Sinolink: Optimistic about China's MRO centralized procurement, it is recommended to focus on high-quality enterprises with scale effects and operational efficiency.

Sinolink released a research report stating that MRO (Maintenance, Repair, and Operation) refers to essential industrial supplies that are non-production raw materials. The distribution of SKUs is long-tail and highly decentralized, with a high proportion of unplanned purchases, low value per SKU, but extremely high management and hidden costs. Intensification is an industry trend, and the online/digitalization process is accelerating this intensification. The Chinese MRO market has vast potential and is highly fragmented. The firm is optimistic about the long-term growth potential of large-scale, efficient MRO suppliers in China and recommends paying attention to leading high-quality enterprises with scale effects and operational efficiency. Sinolink's main points are as follows: Reviewing North America's leading company, Grainger, MRO has weak cyclical properties, and the value of centralized purchasing is clear. Grainger (founded in 1927, projected revenue of $17.9 billion in 2025) has proven the cyclical resilience of MRO through its century-long development. The average internal revenue growth rate from 2009 to 2025 is 5.7%, significantly outperforming the GDP growth rate in the U.S. during the same period (2.1%) and the decline in manufacturing IP (-0.1%). During the 2009 financial crisis, revenue only dropped by 9.2%, and during the public health crisis in 2021-2022, it gained market share due to its supply chain fulfillment capabilities. Three key value drivers for industry demand: (1) Cost reduction and efficiency increase; e-commerce centralized purchasing can save 15-20% in costs, 70% in time, and 50% in manpower; (2) Compliance and transparency; digitized centralized purchasing allows for traceability in pricing and processes, especially meeting the demand for transparent procurement from state-owned enterprises; (3) Deepened services; through layered services (High-Touch for large clients + online platforms for small and medium clients), it deeply integrates into clients' procurement and operation systems, forming strong customer loyalty. Differences in industry structure determine China's unique development path, which has distinct growth potential. Scale and decentralization create unique growth opportunities: China's MRO procurement service market is worth 3.7 trillion yuan, with a digital channel penetration rate of only 9.8%; the CR10 on the supply side is less than 1.5%, whereas in the U.S., CR10 ranges from 30% to 45%; on the demand side, there are over 6 million industrial enterprises in China (98% are small and medium-sized enterprises) compared to about 800,000 in the U.S., creating a highly fragmented landscape that presents a unique long-term growth space for centralized suppliers; at the same time, the demand for transparent procurement from China's state-owned enterprises is also a unique demand point for the industry. Differences in profit levels determine differences in business models: In the U.S., the after-tax sales profit margin in manufacturing is about 11.37%, while China's large-scale industrial enterprises have an operating profit margin of about 5.3%. Chinese firms tend to have thinner margins and are more sensitive to procurement prices. The Chinese MRO platform model is characterized by "low gross margins + high turnover + low costs," while the U.S. model is "high gross margins + high costs." China's unique advantages are expected to accelerate industry development: China possesses a globally leading e-commerce infrastructure and digital ecosystem (enabled by platforms like JD.com), and under the core driving force of cost reduction, the MRO industry is expected to accelerate its centralization with the help of e-commerce infrastructure. Competitive Landscape: Horizontal platforms focus on scale efficiency, while vertical platforms emphasize service depth. Horizontal platform types (JD INDUSTRIALS, Zhenkunhang, Kelip, Shenzhen Comix Group): Emphasizing breadth of categories, turnover efficiency, and scale effects, with relatively low gross margins and high turnover. Representative company JD INDUSTRIALS has a gross margin of 17.6%, with inventory turnover of 23.5 days/accounts receivable turnover of 2.9 days/accounts payable turnover of 105.4 days, showcasing strong operational efficiency. Vertical platform types (Xianheng International Science & Technology, etc.): Specializing in specific industries (power grid, oil and gas, rail transport, etc.), leveraging professional selection and deep service to achieve high gross margins (typically 30%+), following a "high gross margin + low turnover" approach, leading to deep customer binding and high switching costs. From the perspective of ROE breakdown, JD INDUSTRIALS has a non-diluted ROE of 19.30%, benefiting from high turnover efficiency; Dongguan Yiheda Automation has an ROE of 12.09%, reflecting a high net profit margin (17.37%); Xianheng International Science & Technology has an ROE of 14.80%, situated between the two; and overseas Grainger boasts an ROE of 48.10%, representing a mature high-profit + high-turnover + moderate-leverage model. Key Targets JD INDUSTRIALS (Hong Kong Stock): The largest MRO procurement service provider in China, with revenue of 23.952 billion yuan (an increase of 17.4% year-on-year) and adjusted net profit of 1.131 billion yuan; Zhenkunhang (U.S. Stock): clear trend of reduced losses, with revenue of 8.988 billion yuan and narrowed net loss; Xianheng International Science & Technology (A-share): focusing on grid MRO, with industry expansion becoming the second growth curve, revenue of 4.561 billion yuan (up 26.5% year-on-year); Kelip (applied for Hong Kong Stock Exchange): controlled by Shanghai M&G Stationery Inc., with revenue of 15.048 billion yuan (an increase of 8.8% year-on-year), and MRO category revenue of 4.269 billion yuan (up 19.4% year-on-year), accelerating migration from office supplies procurement to MRO. Shenzhen Comix Group (A-share): a leader in office centralized procurement, with revenue of 11.965 billion yuan (up 5.0% year-on-year), where MRO industrial products have become a core extension category. Note: All figures pertain to 2025 revenue and year-on-year data. Risk Warning Risks of macroeconomic downturn; intensified industry competition risks; policy and regulatory risks; risks of industry development falling short of expectations.