Huaxing Capital: It is expected that the revenue and net profit will turn positive year-on-year by 2025, reiterating a target price of $4.50 for ZKH Group Limited Sponsored ADR (ZKH.US).

Huaxing Capital recently released a research report stating that ZKH Group Limited Sponsored ADR (ZKH.US) fourth quarter GMV in 2024 met expectations, with revenue and net profit performance exceeding the institution's expectations. Huaxing Capital predicts that ZKH Group Limited Sponsored ADR's GMV, revenue, and net profit in 2025 will all achieve positive year-on-year growth. Therefore, Huaxing Capital maintains a "buy" rating for ZKH Group Limited Sponsored ADR stock with a target price of $4.50. In the research report, Huaxing Capital mentioned that ZKH Group Limited Sponsored ADR's performance report showed a GMV of 2.69 billion yuan in the fourth quarter of 2024, with ZKH platform/GBB platform contributing approximately 2.44 billion yuan/255 million yuan in GMV respectively, representing year-on-year decreases of 16.1% / 16.2%/14.9%, which overall met the institution's previous expectations. By business model division, the market (3P) model GMV composition ratio in the fourth quarter was 13.6% (compared to 27.6% in the fourth quarter of 2023). Huaxing Capital stated that revenue performance in the categories of electronic products, energy, electric vehicles (EVs), public utilities, and transportation was strong. The company also expanded its own brand business by 29% year-on-year in 2024, currently accounting for 6.7% of total GMV (compared to 4.9% in 2023). In terms of profitability, Huaxing Capital mentioned that ZKH Group Limited Sponsored ADR had a non-GAAP operating loss of 19 million yuan in the fourth quarter, with a net loss of 15 million yuan; operating profit margin (OPM) and net profit margin (NPM) were -0.8%/-0.6% respectively. Huaxing Capital stated that these indicators improved compared to the third quarter of 2024, mainly due to the company's focus on high-profit business and strict cost control. Regarding the current situation of ZKH Group Limited Sponsored ADR's US operations, Huaxing Capital stated that ZKH Group Limited Sponsored ADR currently has as many as 412 SKUs in the US, with an additional 1,300 SKUs set to be launched, mainly involving areas such as personal protective equipment (PPE), hand tools, power tools, packaging materials, HVAC, and office supplies. The company's e-commerce website was launched in December 2024 and currently has over 1,500 registered users, with customer growth being one of its main goals for 2025. Regarding the potential impact of future tariffs, ZKH Group Limited Sponsored ADR management stated that approximately 20% of SKUs supplied to the US market can be purchased from sources outside of China, such as South Korea, Vietnam, and Malaysia. Huaxing Capital mentioned in the research report that even considering tariff factors, ZKH Group Limited Sponsored ADR's products still have a significant price advantage in the US market. On the development of artificial intelligence (AI), the company's management stated that the company has integrated 2 million material entries, with an identification accuracy rate of over 90%. Huaxing Capital mentioned that the company hopes AI can help customers improve material management efficiency, and pointed out that the current internal AI assistant can help handle customer service affairs and increase order processing efficiency by about 23%. In the research report, Huaxing Capital adjusted its forecast for ZKH Group Limited Sponsored ADR's 2025 first quarter and full-year GMV year-on-year growth rates to -10.1% / +7.0%, and revenue forecasts to -0.8% / +11.1% year-on-year. Huaxing Capital predicts that the gross profit margin for the first quarter and full year of 2025 will be 17.9% / 18.2%, and the non-GAAP net profit margin is expected to be -3.0% / +0.4%. Huaxing Capital also predicts that the company's GMV and revenue year-on-year growth rates will turn positive in the second quarter of 2025, and achieve net profit in the second half of 2025. Huaxing Capital maintains a "buy" rating for ZKH Group Limited Sponsored ADR with a target price of $4.50, based on a 25x 2026E P/E ratio, which is roughly consistent with the average industry valuation level, implying a valuation of approximately $735 million for the company.