Glonghui, January 23 | Huaxing Capital covered Zhenkun for the first time, giving it a “buy” rating, with a target price of $19.50, indicating that as a pioneer in online MRO (maintenance, repair and operation projects) procurement and management service platforms, it will expand along a fragmented value chain and drive growth. According to the bank's and CIC's estimates, Zhenkun Bank's GMV in 2022 is 9.4 billion yuan, accounting for about 9.4% of China's scattered and expanding online MRO procurement market. Despite the impact of the pandemic, the compound annual growth rate of GMV reached 31% in 2020-23E. The bank believes that Zhenkun's competitive advantage is: 1) providing a one-stop solution, covering 17.2 million SKUs; 2) covering a diverse customer base of different sizes and industries, reducing concentration risks; 3) integrating closed-loop and digitized systems to simplify procurement processes and improve overall efficiency; and 4) a strong execution network covering the whole country, supported by timely inventory and direct transportation capabilities. According to the research report, further online penetration has brought good luck to the industry. According to CIC data, the market size of MRO procurement services in China in 2022 is about 3 trillion yuan. Driven by digitalization and standardization reforms, it is expected to reach 4 trillion yuan in 2027, and the compound annual growth rate will reach 5.8% in 2027. Driven by the platform, CIC expects the online penetration rate of the MRO procurement market in China to grow from 7.8% in 2022 (10-20% in the US) to 21.3% in 2027. The bank predicts that the GMV of Zhenkun Bank will reach RMB 18.9 billion in 2025, with a compound annual growth rate of 26%. Furthermore, strategies such as increasing direct procurement and developing private brands will drive the company to achieve steady profit growth. The bank expects Zhen Kun to be profitable in 2024E, and its GPM/ non-GAAP OPM/ NPM will continue to improve, reaching 23.3%/10.2%/7.8% in 2025E, respectively.