ZKH's second-quarter growth reaccelerated, with expense efficiency driving better-than-expected profitability improvement

Overview

This report reviews ZKH's 2Q26 results and updates its growth, margin, and valuation forecasts. Deutsche Bank believes the company has made progress in customer expansion, product mix, expense efficiency, private-label products, artificial intelligence, and international operations, with recovery momentum likely to continue into the second half of 2026. It therefore raised selected forecasts and maintained its Buy rating and US$4.80 target price.

Core views

ZKH's business recovery accelerated further in 2Q26. Quarterly GMV increased 18.9% year over year to RMB2,877.5 million, while net revenue increased 12.8% year over year to RMB2,443.8 million. GMV of the core ZKH Platform grew 22.9% to RMB2,635.0 million, while GBB Platform GMV declined 12.1% to RMB242.5 million and GBB product revenue fell 7.3%. Marketplace-model GMV grew 50.7% to RMB431.5 million, raising its share of total GMV to 15.0%; however, its monetization rate declined from 14.2% in 2Q25 to 11.8%, indicating that marketplace transaction scale expanded while unit monetization decreased. Growth was broad-based across multiple customer groups and industries. The total number of customers decreased 1.7% year over year to 73,547, but SME GMV grew by approximately 30%, large customers maintained double-digit growth, and GMV from state-owned enterprise customers increased by more than 20%. This indicates that transaction growth was driven more by higher customer productivity than by expansion in customer numbers. By industry, GMV from steel and ferrous metals doubled year over year, while telecommunications, electronics, fine chemicals, pharmaceuticals, and utilities each grew by more than 30%, demonstrating that the recovery was not driven by a single industry. The improvement in profitability exceeded Deutsche Bank's expectations, mainly due to a more favorable customer and product mix and higher operating efficiency. Gross profit increased 20.3% year over year to RMB429.6 million, outpacing revenue growth, while gross margin rose 1.1 percentage points to 17.6%. ZKH recorded a quarterly operating profit for the first time, with operating profit of RMB4 million and a margin of 0.2%, compared with an operating loss of RMB72 million in 2Q25. Non-GAAP adjusted net profit was RMB38.5 million, representing a net margin of 1.6%, compared with an adjusted net loss of RMB36.5 million in the same period last year. Expense control was an important mechanism behind the return to profitability. Despite revenue growth of 12.8%, total operating expenses declined 0.8% year over year to RMB425.6 million, while the operating expense ratio fell 2.4 percentage points to 17.4%. Fulfillment, sales and marketing, research and development, and general and administrative expense ratios declined by 0.5, 0.7, 0.5, and 0.7 percentage points year over year, respectively. At quarter-end, the company's domestic fulfillment network comprised more than 30 distribution centers, 109 warehouses, and over 6,000 EVM smart vending machines, while its Cangzhou hazardous-materials warehouse had also been completed. Even as the network continued to expand, the fulfillment expense ratio declined 0.5 percentage points to 3.7% of revenue. Private-label products continued to improve the product mix. In 2Q26, private-label GMV increased by more than 25% year over year and accounted for approximately 10% of total GMV, up from 9.7% in the first quarter. The company launched more than 700 private-label SKUs during the quarter and reiterated its long-term target for private-label products to reach 30% of GMV. The report views rising private-label penetration as an important support for gross-margin improvement and product differentiation, although considerable room remains between the current share and the long-term target. Artificial intelligence capabilities have begun to expand from internal efficiency improvements to customer service and commercialization. AI Materials Manager users increased by more than 200% year over year to over 8,000 and have begun generating revenue. The company also launched Domino, an industrial supplies data engine based on what the report describes as the industry's first billion-parameter industrial supplies knowledge graph. Internally, artificial intelligence now supports more than 70% of R&D coding work and was estimated to have saved 12,759 work hours during the quarter. ZKH is also working with Intel to develop industrial vision edge models and is deepening integration with domestic chipmakers. The report believes the planned independent artificial intelligence subsidiary could enhance strategic flexibility while preserving synergies with the parent company. The international business is in a phase of rapid expansion. Overseas GMV exceeded RMB95 million in 1H26, increasing tenfold year over year. The company is supporting the globalization of Chinese manufacturers while also building local capabilities in key markets. Management emphasized disciplined investment and returns on investment and expects the international business to become profitable in the second half of 2026. This will be an important milestone in determining whether overseas expansion can transition from scale growth to sustainable returns. Based on second-quarter performance, Deutsche Bank raised its FY2026 revenue forecast by 3% and increased its adjusted net margin forecast by 10 basis points. Following the update, it expects 2026 GMV to grow 18% to RMB11,919 million, revenue to grow 13% to RMB10,130 million, gross margin to reach 17.1%, non-GAAP operating profit to reach RMB77 million with an operating margin of 0.8%, and adjusted net profit to reach RMB140 million with a net margin of 1.4%. Compared with its previous forecasts, 2026 GMV and revenue were both raised by 3%, gross profit by 4%, non-GAAP operating profit by 12%, and adjusted net profit by 10%. For 2027, revenue is forecast at RMB10,986 million, up 8% year over year, with a gross margin of 17.6%, non-GAAP operating profit of RMB187 million, an operating margin of 1.7%, adjusted net profit of RMB250 million, and a net margin of 2.3%. Revenue was raised by 3% and adjusted net profit by 2% from the previous forecasts. The model also expects free cash flow to turn from negative RMB41 million in 2025 to positive RMB33 million in 2026 and increase to RMB188 million in 2027, reflecting gradual improvements in profitability and cash-generation capacity. Deutsche Bank uses a discounted cash flow valuation, assuming a weighted average cost of capital of 8.5%, a risk-free rate of 2.5%, an equity risk premium of 5%, and a terminal growth rate of 2%, while maintaining its 12-month target price of US$4.80. The model implies Deutsche Bank-adjusted P/E multiples of 22.4x and 12.6x for 2026 and 2027, respectively, and EV/EBITDA multiples of 17.8x and 6.6x. The report believes the continued digitalization of China's MRO procurement market underpins the valuation and long-term growth thesis. Regarding shareholder returns, as of June 30, 2026, the company had repurchased approximately 2.49 million ADSs for approximately US$7.67 million under its US$50 million share repurchase program. The program has been extended to June 13, 2027.

Analysis framework

Deutsche Bank first assesses whether growth has reaccelerated using 2Q26 GMV, revenue, customer, and industry data, and then analyzes the platform structure, product mix, and expense ratios to explain the margin improvement. It subsequently evaluates medium- to long-term drivers such as private-label products, artificial intelligence, internationalization, and the fulfillment network, updates its 2026–2027 financial forecasts, and finally determines the target price using a DCF model while outlining the key risks.

Methodology notes

• Valuation MethodDCF Valuation

  Discounted cash flow valuation

  This method discounts the company's expected future cash flows to their present value. The report uses a weighted average cost of capital of 8.5%, a risk-free rate of 2.5%, an equity risk premium of 5%, and a terminal growth rate of 2% to support the US$4.80 target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ZKH Group Ltd (ZKH)

  Digitalization of MRO procurement in China, growth in customer transactions, private-label penetration, artificial intelligence commercialization, and international expansion are the primary growth and profitability drivers identified in the report.

  Strengths

  The core platform's GMV is growing rapidly, customer and industry growth is broad-based, gross margin and expense efficiency are improving, and the company has achieved positive quarterly operating profit for the first time.

  Weaknesses

  The total number of customers decreased 1.7% year over year, GBB Platform GMV declined 12.1%, and the marketplace-model monetization rate fell from 14.2% to 11.8%.

  Comparison

  The report does not provide an explicit comparison with peer companies.

  Risks

  Macroeconomic conditions, uncertainty surrounding the expansion of digital penetration in MRO procurement, competition, supply or product-quality fluctuations, other operational risks, and regulatory risks.

Key data

• 2Q26 GMVRMB2,877.5 millionUp 18.9% year over year
• 2Q26 net revenueRMB2,443.8 millionUp 12.8% year over year
• 2Q26 gross margin17.6%Up 1.1 percentage points year over year
• 2Q26 operating profitRMB4.0 millionThe company achieved positive quarterly operating profit for the first time, compared with a loss of RMB72.0 million in the same period last year
• 2Q26 adjusted net profitRMB38.5 millionAdjusted net margin of 1.6%, compared with a loss of RMB36.5 million in the same period last year
• Marketplace-model GMVRMB431.5 millionUp 50.7% year over year, accounting for 15.0% of total GMV, with the monetization rate declining from 14.2% to 11.8%
• Private-label share of GMVApproximately 10%GMV increased by more than 25% year over year, with its share rising from 9.7% in 1Q26
• AI Materials Manager usersMore than 8,000Up more than 200% year over year and has begun generating revenue
• 1H26 overseas GMVMore than RMB95 millionIncreased tenfold year over year
• FY2026 revenue forecastRMB10,130 millionUp 13% year over year and raised by 3% from the previous forecast
• FY2026 adjusted net profit forecastRMB140 millionAdjusted net margin of 1.4%, with net profit raised by 10% from the previous forecast
• FY2027 adjusted net profit forecastRMB250 millionAdjusted net margin of 2.3%, raised by 2% from the previous forecast
• Target priceUS$4.8012-month target price, with the Buy rating maintained

Impact & implications

The report believes the breadth of customer and industry growth, gross-margin expansion, and declining expense ratios collectively indicate that the quality of ZKH's recovery is improving. Private-label products, artificial intelligence, and the international business provide incremental growth drivers, while expectations for operating profit and free cash flow to turn positive suggest that scale expansion is gradually translating into profitability and cash-generation capacity. Based on the upgraded forecasts and the digitalization trend in China's MRO procurement market, Deutsche Bank maintains its Buy rating and US$4.80 target price.

Risks

• Macroeconomic volatility may affect corporate demand for MRO procurement and the company's growth performance.
• There is uncertainty regarding the pace of digital penetration growth in MRO procurement.
• Market competition may affect transaction growth, pricing, and margins.
• Supply fluctuations or product-quality issues may affect fulfillment and customer experience.
• Other operational risks may hinder the company from achieving its growth and profitability targets.
• Regulatory changes may affect the company's business model or expansion plans.

What to watch

• Monitor whether growth momentum can continue in the second half of 2026 and whether the full-year forecasts of 18% GMV growth and 13% revenue growth can be achieved.
• Monitor whether the international business can become profitable in the second half of 2026 as management expects.
• Monitor progress in increasing the private-label share of GMV from approximately 10% toward the long-term target of 30% and its contribution to gross margin.
• Monitor AI Materials Manager user growth, revenue contribution, and progress on the independent artificial intelligence subsidiary.
• Monitor whether the marketplace-model monetization rate can improve from 11.8% while GMV continues to grow rapidly.
• Monitor whether operating profit and free cash flow can remain positive and expand as forecast.