interest rate in the fourth quarter. The first reason is the change in product structure. The main impact is that after some general raw materials price fluctuations, some customers will increase the purchase of some products in advance. For example, electric cables. We all know that the price has increased. Some customers will increase the purchase of these products in advance. And this type of product's profit margin is low, which will lower the profit margin of the entire company's product. Of course, it includes electric power, including white oil, and so on. There are several products like this. The second one is a little bit affected, which is the growth of our central customers. The ratio is a little bit higher. This is a part of the impact. But when we look at the first, second, and third months of this year, our profit margin There is still a gradual recovery of this trend. Of course, now the entire market With the influence of oil, there will be a new wave of this fluctuation. There will be a certain impact, including the price increase of the supply chain, etc. This thing is a double-edged sword. In the short term, there may be a slight decline in the impact, but a little longer. We look at it from the scale of sales or the interest rate. There are also opportunities to improve. This is because of the special situation of the Chinese war this year. In general, we believe that for the whole year, the increase in the net profit of various production lines is our fixed goal. And now we are working towards this goal. This is one aspect. Whether through the discount of the scale of procurement, or through this free brand, or the discount of products around the industry to achieve this goal. This is a set goal. But what else do we want to see? Thank you very much for that question.

So to answer your question, the Q4 changes the gross margin changes in Q4 was primarily caused by two things. First is the change in product mix. As we know, there have been changes and fluctuation in the commodity prices, and that had led to some customers pulling ahead the purchasing of certain products. For example, wires and cables, right? And wires and cables use copper whose pricing has been rising. and the gross margin for these products tend to be lower, and that have driven down the overall gross margin, and the similar products include things like white oil and stuff like that. Secondly, the percent of, or SOE customers as a percent of total customers in terms of their business value and volume is, have increased slightly, but if you look through our gross margin January through March this year, things have been improving gradually. And of course, because of the war that's ongoing in the Middle East, there's now price hikes regarding oil, petroleum, so suppliers are jacking up their prices. Of course, that needs to be considered as a double-edged sword, as even though on the short run, it's going to put some downward pressure on our gross margins, But in the long run, it's going to provide opportunities for more sales and more expansive or expansion opportunities. For the four-year, if you look across all of our production lines, our goal is definitely to achieve higher margins by way of lowering costs on three different fronts, namely purchasing, private labels, and cost optimization regarding certain sectors. And we need to understand that gross margin, gross profit margins vary from product line to product line. What we care most about is the overall profitability, and we will try to drive that up over time.

Thank you.

That was my answer to this question. Thank you.

Thank you. Are you ready for your next question?

已经准备好接受下一题了吗?

The next question comes from Jin Wan with CICC. Please go ahead.

感谢管理层给了提问的机会。 首先恭喜公司这个季度做了不错的业绩。 然后我的问题是关于公司的自由品牌的。 The company's private label to 20% growth in this year, increasing share to 8.3%. Could management please introduce the company's growth targets for private labels this year? Additionally, as the company sells more private label products, how does the company manage relationship and communication with non-private label suppliers? Thanks.

Got it. The development of the free brand is very important to our company. In the year of 2026, the target of the free brand's growth is even higher than last year. Our target is about 30%. Because from last year, the investment in the free brand has gradually increased. The growth is 30%. GMV is expected to rise to about 10%. This is our target. Regarding the relationship with non-free brand suppliers, I think it's like this. First of all, generally speaking, we will not do all the categories as free brands. We will study which categories are suitable for us to do free brands. Or after doing free brands, it can create better value for customers. We will do free brands for these products. This is the first one. The other one, we also look at, including in the international market, Including some large platform-based enterprises to channel-based enterprises develop to a certain stage Naturally, a phenomenon will occur, right? From product brands to channel brands. What about our industry? One of the reasons why it is full of charm is that it gradually increases the ability of products while developing channel sizes. Increase both channel brands and product brands These two factors are the main reasons why this industry's future profitability is gradually increasing. From this perspective, it is our very important goal and strategy to continue to expand our free-trade comparison. On the other hand, it is also our important goal to create greater value for our customers and further improve the satisfaction of our customers. I think in this regard, Sure.

Private labels are extremely important for us. It's an extremely important driver for us. Our target for private labels in 2026 is for it to grow by another 30%, and we started investing in private labels, we doubled down on our investments into private labels last year. And our goal is to drive its share of our GMB to roughly 10% for this year, 2026. As for our relationship with non-private label suppliers, of course, first off, we won't do private labels for all categories. We were looking to categories, we will comb through all categories to identify the ones where we could provide better value by doing private labels on. And for those categories, we will have a private label version of those categories. And if you look across history and globally, whenever a platform grows to a certain size, private labels will emerge and some of the categories will shift and migrate towards private labels. And that is a great appeal to the business we are in. So as we scale, both private labels and branded products will coexist and thrive. So I think driving up the share of our private labels as a percent of our GNV is an important strategy for us. you know, offering certain kind of, a certain degree of competition against our suppliers will definitely drive up customer satisfaction and create more value for our customers. And customer satisfaction, in my opinion, trumps all the other factors.

Okay. Was there a follow-up or was that the... Answer for the question?

请问陈总的问题已经完毕了是吧? 当然已经完毕了,谢谢。 That was the full answer.

Thank you. The next question comes from Shengquan Wang with CITIC. Please go ahead.

喂,管理层,晚上好。 先恭喜公司三四季度以来取得了良好的业绩修复。 我想请您介绍一下今年我们几个最重要的经营目标, 尤其是国内市场的目标, 以及如何达成这种增长的具体的经营策略。 I will translate my questions. Could you please introduce the company's most important objectives for this year, as well as the growth targets and the strategies for China domestic business? Thank you.

好的,2026年我们 The most important goal is to enter the stage of profitable growth. This is one of our core goals. But while achieving profitable growth, we hope to build our core competitiveness better and build a solid foundation for better development in the future. This is our most important goal. There are three important strategies. We will benefit from both the growth of profitability and the knowledge of core competition. The first aspect is the creation of customer value. The first aspect of the creation of customer value, I think the first and most important thing is to dig deeper into the competitiveness of our products to achieve better products and lower prices. This is the first thing to do. The second thing to do Sure. The most important objective for us in 2026

is to achieve four-year profitability as alluded in the prepared remarks. Meanwhile, we will continue to build out our core competencies to lay a firm groundwork for future development. So there's three aspects we will try to push for in order to achieve this two-pronged objective. Firstly, we will continue to create value by digging into our product competencies or to make our products more competitive, so basically to offer better products at lower prices. Secondly, for our medium to large customers, we'll continue to dig deeper, resolving their needs, so as to drive up their water share with us, as well as close profit margins.

Thank you. While serving large customers, We want to systematically expand a wide variety of small and medium-sized manufacturing enterprises. This is a very huge market. This year, we want to increase this strength. Through the online mode, content marketing, including the land push, and other different forms, we want to increase the coverage of small and medium-sized customers. This is a very important point for us this year. As for the overseas market, we want to serve China's manufacturing industry well. As we mentioned earlier, this part of the growth rate is also very fast. This is about two

On the customer's front, so aside from serving key accounts well, we will be systematically doing business development with SME customers and expand our base of SME manufacturers. Specifically, we will be focusing on doing online and offline ad campaigns, content marketing, and, you know, brick and mortar offline promoters kind of thing to expand that coverage. And that's what we're going to focus on this year. And we will also accelerate the expansion of the overseas markets, especially when it comes to serving well Chinese manufacturers that are going abroad, because this trend is only accelerating and we will need to take advantage of that very well.

Please continue. The second stage is to determine to ensure the growth of our profits. The second level is to greatly improve the quality of our business. In terms of improving the quality of our business, I think there are two aspects. One aspect includes our business quality. First, we need to focus more on the real MR products. We talked about the hard-core MR products earlier. This is the first aspect. The second aspect is that through sales and production line coordination, We need to improve the quality of our customers, especially the customers with low interest rates. We need to increase the interest rates. This is one aspect. This approach can achieve the two aspects of competition and profitability. In terms of operating quality, what should we do in the future? We need to improve the management of revenue and cash flow, Secondly, in order to ensure profitability, we need to first and foremost focus on the product side of things.

So let me backtrack a little bit. We need to improve the quality of our business, and there's two things specifically that we will need to be doing. Firstly, as was alluded to in the prepared remarks, we need to focus on what we believe is the real MROs, what we were referring to as highly specialized MRO products. So specifically, through the synergy between sales and production lines, we will need to improve the quality of our customers. What I mean by that is to turn low gross profit margin customers into higher gross profit margin ones. Secondly, we need to do a good job managing our cash flow and continuously optimize our account receivables and inventory management and maximize our operational efficiency to achieve better quality of operations.

第三方面是有关于产品的研发和创新。 两个方面,一个方面是关于ML产品的。 We fully utilize the research and development center of Taichung and the production base of Kun Tong in Shenzhen to create, develop and test products. This is one aspect of the content to improve the competitiveness of our ML products. On the other hand, we need to continue to pay attention to the right amount of investment in data and AI research and development. We hope that more AI products will be launched this year.

Thirdly, we will continue to expand our R&D capabilities and focus on innovation. On the product front, we will be fully leveraging our R&D center in Taichung and have that work in tandem with our production base in Shenzhen to do of continuous R&D and testing so as to make our MRO products more competitive. We will also continue to pay attention to the data space and the AI R&D space. We are looking to get more AI products developed and materialized this year so as to achieve a new source of growth.

Thank you, Xu. Finally, it's about team building and long-term development. We can't live without a better team building. Our team building has improved a lot in the past year. I think this year we still have room to improve in certain areas. This is what we need to do. What our team can really do is to train well and be highly qualified. On the other hand, we are also studying the layout of people in different areas, industries, and different business levels. That's definitely not the least is team build out because a strong team, a competent team is essential to our sustainable growth.

And we made quite a bit of progress last year, but there's still more room for improvement. So our goal is to build a team with high-quality talent and with a very high morale. And we will also be looking at how we distribute our personnel across different industries and geographies so as to focus our resources on the most profitable and the most efficient areas. So that was my full answer. 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.vkh.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.