ZKH Group Limited

ladies and gentlemen good day and welcome to zkh group limited's first quarter 2026 earnings conference call today's conference is being recorded at this time i would like to turn the conference over to daisy shu head of investor relations please go ahead ma'am good morning and welcome to zkx first quarter of 2026 earnings conference court with me are miss eric chen

our founder, Chairman and CEO, and Mr. Max Lai, 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 purposes only. Please refer to the earning relief 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.

Hello, everyone. Welcome to the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter of the first quarter The overall GMV and revenue of the company achieved the same rate of growth in the second consecutive quarter. Among them, GMV returned to the double-digit growth period, and the growth rate has been rising in recent several quarters. In terms of profit, the company's business quality continues to optimize, and the profit margin has been increased gradually. Due to the trend of steady improvement, it is able to operate economically, organize efficiency improvement, and further release the business leverage effect. In the first quarter, by adjusting the net profit at the same level, greatly improved by 103%, and the first time to achieve the profit after adjustment in the first quarter. The first quarter is usually the traditional stage of the ML industry. During this period, the growth and overall profit of GMV double-digit can be achieved, and it gradually strengthens our confidence in achieving the growth and profit of GMV double-digit throughout the year. In terms of cash flow, Hello, everyone.

Thank you for joining our first quarter 2026 earnings conference call. We entered 2026 with strong momentum, building on the recovery trajectory established in the second half of last year. As our business steadily scaled, the quality of our growth also improved. In the first quarter, both GMV and revenue growth accelerated year over year for the second consecutive quarter. GMV returned to double-digit growth. and revenue delivered its strongest year-over-year performance in recent quarters. On the profitability front, our operating quality continued to improve. Gross margin achieved expansion sequentially, reflecting an improving trend. Driven by refined operations, improved organizational efficiency and the ongoing benefits of operating leverage, adjusted net profit was up 103 year over year, marking the first time we have achieved adjusted profitability in the first quarter. Delivering these solid results during the first quarter and off-season for the MRO industry reinforces our confidence in achieving double-digit GMB growth and full-year profitability in 2026. From a cash flow perspective, Net cash outflow from operating activities narrowed significantly year over year, further enhancing our financial resilience. Overall, the strategic initiatives we have implemented over the past several quarters focused on optimizing customer mix and operational efficiency continue to deliver tangible results and position us for steadier, higher quality growth going forward.

Next, I will briefly introduce the main progress of our business in the first quarter. In the first quarter, GMV increased by 12.9%, which is a significant improvement from last year's same period and the previous quarter. According to the current order and delivery trend, the second quarter GMV growth is expected to achieve further acceleration. Strong business growth trend benefits our constantly expanding customer base. In the first quarter, Starting with GNV,

First quarter GMV increased 12.9% year-over-year, representing a meaningful acceleration compared with both the year-ago period and the prior quarter. Based on current order activity shipment trends, we expect GMV growth to accelerate further in this quarter. This strong performance was fueled by the continued expansion of our customer base. During the quarter, the number of transacting customers increased 11% year-over-year to 66,000, reflecting the accelerating adoption of online procurement among Chinese manufacturers. This growing customer base provides a solid foundation for our long-term sustainable growth.

In addition to the overall growth in the number of customers, the performance of individual customers also showed a positive attitude. The small and medium-sized customers of Zhengguangang platform's GMV increased by more than 20%. The growth of the business remained strong. The needs of small and medium-sized business customers are usually more scattered, and the purchase scene is also more diverse, which can reflect the platform-based service capability of the company. As more and more small and medium-sized manufacturing customers accelerate their online purchase, I believe that the company Beyond overall customer growth, he also saw broad-based strengths across customer segments.

GMV from SME customers on the ZKH platform increased more than 20% year-over-year. SMEs typically have more fragmented demand and a broader range of procurement needs, making them a strong indicator of our platform's service capabilities. As online procurement adoption continues to deepen among small and medium-sized manufacturers, we believe there is significant room to further increase penetration in this customer segment. We also saw a more pronounced recovery among central SOE customers during the quarter, with GMV returning to double-digit year-over-year growth and improving meaningfully on both a sequential and year-over-year basis.

The overall performance of major customers in the business sector is in line with expectations, including electric production, telecommunications electronics, new energy sources, steel and iron, and other key industries. GMV has achieved a strong growth of more than 20% in the same ratio, and in the semiconductor, power supply, light module, robot, and light communication industries, it continues to accumulate investment in customer resources. The company's platform continues to maintain rapid growth. GMV has increased by more than 30% in the same ratio, As an important platform for small and medium-sized customers and small and medium-sized customers in the company, Gong Bangbang relies on a more standardized, e-commerce operating model to continuously enhance customer coverage and online conversion capabilities, and develop a good co-operative platform to effectively extend the service environment of the company, as the growth of the overall business continues to enter new growth dynamics.

Performance among our industry key accounts was in line with expectations, with GMV growing more than 20% year over year across major verticals, including electrical manufacturing, communications electronics, new energy, and steel and non-ferrous metals. We also expanded our presence in emerging sectors, such as semiconductors, energy storage, optical modules, robotics, and optical communications, strengthening our customer base among industry leaders in these high-growth markets. The GBB platform also maintained strong momentum, with GMB increasing more than 30% year-over-year. As a key platform serving distributors, resellers, and micro and small businesses, GBB leverages a more standardized e-commerce driven operating model to expand customer coverage and improve online conversion. More importantly, it creates strong synergies with the VKH platform, effectively extending our service reach and providing an additional growth driver for the broader business.

the scale of relevant customers in the first quarter and the area of coverage will be further expanded to present a strong business growth trend and achieve the same growth of more than six times the income. We will continue to strengthen the full-fledged ability to serve China's manufacturing enterprises out of the sea. At the same time, we are also steadily advancing the local business structure in the United States to continue to improve product development, increase sales and end-to-end remittance capabilities. In the overall business strategy of overseas businesses, We insist on high-quality development and focus more on business quality and investment efficiency. This year, our goal for overseas business is to achieve a year-round profit-loss balance. The continuous growth of customer and business size reflects the long-term foundation and solid performance of the company in the field of core capabilities. This quarter, we surround customer value creation, continue to deepen product layout, polish supply chain capabilities,

We continue to expand both our customer base and geographic footprint during the quarter, delivering robust growth with revenues increasing more than six-fold year over year. While continuing to strengthen our end-to-end capabilities to support Chinese manufacturers expanding overseas, we also advanced our local U.S. operations through enhancements in product development, multichannel sales, and fulfillment. From an operating strategy perspective, we remain committed to high-quality growth with a strong focus on operating discipline and investment efficiency. Our goal for this year is to reach break-even for our international business. The continued expansion of our customer base and business scale reflects our long-term investments in building core capabilities and the strong execution behind these efforts. During the quarter, with customer value at the heart of our strategy, we expanded our product portfolio, strengthened our supply chain capabilities, and accelerated AI adoption across business scenarios, further enhancing our one-stop platform service capabilities.

In terms of product power, we focus on the key industries and high-profile industrial scenarios, and continue to deepen core production lines. Within the framework, we have selected 10 key production lines, such as FAA factory automation, electrical automation, bun-kwan-fa, and high-tech, to increase resource investment, and through enhanced production and sales coordination, mass procurement, and enhanced professional operation capabilities, further enhance the competitiveness of the middle production line. With the advantage of the production line of IFA factory automation, we have listed the IFA commercial market, and built a digital procurement and technology service platform that faces the automation industry chain. The platform not only covers a wide range of IFA components and products, but also integrates smart selection, 3D modeling,

Starting with product capabilities, we further strengthened our core product offering by sharpening our focus on high-value industries and highly specialized industrial scenarios. During the quarter, we identified 10 priority product lines. including factory automation, electrical automation, pumps, pipes, and valves, and cutting tools, and increased resource allocation to support their growth. By improving coordination between production and sales, optimizing bulk procurement, and enhancing specialized operational capabilities, we further bolstered the competitiveness of these key product lines. taking factory automation, or SA, as an example. We launched the SA Mall during the quarter, a one-stop digital procurement and technical services platform tailored to the automation value chain. The platform offers a broad range of SA components and integrates key capabilities such as intelligent product selection, 3D modeling, and technical support. helping customers address traditional procurement pain points, including complex product selection and high technical barriers.

With the continuous improvement of the key production capacity, our customer penetration rate in the core industry is also increasing. From a product point of view, factory automation, industrialization of oil, chemical actualization, and other professional hardware ML products, GMV has achieved double-digit stable growth. further solidifying the core competitive advantage of the company in high-profile industrial scenarios. In addition, we continue to improve the overall supply system of the brand. Since the end of the first quarter, the number of SQ brands has increased from the end of the last quarter of 23 million to 27 million. Based on this, we will continue to promote the construction of free brands and continue to enrich products through the acceleration of new products development. In the first quarter, free brand products will be released more than 400 new products, As our T product lines continue to advance,

We have also deepened customer penetration in core industries. By category, professional and high-precision MRO products such as FA components, industrial lubricants, and chemical reagents all achieved solid double-digit GMB growth, further solidifying our core competitive advantage in highly specialized industrial scenarios. In addition, we continue to strengthen our platform's overall supply capabilities. By the end of the first quarter, the number of sellable SKUs on the platform increased to 27 million, up from 23 million at the end of the prior quarter. Building on this foundation, we further expanded our private label portfolio by accelerating new product development. In the first quarter, we introduced more than 400 new private label SKUs, including innovative items such as lightweight breathable bump caps and anti-static gloves, covering diverse scenarios from personal protection and tools to cleaning and office supplies. These efforts further enhanced the competitiveness of our private label products and expanded our customer reach. GMB from private label products grew by over 20% year-over-year and accounted for approximately 9.7% of total GMB in the first quarter of 2026.

In the first quarter of 2026, we continued to deepen the network layout to build end-end exchange capacity and further enhance the multi-level network operating system. In the first quarter, our self-sufficiency scale continued to expand, Promote the coverage of the end-end delivery to improve the performance of the response. At the same time, continue to invest in the optimization of internal storage in the previous period and the automation of automated equipment. 36% increase in the same ratio of warehouse efficiency. With the joint promotion of warehouse, transportation, and full chain road economic operations, the average average cost of comprehensive lease is 17% lower than the same. With the subsequent operation of the warehouse network and the additional optimization of transport digitalization,

On the fulfillment front, we continue to enhance our warehouse network and strengthen last-mile delivery capabilities, further reinforcing our multi-tier operating system. In the first quarter, the capacity of our self-operated fleet continued to grow, improving both delivery coverage and responsiveness. At the same time, our prior investments in warehouse network optimization and automation drove a 36% year over year improvement in warehouse utilization efficiency. These end-to-end enhancements across warehousing, transportation, and delivery contributed to a 17% year over year reduction in our comprehensive fulfillment expenses for the quarter. Looking ahead, As we continue upgrading warehouse operations and digitalizing sleep scheduling, we believe there is further room to drive down our comprehensive fulfillment cost ratio.

At the same time as continuously optimizing product power and travel capacity, we actively build a future technology storage box around the construction of industrial products industry,

While continuing to strengthen our product and fulfillment capabilities, we are also actively forging future-proof, long-term technological advantages, guided by our goal of building industry-leading, full-stack AI capabilities for industrial supplies. We are systematically deploying AI across key industry use cases.

At the data level, we continue to improve the data quality of the real-world industry and the ability to complement the knowledge of the industry, and continue to improve the structuralization, conceptualization, and scenarioization of industrial material data. And through the data AI logo, we will further improve the quality of product data governance, to strengthen the AI application capability and implement a solid data base. In 2026, our goal is to build the industry's first one-level industrial data to cover the industry knowledge map with tens of millions of industry relationships, to further strengthen the AI's understanding and application capability in complex industrial scenarios, and to set a precedent for the market price. In addition to system connection, the market price is also an important gateway for customer acquisition. Currently, In the report price scenario, about 30% of the materials are matched and determined to be completed with AI. In 2020, our goal is to further improve the overall AI order rate to 70%. Among them, the AI order rate of hand tools and other data-based production lines must reach 80% to 90%. It is also beneficial to improve the output rate of our products,

At the data layer, we continue to enhance the ZKH data dictionary and industry knowledge graph capabilities, improving the structure, interconnectivity, and real-world applicability of industrial product data. We also strengthen data governance through AI-powered data annotations. Together, these efforts have established a stronger data foundation for broader AI applications across our business. In 2026, our goal is to build the industry's first knowledge graph exceeding 100 million industrial product data points and 10 million industry relations. This will further strengthen AI's ability to understand and operate in complex industrial supply scenarios. taking the request for quotes scenario as an example. While many procurement needs can be fulfilled directly through our online platform, quotation workflows remain an important customer entry point. Today, approximately 30% of material matching and product identification tasks within quotation workflows are already handled by AI. By the end of 2026, we aim to increase the overall AI-powered product identification rate to 70%, with data-intensive product lines such as fasteners, pumps, pipes, and valves, and hand tools expected to reach 80% to 90%. We believe these advancements will meaningfully improve quotation completion rates, inventory turnover, and sales conversion rates.

At the model level, Hangjia Linglong ML Threads large model continues to be upgraded, further strengthening its understanding, reasoning, and task execution capabilities in the complex business scenarios of industrial products. We have strengthened the training of Hangjia Linglong large model on product picture data, upgraded the multi-modal model capability, and launched the first industrial product intelligent visual search engine, Hangjia Huiyan in the industry. Through advanced image recognition technology, At a model layer, our Hangjia Linglong MRO Vertical Large Language Model continued to evolve

further improving its ability to understand, reason, and execute tasks in complex industrial supply scenarios. During the quarter, we expanded image-based training to strengthen the model's multimodal capability and officially launched Hangjia Huiyan, the industry's first intelligent visual search engine for MROs. Powered by advanced image recognition, Hangjia Huiyan can rapidly identify material types and specifications and pair them with specific application contexts to deliver intelligent diagnostics and product recommendations. This significantly improves communication and procurement efficiency in complex industrial supply scenarios.

In terms of development tools, we actively develop industrial product AI developer platform. By integrating self-developed models and AI attack chain, complex AI capabilities will be standardized in a low-end way to quickly restore each business team. At the same time, we are promoting AI digitalization comprehensive plan within the company, encouraging each business team to combine business scenarios, autonomous development and application AI tools to accelerate the spread and landing of AI capabilities within the company. Only in the first quarter, the team developed and uploaded more than 60 AI intelligence systems, effectively improving the operating efficiency. The read and release efficiency exceeded 2,000 square meters. At the same time, the IT team's research and development efficiency continued to increase. In 2026, our goal was to increase the AI code life rate from 30% to 80%.

At the orchestration layer, we are also actively building our MRO AI developer platform by integrating proprietary models in AI toolchains, standardizing advanced AI capabilities, and making them easier for cross-functional teams to access and apply. We also launched our AI for All initiative across the organizations. encouraging teams to develop and deploy AI tools tailored to specific business scenarios and accelerating AI adoption across the company. In the first quarter alone, our teams developed and launched more than 60 AI agents and RPA bots, driving meaningful efficiency gains and freeing up more than 2,000 human labor hours per month. Our IT development efficiency also continues to improve. In 2026, we aim to increase our AI code generation rate from approximately 30% today to 80%.

In the application layer, we use a comprehensive integrated AI application system that covers products, sales, operations, customer service, etc. At the application layer, we have established an integrated AI ecosystem

spanning core business functions, including merchandising, sales, operations, and customer service. Within this ecosystem, we have developed a diverse portfolio of AI agents, such as AI Quotation Assistant, AI Material Manager, and Product Recom, which are increasingly delivering tangible business value across our operations. In 2026, As we continue to refine and scale these AI applications, we expect AI-driven sales to grow meaningfully.

Looking forward to the year 2026, we will continue to continue to improve our product power, interaction power, and AI capabilities, and continuously enhance the comprehensive service capabilities and long-term competitiveness of our companies in complex industrial scenarios. Based on this, we will insist on high-quality growth trends, As we move through 2026, we will continue investing in product capabilities, fulfillment capacity, and AI innovation.

further strengthening our comprehensive service offerings for complex industrial scenarios, and reinforcing our long-term competitive advantages. Building on this foundation, we will remain focused on high-quality growth by driving greater operational efficiency and earnings, steadily advancing toward our goal of full-year profitability. I'll now 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. Now, let me walk you through our financial performance for the first quarter of 2016. We started the year with solid momentum across key financial metrics. In the first quarter, we delivered accelerated top-line growth improved operating efficiency, and greatly enhanced the probability. Notably, we achieved a non-gap adjusted probability, marking our first profitable first quarter on an adjusted basis, and a meaningful turnaround from the same period last year. These results reflect the improving quality of our growth, increasing scalability of our operating model, and ongoing benefits of strategic initiatives we've been implemented over the past several quarters. Let's now take a closer look at first quarter's financial performance, starting with the top line. During the quarter, we built on the improving trend established in the second half of last year, with both GMV and revenues accelerated year-over-year for the second consecutive quarter. GMV increased by 12.9% year-over-year to RMB 2.45 billion, while total revenues grew by 9.2% year-over-year to RMB 2.11 billion, both representing our strongest quarterly growth in recent period. This performance was supported by the continued expansion of our customer base and stronger platform engagement. Our earnings profile also strengthened during the quarter, supported by improved operating leverage and ongoing efficiency gain, Gross profit increased by 6.6% year-over-year to RMB 354 million, while gross margin moderated slightly year-over-year from 17.2% to 16.7%. Our underlying margin trends improved sequentially, with GMV-based gross margin increased by 90 basis points. Going forward, we will continue to improve business quality for three priorities. a more balanced customer and product mix, higher contribution from private label products, and greater supply chain efficiency. On operational efficiency, we maintained strong cost discipline while continuing to invest in capabilities that support our long-term growth. Total operating expenses decreased by 8.8% year-over-year to RMB 376.5 million, representing 17.8% of net revenues compared with 21.3% in the same period last year. Breaking this down, fulfillment expenses decreased by 16.8% year over year to RMB 77.6 million. Sales and marketing expenses remained relatively stable at RMB 137.6 million. R&D expenses decreased by 25.9% year over year to RMB 29.3 million. General and administrative expenses decreased by 7.9% year-over-year to RMB 131.9 million. These improvements reflected continued reinforcement of our operating model, enhanced organizational efficiency, and more disciplined resources allocation. During the quarter, GMV per effective employee increased by over 20% year-over-year, reflecting a meaningful improvement in our workforce productivity. In addition, as we mentioned earlier, we continue to optimize our offices business strategy with a stronger focus on operating quality and investment efficiency. This contributed to lower offices related spending and further improvement in our overall expense structure. These efficiency gains translated into significant improvements in probability compared to the same period last year. Operating loss narrowed by 72.2% to RMB 22.5 million, with operating loss margin improving to negative 1.1% from negative 4.2%. Non-GAAP EBITDA turned positive at RMB 4.2 million, compared with negative RMB 52 million in the prior year period, with margin increasing to positive 0.2% from negative 2.7%. Most notably, we achieved a non-GAAP adjusted net profit of RMB 1.7 million, compared with non-GAAP adjusted net loss of RMB 50.2 million in the same period last year. This significant turnaround reflects the combined impact of top-line recovery improved operating efficiency, and further operating leverage. Turning to balance sheet, we maintained a healthy liquidity position. As of March 31st, 2026, our cash and cash recurrence, restricted cash, and short-term investments totaled RMB 1.84 billion, providing us with ample financial feasibility to support our business operations and strategic priorities. Operating cash flow also improved meaningfully year over year. Net cash used in operating activity was RMB 34 million in the first quarter, compared with cash outflow of RMB 97.1 million in the same period of 2025, reflecting continued improvement in our working capital management. To recap, the first quarter marked a strong start to 2026 We delivered accelerated top-line growth, continued improvement in operating efficiency, and substantial gains in probability. Notably, we achieved our first non-GAAP-adjusted net net probability in the seasonally soft first quarter. Looking ahead, our focus remains on high-quality growth and disciplined execution. This concludes our prepared remarks. Thank you. We will now like to open the call for the questions. Operators, please go ahead.

We will now begin the question and answer session. To ask a question, you may press star then one 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. Again, it is star then one to ask a question. The first question comes from Leo Chang with Deutsche Bank. Please go ahead.

Let me translate myself. Thank you, management, for taking my question. The first quarter, the company's gross margin improved a quarter, but it still declined year over year. Could management share your view on the long-term trend of gross margin, and what factors could counter trend further improve them in gross margin, and what action has the company taken to improve gross margin? Thank you.

I would like to talk about three aspects of the overall net profit. One is the product's product structure. The other is the customer structure. And the free brand. These are the three aspects. In terms of product structure, the company's product line and HKO are very scattered. The net profit of different products is still relatively large. Part of the product line has a lower interest rate, but the interest rate and GMV growth are still faster. Short-term, the overall interest rate may drop, but if it can bring customer penetration, expansion of supply capacity, and absolute interest rate growth, it will certainly have the value of business. At the same time, the interest rate of some ML product lines and net profit at the same time. It is our strong advantage production line. For example, personal protection, cleaning, OEM security, transportation and storage, security and other production lines, to show better profit transfer efficiency. As these high-quality product lines gradually increase, it helps to improve the overall net profit structure.

Thank you for the question. I will take this question from three parts. So mainly category mix, customer mix, and private labels. So for category mix, we have lots of SKUs and product lines, and so things are quite fragmented. And the gross margins of different products vary greatly. For some product lines, growth margins are lower, but the growth for their growth profits and the GMB is relatively fast. So in the short run, they might drive down the overall growth margins, but if they're able to still drive customer penetration, extend our supply capabilities, and contribute to the growth of our absolute growth profits, then there's still value in operating those categories. At the same time, some MRO products' growth margins and growth profits are going up simultaneously, especially for our advantageous product lines. By that, I mean things like PPE or personal protective equipment, cleaning, OEM fasteners, handling and storage, and security, et cetera. And these categories are reflecting better profit conversion efficiency, so to speak. And as these high-quality product lines are taking a higher share out of the entire portfolio, this will be conducive to improving our overall gross margin structure.

Let's continue. To sum up, if the net profit margin of the fourth quarter of last year and the first quarter of this year decreased by 6%, The main factor is that our small and medium-sized products, including diesel, electricity, oil, and fluorescent film, are at a 41% increase in low horsepower. The increase in this product is comparable to the overall horsepower drop, but in general, our horsepower situation is relatively healthy.

So in terms of your question about the Q1 being lower year over year, it was primarily due to the gross margin drop in categories including diesel, transformer, oil, and silicon photonics wafers. And that has driven down our gross margin. But overall, our gross margin is pretty solid. Thank you.

In terms of customer structure, generally speaking, the net profit of small and medium-sized customers is higher than that of large customers. Therefore, the trend of small and medium-sized customers will affect the trend of the overall net profit. Currently, the GMV of small and medium-sized customers accounts for about 30% and the GMV of large customers accounts for about 60%. Currently, the growth rate of small and medium-sized customers is at 20%.

For my second point about customer mix, usually the gross margin for SME customers are higher than key accounts or large customers. And so the share of GMB on the part of SME customers that trend will impact the trend of our overall gross margins. So currently, SME customers' GMB accounts for about 30-plus percent of the total, while key accounts' GMB accounts for about 60 percent. And the SME customers are growing at 20 percent GMB-wise. So from a customer mix perspective of a gross margin is improving, it seems you should

In terms of free brand, the free brand's profit margin is higher than that of non-free brands. Therefore, the free brand's ratio will affect the overall profit margin. Currently, our free brand GMV has a ratio of about 9.7%. The long-term goal is to achieve 30%. In conclusion, the company's profit margin will not only pursue single products, I am more concerned about the improvement of the overall product supply capability, customer coverage deepening, and the growth of absolute profit margin. The profit margin of different product lines is greatly different. Periodic product combination changes will affect the overall profit margin, but the long-term goal is to use the advantageous production line, free brand, purchasing efficiency, So in terms of private labels, gross margins for private labels are typically higher than non-private labels.

So that trend will also impact the overall gross margin trend. And private label GMV currently accounts for 9.7%, and our long-term goal for it is to reach over 30%. Overall, the growth margin, so in terms of managing growth margin, we will not pursue the maximization of a single product or a single quarter for the growth margin to maximize, but we care more about the improvement of our overall supply capabilities, the deepening of our customer reach, and the growth of our absolute growth profits. and we understand how gross margin across different product lines varies by a lot. So the adjustment and changes to product portfolio for different stages of our development will impact overall gross margin, but our long-term goal is to drive gross profits continuously by way of advantageous product lines, private labels, and the optimization of customer mix. and improvement of our purchasing efficiency.

Are you ready for your next question? The next question comes from Jing Wan with CICC. Please go ahead.

Thank you for accepting my question. First of all, congratulations. The company has achieved a good performance this season. My question is about some of our performance in the segment. We observed that some high-tech manufacturing industries, in the increase of 1 to 4 months, there are some slow speeds. Then, for example, telecommunications, electronics, car manufacturing and equipment manufacturing industries have a good accuracy. The previous management floor also shared some. Then, can you ask the management floor to further share some of the situations observed inside the company and the performance of these segment industries? Then, whether the company has put forward some new recommendations in a targeted way to acquire more funding? I will translate myself. We noticed that high-tech manufacturing, such as communication, electronic, auto manufacturing, and equipment manufacturing accelerated its growth in first quarter and April. Could management share more about whether we are seeing similar trend and how is our performance in these subsectors? And also, any initiatives have been introduced to expand our market share in this sector? Thanks.

It is true that domestic high-tech manufacturing enterprises have a higher urgency in the purchase of ML. The electrical manufacturing industry, the telecommunications industry, the new energy industry, and the metal industry have all achieved more than 20% of the same growth. In the field of semiconductor, energy, light blocks, robots, and telecommunications industries, continue to receive more and more customer support. In the industry that is growing faster, including some metal industries, from January to April, the daily order has increased by 100%. In telecommunications and electronics, from January to April, the daily order has increased by 45%. In new energy, from January to April, the daily order has increased by 33%. In mechanical and chemical engineering and medicine, Thank you for the question.

Indeed, we have seen how players in the advanced manufacturing sector buying more in terms of MROs. And these include sectors like electrical manufacturing, communication, electronics, alternative energy or new energy, and non-ferrous metals. The GMV for the aforementioned sectors all achieved a year-over-year growth of over 20%. And for semiconductors, energy storage, optical modules, robotics, and optical communication, these emerging sectors, we are accumulating more and more customer resources. And other sectors that have been growing relatively fast are specifically for steel and non-ferrous metal. If we look at the daily average order volume, January through April, this metric has grown 100% for steel and non-ferric metals. And for the same metric, so basically daily average order volume, January through April, grew by 45% for steel communication electronics, and 33% for alternative energies. And refined chemicals, pharmaceuticals, electrical manufacturing have all grown very quickly.

In order to improve the penetration rate of these industries and more market share, we did three things. On the one hand, we organized a special industry sales team to develop customer support covering these industries. Secondly, we are constantly enriching and deepening the industry quality of the industry that covers the needs of this industry and the customer quality of the key customers. Thirdly, for the development needs of robots and the smartization of future devices, we have listed the three aspects of AI factory automation, That's my answer to this question.

And in terms of the measures we're taking to improve our sector penetration and our share, we did three things. First is we have formed sector-specific sales forces to target these customers in these specific sectors. Secondly, we're building out a sector-specific commodity pool and a customer-specific commodity pool for these sectors. And in order to embrace e-growth in robotics and the smart products, we have launched the FA, or Factory Automation Mall, as was alluded to in the prepared remarks. That was my answer to this question. Thank you.

The next question comes from Brooke Wong with CITIC. Please go ahead.

Thank you for the opportunity. I have a small question. I want to ask about the overseas business. In the first quarter of 2016, we saw a huge increase in the number of overseas businesses. Can you introduce the overall strategy of the overseas business this year? And then I will ask you about it later. You mentioned world companies' overseas business revenue increased by 64% year-over-year in the first quarter. Could you please introduce this year's strategy for the overseas business? Thank you.

Um, um, um, um, um, um, um, um, um, um, um, um, um, um, This is the end of the delivery capability of different countries and regions. This is for China companies to go out of the sea. On the other hand, we have a very important business, which is the localization of the United States. What about the localization of the United States? We focus more and more on the focus on developing warehouses and the products needed during the management process. We now hope to strengthen this category first and then add other categories. So in general, Thank you for that question.

Yes, indeed. For the first few months of this year, we not only achieved the yield via growth, We also achieved month-over-month growth. Two things about overseas business. Firstly, we are primarily serving Chinese companies going abroad. So we will be relying and leveraging our existing customer relations with those Chinese customers to drive more overseas orders. We will also strengthen our last mile fulfillment capabilities when it comes to serving the different geographies overseas. Secondly, localized operations in America is extremely important to us. So we will be more focused, more laser focused in our business there. And specifically, we'll be focusing on providing the categories needed for warehousing operations. We will get that done well before we branch out into other skills and categories. Overall, When it comes to developing and expanding our business in overseas markets, we will focus more on the efficiency and returns of our investments and the spend. And we would not spend ahead of time. And our goal is to try to break even for overseas business this year. That's concluded my answer to this question. 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.dkf.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.