China industrial supplies platform ZKH pursues US IPO
ZKH Group, a China-based industrial supplies platform backed by the likes of Eastern Bell Capital, Genesis Capital, Tencent Holdings, and Tiger Global Management, has filed to list in the US.
IPOs by Chinese companies on the New York Stock Exchange and NASDAQ have gradually returned after being thrown into limbo in 2021 by the threat of additional compliance requirements imposed by China and the risk of compulsory de-listings by US authorities over a long-running audit dispute.
The dispute was resolved at the end of last year and numerous companies have moved ahead with previously delayed listing plans. Notably, Hesai Technology, a developer of sensors used in autonomous driving, last month raised USD 190m in the largest IPO by a Chinese company in the US in more than two years.
ZKH, otherwise known as Zhenkunhang, is one of a handful of companies in China’s maintenance, repair and operations (MRO) space that have received significant private funding. They are part of broader efforts to rebuild traditional procurement channels through supply chain digitalisation, integrating trading platforms, digital tools, and intelligent services.
Other players include Ruigu, MyMRO, and JD MRO. MyMRO and JD MRO are spinoffs from US industrial products supplier Grainger and Chinese e-commerce platform JD.com, respectively. ZKH claims to be the market leader based on gross merchandise value (GMV), number of enterprise customers, and number of stock-keeping units (SKUs).
“MRO procurement services are indispensable in addressing the essential needs in manufacturing enterprises’ daily operations, yet also challenging because MRO procurement is highly fragmented in supply and demand, involving a vast array of items typically in small volume with recurring purchases,” according to a prospectus.
China Insights Consulting estimates that China’s MBO industry grew from CNY 2.07bn in 2016 to CNY 3bn in 2022 and is on track to reach CNY 3.98bn by 2027. Key driving factors include the growth of the secondary industry, the overall enhancement of the standardisation and digitalisation of the MRO procurement process, and infrastructure improvement.
ZKH operates two platforms, one for enterprise customers and the other for micro businesses. The company takes inventory and sells directly to customers and also runs a marketplace that brokers transactions between third parties. As of year-end 2022, it had more than 40,000 enterprise customers and 17,00 micro business customers.
ZKH offers 17.3m SKUs, of which 2.2m are offered through the marketplace channel by over 2,400 suppliers. Marketplace GMV rose from CNY 914.6m in 2021 to CNY 1.44bn in 2022. However, direct sales still account for the bulk of the company’s business. The marketplace share of overall GMV has more than doubled since 2020, but it was still only 15.4% in 2022.
Net revenue hit CNY 8.32bn in 2022, up 8.6% year-on-year, while the net loss narrowed from CNY 1.09bn to CNY 731.1m. ZKH’s gross profit margin grew from 13.6% to 15.8% over the same period.
Eastern Bell is the largest external shareholder with 14.7%, followed by Genesis on 10.5%, Tencent on 9.4%, and Tiger Global on 5.4%. All other external investors are sub-5%.
AVCJ Research’s records show that Cowin Capital provided ZKH’s first round of funding in 2015. It re-upped in CNY 360m round two years later led by Eastern Bell. Genesis also participated in at least one of these early rounds. A USD 129m Series C closed in 2018 led by Tiger Global and Legend Capital and featuring Eastern Bell, Genesis, Matrix Partners China, Shell, and Oriza Holdings.
Tencent led a USD 160m Series D in 2019 with re-ups from Eastern Bell, Genesis, Legend, and Matrix. It was followed a year later by a USD 315m Series E led by Yunfeng Capital. Most of the existing investors re-upped with the likes of China Structural Reform Fund, CIC Capital, and two funds linked to state-owned Xiamen C&D coming in as new backers.
The prospectus also references a USD 221.8m Series F structured as a convertible note issue. Canada Pension Plan Investment Board put in USD 150m with other contributions coming from Fidelity, Tencent, and Tiger Global.
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