Deutsche Bank covered Zhen Kun Bank for the first time and gave it a “buy” rating. The target price for 12 months was $21.30. With its diverse and loyal customer base, strong product capabilities, comprehensive fulfillment infrastructure, strong technical capabilities and network effects, the bank believes that Zhenkun has the ability to seize market opportunities.

Zhenkun has become a leading domestic MRO (maintenance, repair and operation project) procurement service platform in terms of GMV, number of enterprise customers, SKU, distribution network, etc., providing one-stop, digital, end-to-end MRO procurement solutions for manufacturing enterprises.

Specifically, in 2022, the company's GMV reached 9.4 billion yuan, with an average compound annual growth rate of 37.3% in 2020-22. As of September 30, 2023, the company's e-commerce platform provided 17.2 million SKUs, covering all major MRO product lines. The company has 30 distribution centers and 96 transit warehouses, covering most major industrial centers in China.

In the 12 months up to September 30, 2023, the company served more than 64,000 customers. Among them, about 91% of GMV TOP 500 customers in 2020 continued to cooperate with the company until 2022, showing high customer loyalty.

China has a huge market for MRO procurement services, but according to CIC data, the online penetration rate in 2022 is only 7.8%. The online penetration rate is expected to reach 21.3% in 2027, with a 5-year compound annual growth rate of 29.2%.

The bank expects that Zhen Kun will benefit from the growing digital penetration rate of China's MRO procurement services industry to achieve GMV and revenue growth. The bank expects GMV to have a compound annual growth rate of 26% in the fiscal year 2022/25, driven by the increase in the number of customers and the average customer unit price.

Furthermore, the bank expects a compound annual growth rate of 20% in revenue for the fiscal year 2022/25. In terms of profit margins, it is expected that Zhenkun will increase profit margins through the following methods: 1) expanding GPM for economies of scale; 2) shifting the revenue structure to a more profitable 3P model; and 3) operating leverage. The bank expects NPM to increase to -3.8%/1.8%/7.3% in 2024/2025, respectively.