KE Holdings Inc. (BEKE) on Q3 2021 Results - Earnings Call Transcript
Operator: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Incorporated’s Third Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. Also, today’s conference is being recorded. I will now turn the call over to your host, Mr. Matthew Zhao, IR Director of the Company. Please go ahead, Matthew. Matthew Zhao: Thank you, operator. Good evening and good morning everyone. Welcome to KE Holdings Inc or Beike’s, third quarter 2021 earnings conference call. The company’s financial and operating results were published in the press release earlier today and are posted on the company’s IR website, www.investors.ke.com. On today’s call we have Mr. Stanley Yongdong Peng, our Co-Founder, Chairman and Chief Executive Officer; and Mr. Tao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategy and business development. Mr. Xu will provide additional details on the company’s financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applied to this call as we will make forward-looking statements. Please also note that Beike’s earnings press release and this conference call including discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to the Company’s press release, which contains a reconciliation of the audited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated all figures mentioned during this conference call are in Renminbi. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, sir. Stanley Yongdong Peng: Thank you, Matthew. Hello everyone and thank you for joining us today on our third quarter 2021 earnings conference call. Before I go into more details that I need first provide a better future view of our industry. During the past quarter, the entire housing transactions and services industry, including ourselves faced a series of challenges. At the new and existing home and land market is to be honest substantial corrections, transaction throughs, marketing making a historical color. The industry laterally made difficult but the correct adjustments not only in its economic growth driven by high leverage, not sustainable, but it will also negatively affects people’s lives and to creates systematic risks without correction, creating the developers business model that will be based on high turnover, high leverage and a high housing price. Our national policy, though our housing is not either for living nor for speculation, that it encourages both housing purchase and the renting will become a castle in the sky. If the housing transactions and services industry blindly use pen in scale, without offerings, some professional services, it will be unable to ensure service quality, nor adequately protect our consumer rights and an efficient housing market will be impossible when we talk about to the license, even if it is difficult. We are referring to an instance where there is an opportunity to undertake daunting tasks with a week payoff in the short time, but a real crew to generate great value in the long-term as the participants of our industry in need of reform. And under guidance of the Chinese government’s policy to correct market instability and create more equitable housing circumstances is the biggest duty to show that our responsibilities for the great goods, rather than installing and serving our business needs. We firmly believe China’s housing industry is facing crucial development opportunities are promising era for existing homes and a better leverage is coming up upon us at an accelerated pace. With that backdrop in mind, let’s talk about the industry and the overall performance of our company in more detail. A series of policies such as purchase restrictions, loan quarter limits, sales restrictions, reference process, financing limitation, payment restrictions and recent alerts from several developers have also dragged down market sentiments. The results have been a significant downtrend in the existing home transaction market in first tier cities and most second tier cities. GTV of existing home sales market declined 41.6% year-over-year, while GTV of new home sales market declined 14.1% year-over-year in Q3 during the sharp market downturn. The ecosystem of the brokerage industry was worst quickly. The total number of brokerage rate agents on our platform shrunk and the broker registers faced severe challenges. In Q3, the number of stores on our platform with a trailing 12-months GTV is exceeding the line of RMB15 milling to come 3.3% quarter-over-quarter accounting for 33.7% of total stores. Our mission is to promote admirable service and joyful living in China. We have come to a point where our corporate culture, organization capabilities and our two decades of successful operations play a pivotal role as we move ahead. We have a strong team of senior manager taking charge of divisions, provisional and city levels. These dedicated leaders averaged more than 10 years in digital services at Beike, that see industry developments at their personal responsibility with their seasonality and the broad determination. We are confident we can navigate the tough market cycle and come out even stronger. During the third quarter, we implemented a range of measures to ensure stable operations and a sufficient income for high quality store owners and agents withdrawing to inspire owners and agents to make the right choices, provide quality services in the face of challenges and deliver on their commitment to take care of customers against interferences. We believe the key is the focus and the collaboration. First, we have absolutely promoted our agent specialization strategy increasing productivity through remaining focus. Second, we are diverting small resources to new home sales and rental centers. Third, we further encouraged cross-brand, cross-store collaboration and cooperate among existing and new home sales and rentals. We are also promote John efforts between new and a seasoned agents as well as we turn the functional teams and the business teams together. We keep our feet on the ground and then carry on. During third quarter, the number of stores on our perform increased 2% quarter-over-quarter to 53,946, and only 1.7% of stores on our platform closed due to the market correction. We also facilitate some store merges to improve productivity, otherwise low efficiency stores based on a target diagnostics and it dropped some non-cooperative stores from our platform. This also demonstrates that there is increasing stickiness among connected stores on our platform. And a growing number of stores outside of our ACN have jointly asked for support during the down cycle. 29% of new stores that have joined our ACN network in Q3 were from external, Fang jiang hu stores, compared with 22% in Q2. The number of agents on our platform was 457 at the end of Q3, 6% lower than the per year quarter end. The decline was a result of increasing agent attrition resulting from that market correction. For the most part, this has been the industry normal, but also due to our initiatives in some cities to improve overall agent quality. As we implemented various mitigating measures in Q3, the agent attrition rate in Beijing and Shanghai remain lower at 3.9% better than the four – 4.7% we saw during the same period last year. Despite these broad challenges our collaborative spirits continue to be the foundation of our business. In Q3 transactions on our platform completed through cross-store collaborations and the proportion of existing home listings contributed, by not only in those connected stores, both remain stable at 76% and 85.5% respectively. Moving to our quarterly performance and the measures we have taken with each of our lines. With respect to existing home transaction services, according to Baker Research Institute nationwide GTV for existing home sales decline, 41.6% year-over-year in Q3. GTV for our existing home transaction was RMB830.7 billion with a year-over-year decrease of 34.3%. Specifically, GTV for our existing home sales decreased by 36.8% year-over-year, demonstrating virtually resilience of our business in the downcycle. Function allocation as the foundation of our ACN division of labor brings focus, focus brings professionalism and competitiveness and the cooperation bonds these all together. To this end, we ask you our agent specialization strategy, overall setting well 1000 stores in Q3 covering over 300,000. Agent consumption completed collaboratively pass specialized agents on our platform accounted for 29.6% of the total transactions in Q3, up from 14.4% in Q2. We are also making strides in digital empowerment. We launched the Xiaobei existing home sales training camp, which is an online standardized and intelligent system for the vocational training. The Xiaobei training camp simulates the interactions between agents and customers in VR and offline property assurance and provides performance evaluations leveraging our AI capabilities. We can identify best practice in the process as well as each agent who were recognized for target training. In Q3 more than 125 agents took Xiaobei existing home sales training in more modem, 1.2 meetings, natural sessions. In the future, as we accumulate more data in existing home sales services, Xiaobei training camp can be used for broader vocational training fields, such as new home sales and a home renovation services. Turning to new home transactions, as we mentioned, the degree of correction in the new home market in Q3, you can see our expectations. According to the National Bureau of Statistics GTV or probably sales decreased by 14.1% year-over-year. In Q3 our new home transact GTV was RMB410 billion, down RMB2.5 billion year-over-year, performing much better than the broader markets. The overall, industry continued to trend downwards from July to September, leading to further pressure on sales through. On the other hand, brokerage penetration bottomed out in Q3 as developers become more reliant on brokerage channels to accelerate sales, to preserve liquidity. This in turn benefited those new home sales channels that provide quality services, protect the interests of consumers and a whole strong agent mobilization capabilities. We can see this by looking at the increase in a number of new home projects for sale on our platform, which rose 13% from June to September. While our platform has been well-recognized by developers, we continue adhering to high standards for project cooperation and performing end-to-end risk control, to ensure timely and healthy payment collections. In our new home business, we have prioritized timely payment collections over scale and expansion or any other metrics. In our view permanent launch in commission rates we strictly implemented end-to-end risk management and control system, which enables response mayors with 24 hours after our risk warring is tripped. We do not expect to have significant risk in our new home business. We operate in a high, independent, efficient, and have never reliant on resources, endowments or relationships for our growth. Our confidence comes from the sound our or excellent stores and the agents on our platform and a strong customer definition they have gained by performing high quality services. We are also far ahead in digitalization and in rich online concept for our new home business to provide consumer objective, neutral, personalized online contents that are narrows information gate. We are encouraging occupational generated content or OGC. We are building an open platform to enable those professionals to supply comprehensive commentaries also narratives and empower customers with more information – informed decision-making capabilities. This will further enhance the platform generated content such as our Housing Dictionary. At the end of Q3, our Housing Dictionary had achieved 100% coverage of the targeted new home distance on the market. Notably in Q3 we create China’s biggest database describing on favorable factors of new home projects. This lays the groundwork for bigger to bridge the information gap and to provide truly reliable and useful new home content. Where we will never stop our persist pursue of top-quality services. The only market corrections, we believe it is more important than ever to emphasize the governance of new home business conducts. At the end of Q3 our Five Don'ts commitment to developers, have covered all developers in 66 cities 11,109 new home projects in total. But mid-October, we identified a total of 47 misconducts and a provider nearly RMB2 million in compensation to developers, fulfilling our commitments to them. Moving to emerging services. In Q3, we steadily progressed home renovation business, including self-operated Beiwoo and Shengdu, which we are in the process of acquisition. Beiwoo completed the renovation of 1,127 home units in Q3, up 35% quarter-over-quarter. While the contracted sales of Shengdu also increased more than 35% year-over-year by the end of Q3. Regarding its operations, Beiwoo achieved breakthroughs in empowering both service providers and customers in Q3. For service providers, Craftsmen Academy, the industry first full services on a casual training base opened in September. It aims to cultivate renovation professionals across industry chain, nurturing designers, foreman, workers and more. The focus is on general and professional competencies and leadership. In September 394 foreman took part in the training. Long plagued by the shortage of high-quality service providers, industry infrastructure such as Craftsmen Academy is designed to upgrade renovation services standards and help industry practitioners achieve personal growth. Meanwhile, we upgrade our home SaaS system to manage and empower both foremen and workers. This upgrade allows even the construction process to be standardized, modularized, assessed, distributed and managed to the finest granularity. Labor and materials are centrally deployed by the platform, with an accurate, controllable budgeting process. For customers, Beiwoo launched its 10 heart-to-heart service commitments in September to address the renovation industry's key pain points for customers. Our pledge includes double compensation for malicious increase beyond the scope of the contract, double refund for under the table charges, triple compensation for using fake materials. Compensation for delays and six others covering areas of budgeting, materials, construction, timelines and services. In summary, in this round of productions we are accelerating our thinking on the additional value we can create for society and our social responsibility we should take. The answer has become increasingly clear. In China, people's yearning for a better life is reflecting in their desire to live and work with joy. To facilitate joyful living, we hope to provide a rich variety of high quality and affordable housing services and products for those who need… Stanley Yongdong Peng: ...including the fresh college graduates, low income groups, new urban citizens. Therefore, we are devoting more talent and resources to innovations and our rental services and regeneration of old residential communities. To facilitate work that is rewarding and fulfilling with the government's support of vocational education, we have established a multi-layered training and education system for housing services providers. This includes the Original Force Academy for brokerage brand owners, Huaqiao Academy, for store owners and Beike Brokerage Academy for agents as well as Craftsmen Academy for renovation services providers as we mentioned earlier. Our goal is to have more home related service providers with a path for long-term career development and cultivate more high-quality professionals and technical experts for the industry. All-in-all, despite the short-term impact on our business and the industry that emerged during the market downturn, the overall trend in the housing market remains healthy. Lastly, the regulatory authorities have responded multiple times to market concerns. Consumers' reasonable funding needs are gradually being met. Meanwhile, by the accelerated introduction of a property tax pilot program, we believe that a long-term regulatory mechanism can be quickly formed. In turn, we see this promoting the emergence of a new age of existing homes and the quality services sooner than we expected. The real estate sector in major developed countries accounts for approximately 10% to 12% of a country's GDP. Housing investment market makes up only about 5% and the rest comprises a broader array of housing services. In contrast, the real estate sector contributes to merely 7% of China's GDP. This housing investment makes up the majority of China's real estate sector. This indicates massive potential for our domestic housing service industry. If the past five years has been a golden age of real estate developments, then the next five years will be the age of joyful living, characterized by quality housing services. Short-term fluctuation imposed on long-term secure trends are simply noise. We follow our inner compass and will persist to become the leading comprehensive home services providers for the 300 million families in China. With that, I would like to turn the call over to our CFO, Tao Xu for a closer review of our third quarter financials. Thank you. Tao Xu: Thank you, Stanley. Thank you everyone for joining us. I would like to provide a brief overview for our third quarter of 2021 financial results. As we guided in the second quarter's call, in past several months we saw a deep, sharp drop of the overall property market, including live auction, new home market and the existing home market, amid unprecedented crackdown on speculation with an array of quoting measures from credit tightening to home price being rolled out. This factor adversely impacts our operational and financial result in Q3. We are experiencing a sharp market downturn. We still want to emphasize our three fundamental beliefs towards this industry. First, housing is one of the largest and the most complex industries in China and a prime candidate for the digital disruption. Second, Beike is and will continue to be indispensable to transaction and can be empowered to thrive. The third, professional and thoughtful services build customer trust and transcend market stakeholders. We are confident that our continued support in maintaining the best cost service, by providing – by supporting our agents and further upgrading the infrastructure in housing transaction and services will help us grow through these cycles and further improve our service quality, efficiency and business scale. We maintain our long-term view in pursuing our mission to transform the housing transaction and services industry in China by leveraging our people, better insights, technology and platform. Turning to our financial details in Q3. Our net revenue was RMB18.1 billion in Q3, compared to RMB28.5 billion in the same period of last year. Exceeding the both higher end of our guidance on the Street consensus. The year-over-year decrease was a primarily attributable to the decline in total GTV of 28.9% to RMB830.7 billion in Q3 form RMB1.05 trillion in the same period of 2020. In particular, our net revenues from existing home transaction services were RMB6.1 billion in the Q3, compared to RMB8.8 billion in the same period of 2020, primarily due to a 34.3% decrease in GTV of existing home transactions to RMB378.2 billion in Q3 from RMB576.1 billion in the same period of 2020, led by a slow-down of the existing home market, which was affected by a series of market-cooling measures especially loan quarter limits in Q3. Our net revenues from emerging and other services was RMB610 million in Q3 from RMB625 million in the same period of 2020, primarily due to a decrease of net revenues for financial services around the existing home transaction services, which was partially offset by a 29.4% increase of net revenues from the renovation services. Cost of revenues was RMB15.3 billion in Q3, compared to RMB16.2 billion in the same period of 2020. Gross profit was RMB2.8 billion in Q3, compared to RMB4.4 billion in the same period of last year. Gross margin was 15.2% in Q3, compared to 21.3% in the same period of 2020. The decrease in gross margin was mainly due to a lower contribution margin of existing home transactions led by the decreased net revenues from existing home transactions and the relatively flat fixed compensation costs for Lianjia agents. Operating expenses were RMB5.1 billion in Q3, compared to RMB4.5 billion in the same period of 2020. General and administrative expenses were RMB2,412 million in Q3, compared to RMB2,649 million in the same period of 2020, mainly due to the decrease in share-based compensation expenses, which was partially offset by the increase of personnel costs and bad debt provision. Sales and marketing expenses were RMB1,202 million in Q3, compared to RMB1,026 million in the same period of 2020, mainly due to the increase of headcount in business development personnel. Research and development expenses were RMB1,043 million in Q3, compared to RMB789 million in the same period of 2020, mainly due to the increase of headcount in experienced research and development personnel. In addition, we’ve recognized revenue impairment of goodwill of RMB397 million in Q3, compared to nil in the same period of 2020 based on MAU longer-term view of our – of outlook of the business of a process. We conduct a comprehensive risk assessment and assets evaluation, and that made us sufficiently in terms of provisional targeting. Loss from operations was RMB2.3 billion in Q3, compared to loss of RMB81 million in the same period of 2020. Operating margin was negative 12.7% in Q3, compared to negative 0.4% in the same period of 2020, primarily due to one, a relatively lower gross margin in Q3, compared to the same period of 2020. Two, the increase of the percentage of total operating expenses as net revenues in Q3, primarily due to the decreased net revenues along with the relatively flat recurring operating expenses, and additional impairment of goodwill as well as severance provision of RMB250 million incurred in Q3, compared to the same period of 2020. Excluding non-GAAP items, our adjusted loss from operations was RMB1,435 million in Q3, compared to adjusted income from operations RMB1,740 million in the same period of 2020. Adjusted operating margin was negative 7.9% in Q3, compared to 8.5% in the same period of 2020. Adjusted EBITDA was negative RMB550 million in Q3, compared to RMB2,248 million in the same period of 2020. Net loss was RMB1,766 million in Q3, compared to net income RMB75 million in the same period of 2020. Excluding non-GAAP items, our adjusted net loss was RMB888 million in Q3, compared to adjusted net income RMB1,858 million in the same period of 2020. Net loss attributable to KE Holdings Inc.’s ordinary shareholders was RMB1,765 million in Q3, compared to RMB271 million in the same period of 2020. Adjusted net loss attributable to KE Holdings Inc. was RMB887 million in Q3, compared to adjusted net income attributable to KE Holdings Inc. RMB1,857 million in the same period of 2020. Diluted net loss per ADS attributable to KE Holdings Inc.’s ordinary shareholders was RMB1.5 in Q3, compared to RMB0.33 in the same period of 2020. Adjusted diluted net loss per ADS attributable to KE Holdings Inc.’s ordinary shareholders was RMB0.75 in Q3, compared to adjusted diluted net income per ADS attributable to KE Holdings Inc.’s ordinary shareholders RMB1.38 in the same period of 2020. As of September 30, 2021, the combined balance of the our cash, cash equivalents, restricted cash and short-term investments amounted to RMB52.7 billion or US$8.2 billion. Additionally, as of September 30, 2021, the balance of our long-term cash items includes into long-term investments amounting to RMB15.9 billion or US$2.5 billion. As we mentioned at the beginning, although there have been some problems in the housing market the risks, which brought significant negative impact to our business into run. But there’s also a transports take moments and looking work, focus more on the sense of our business and the refi our maintenance, and that just builds the resources more effectively. Change the way for us, I would say opportunity and allocate for the long ride. Our business of experience going through numerous challenges. So to give us the capability to remain stable against the market volatilities, while – in face of market downturn, we closely observe market trends at the timely adjust our business strategy to ensure the rapid presentation of sorts adjustments. Our initiative increased the more focused on efficiency, cost momentum to post synergy and allocate the resources more efficient oriented and the risk of root. There are some errors in this three aspect to you shows a comes back operation of the new normal. For example, we introduced the new operation metrics, including the number of active store and active agents are prideful to better with our business for price. We were attached with importance on our accounts receivable collection by building a comprehensive risk control mechanism to closely monitor the developers – changes. In the quarter, we have books better provision for all remaining receivables read to every branch and the several other developers, whereas in popular opinion, in order to reflect their recent privacy quality changes. Turning to Q4 guidance, according to Beike Research Institute nationwide the GTV of existing home sales market, that is by two fold over 47.4% year-over-year in the fourth quarter. Meanwhile, nationwide, the GTV of new home transaction market is – 28.1% year-over-year in fourth quarter. Based on the above that the region, looking forward to the fourth quarter of 2021, we expect our net revenues be between RMB14.5 billion and RMB15.5 billion, representing a decrease of approximately 31.6% to 36% from the same quarter of 2020. This guidance reflects a potential impact of recent the property market related policies and measures and the company’s current and preliminary view of the business and the market condition, which is subject to change. Over the course of this year, despite many challenges we have encountered, we have continuing to weather temporalis just has to provoke or us to force ourselves nightlights and noise is sparing every individual in our organization to fight, fight, fight the never ever give up. We will never give you well enough back down and then never stop doing what we know is right. We’re falling in barriers the post change as strong with the instance, the housing or leaving unfortunately condition, while there’s a long-term favorable environment for the industry, where we are thinking to our past, with the full commitment to serve our clients better. Well, confident that where they resilient and the how our value recognize, does this, what we have been doing not perfectly by the way on our week. That’ll conclude our prepared remarks. We would like now to open the call for questions. Operator, please go ahead. Operator: Thank you. Thank you. And the first question we have is from Liping Zhao from CICC. Your line is now open. Liping Zhao: I’ll translate for myself. I have two questions here. Firstly, we have seen marginal improvements in terms of falling housing mortgage rates recently. What do we think of these positive signs? And can we expect the real estate market to bottom out regulation wise in the near term? Speaking of transactions, when we – where we see a rebound in terms of transaction volume, and secondly investors are concerned about the state owned property leasing system, which are regarded by some as replacement for third party brokerage platform. What do you think of the government’s attitudes towards the mutual positioning of real estate brokers? Thank you. Stanley Yongdong Peng: Let me address your question. Regarding your first question, the decision, the department on the long-term the kindness of a real estate market, accretion value. We have a witness the largest ever regulatory package in terms of the quantity and the type of a policy, including restriction on property purchase, loan, sales, pricing, land auction, irrational price cost financing, and the payment as well as the potential property tax. Accordingly, it is a property market across China quickly in Q3. In-home sales market that drop the 41.6% year-over-year in GTV on par with our guidance in last earning release call. The decline of the new home market was larger than our repairs. It’s vacation down around the 14.1% year-over-year. The downturn in Q3 was across board rather than one single segment showing a trend factor from the credit tightening to the according in-home sales. And then to the new home sales and that market more implies cost – further weekends taking home sales expectation. I think in addition to behavior of the market participant recognizing led to a patching or for quite the crunch impeded the transaction and a downward revision of his vacations. In particular transaction volume, if you’re seeing home sales market continue to drop month over month in Q3 to a long-term historical low, where something is 10 years low record, housing price for a while and our home buyers – has fallen into a low-level since 2019. So the largest impact come from the sharp graduation in loan origination faces. At the first year above the housing loan concentration management, we still a mismatch between the private supplier and the marketplace, the average loan origination cycle, it’s new to extend in Q3, 77% longer in the same period of last year. A large number of infections have also been affected. In the same time, a lot – a total for 14 days, introducing the new home record price policy, some payment requirement for the house purchase for – expectation, property price, and overall marking sentiment has been significant sentiment. On the other hand, new home sales in China also drop sharply into Q3. Long drive to September, the new home sales – China decreased by like 0.5%, 17.6% and 15.8% year-over-year, respectively. Marketing September was a worthwhile in seven years. The new home sales market and the existing home sales market are highly correlated. In China, around the 40% of new home buyers come from the improvement in the amount of using home – of the using home owners. So it tend to long cycle and we’ll wait and see sentiment for the single home sells market affect the process plan for the new homes. The new home price falling and hidden rates in certain developer further deepen, so we can see sentiment amounts of buyers led to new home sales market and it cools down promotes late. The new home sales China in Q3, a season during the so-called Acacias key developer or motivating sales trainer, while really to accelerate the sales through and the leading to an increase, the penetration rate for the sales channel. However, risks in new home sales China are also emerging up, because developers squeak their suppliers working capital, resulting late payments of accounts payable, or so-called accounts receivable to the suppliers due to some index between supplier. Booking to the incoming policy and the regulations in shorten policy insurance are expect to pick up and the market enters to a period to drive the previous market curves and the way that it is unlikely for the policy tidying up. In terms of the housing price are calculating through Beike Research Institute as end of this September, housing price dropped at 1.5% on average from the highest this year with something is piping on the price cut. In terms of elaborating to improve the financial housing in transition to 40% of 100 estate developers successfully lowered their risk rate than 2019. In Q3 2021, residential housing leverage repower to a nine years low. In October, our widespread – our Vice Premier or State Council, Liu He said that a reasonable capital demand in the industry is being met. And the China were unchanged path towards the house demands. At the same, other financial regulators also respond to the market concerns. Given the impact of regulation results and there’s affording consecutive boarding and price where we see a significant lower frequency of the policy typing hike in Q4 versus last quarter, which is the pace of the release did the private supply be stabilized, which may bring some marginal change to the market. But policy impact on the market sentiment in the last quarter considerable time of periodic. From the long-term perspective, let me try not to call any upgrade from a high-speed growth model to our growth in the system delicate balance to what. We do see overall patching of financial policies. The acceleration of a pilot property tax reform signals the long-term mechanics and the on change, the pursuer elaborating the risking both sides as a resident. And despite the after the short intense, we start to see house and the more alternate roads in market in the future. So based on our observation, as I mentioned, the downward pressure on the existing home and the new home market will continue beyond Q3. Looking to our Q4 2021, the TTV of in-home sales market is further declined down nearly 50% year-over-year and a 25% quarter-on-quarter meanwhile, the TTV of the new home stock market while dropped by 20% year-over-year. For 2022, TTV is expected to drop by more than 10%, both in-home sales market and a slightly for new home sales market. So although, the TTV level both in-home and new home markets are expected to bottom half in Q1 2022. In the second half of 2022 as the market for late pricing the regulatory policies and that stabilized regular demand will come in and natural market recovery process will stark. Therefore, Beike want to reiterate our position to the market. Don’t underestimate the power of the policy to market iterations, and don’t under estimate the supporting power of marketing supply demand dynamics. Regarding the new home sales market we are seeing shorten price pressure. That will push themselves to promote itself and cash. From the long-term perspective, we see a shift from financing driven to operation driven being a sales focus approach. That will be the higher requirements on productive elements and the target sales. Given the increasing divergence across cities, first increasingly customized sales strategy and a comprehensive use of the south triangle should be a clear long-term trend, namely increasing penetration rate of a new home sales in China well comes in as a clear long-term trend. It also presents a more opportunities for people to pursue full cycle partnership with developers. In short, on presented policy regulation and the rest of the market putting off in 2021, brought to a profound market correction. Over the longer horizon, the market is not as bad as the waterway perceived like as this moment. In terms of a new model, the market-watch for texture balling this year, well, you pass the growth versus last year. While it’s a policy such as these in-home reference price have not changed the long-term supply and demand dynamics. At the mismatch between bank, credit supply and home purchase should be quietly improved. So from long-term perspective, market evaluation are normal, but the long-term mechanism being in place, either an – or quickly the market well normalized to the period of the supply/demand balance. Regarding your second question. So we’d like to say at a central company level a well-established, the midstream implemented system is crucial to standardize the release of March orders. And drop of real estate transaction that the midstream system can help to evacuate like property listing and the transaction data. Take a decision and the regulatory actions, while the wildest swings in the market due to potential policies also there to kind of help governments to address the issue of fake property listing and the vicious competition honking the industry. That’s contributing to the better performance of the service provider and benefit for those who can meet the cost service like Beike. As a consistent – a beneficiary of regulatory and collaboration market, Beike formally supports governments to upgrade the administrative systems and is working with government department at the current level, local real estate – local real estate at administrative states in 2021 since that administrative system with similar function, helping established in nine cities, including Beijing, Shanghai, Shantou and Sanming according to current statistics. So for the purpose of this session, we want to clarify the first day government had no intention to directly intervene in the transactions, and the position to covering the market to a well-regulated for modern situation to navigate us through the various transactions. Transaction process involves significant rate, which can be shouldered by commercial player for governments, on the country the right engagement in transaction by association of government to require a significant commitment of Thailand and the financial resources, including formulation produce, research and development investments, and execute system maintenance on this region. And it’s also exposed to the rates in the transact process. Secondary, governments are internalizing the livelihood surveys, including the social security, housing, vehicle, house care module. A proper module has been included in the local administrative system of , which is interviewed as a part of the normal local e-administrative system upgrade. Certainly there have been housing and transactions without an intermediary across country, taking for instance from 2019 to September of 2020, our average 20% of transaction volume come from hand-in-hand type of brokerage pre-transaction. Mostly between the family and the friends. So the upgrades, the other restrictive system in place can still those transactions into a more convenient and a safe process. In terms of outcome, the deliverables of a compliance, the information system or transact system depends on the level of improvements of our consumer experience and transaction efficiency. And so the tailwinds and the financial resources to meet as the operational experience accumulative overtime. Based on the proven track record across cities that have been deployed online implement system for years also demonstrates that a standardized market and trade contributed to the rights off its connected agents. But standardize the market place which our standard to proper listing has the most impact with those who attracted traffic suits or fake listings, and those who rely on some publishers competition, and I scope order or customers getting to prioritize accordingly service managing platform. We believe that along with upgrades of e-administrative system and further market standardization in efficient and supply, well before the script up by taking quality service providers. And Handan brokerage free transaction tend to remain stable in terms of other total volume as most often another fact by the change in the market conditions like the transfer between family members. So the reason for taking Handan the upgrades of the governments online seeking home listing system as an insignificant impact to the local transaction, like a while, what ends up bakers price locally. And for Xijing based on what we know so far, the function of information system, managing crews first only a QR code generated for a property, whatever called the generated for property firstly, they found the government information certain kinds of property owner publish their rating in other website. In this way that ensure the fake property in legacy on the platform company further has filed just as good for Beike and so-called amazing website. And the property owner is the required to engage exclusive sell side agent within a given period of time, just transformation against the market for listing agent model in industry helps to solve the province of our ASCO order, getting the low quality, low price competition that how they played in the industry. The system is designed to purify the industry environment on a standardized as a home transact market. Now, on Beike’s platform, consumer search for mobile home listing and agent information, while intern can state efficient collaboration supported by the platform rules and the infrastructure. Beike is the co-platform value and operation capability are benefiting from those lunched government e-administrative systems security. Liping Zhao: Thank you. That’s very clear. Operator: Thank you. We have the next question from the line of Miranda Zhuang from Bank of America. Your line is now open. Miranda Zhuang: Thank you. Thanks management for sharing today and for taking my question. Can you please elaborate more on the latest development and expectation for home renovation business and other new initiatives? Thanks. Stanley Yongdong Peng: Yes. Let me quickly translate. So this is Stanley, let me quickly address your question? So firstly, the home renovation and decoration business is very similar, like the housing transaction business, meaning to overall industry size are very big. But overall the user experience are extremely at worse. So we do believe in this industry we have a lots of opportunities continue leverage what we have of accumulated in the past two decades? So for the home decoration business we do have a couple of takes in terms of a whole outlook, correct. Firstly the overall Hana customers will continue more focus on the quality. We do believe that will be the fundamental, right? Because for the – if you look at the recently the policy trend definitely the – as a golden times for the, it’s a new homes it’s pretty much has been paused. So the next year for it definitely will be that the people its multiple cut down the joy leaving. So we do believe the opportunities will be arising from these kind of transition period. Secondly, we do believe the scientific management will continue how us and also helps the industry to operate right, especially followed by some of the other initiatives. For example, like more digitalization, we do a believe we can restructuring and it continue our practice about all those kinds of scientific management into the home decoration and the renovation business. And thirdly is about the value about the service providers in the home decoration and the renovation business. If you look at the overall, the conditions for the service providers in the home decoration and the renovation industry is still relatively low. So by doing the continuously training, as well as upgrade for those kinds of professionals, we do believe it will help us to continue help those kinds of service providers to further improve their professional career as well as the whole professionalism for the whole industry. So in summary, we do believe that decoration – a home decoration and renovation business is not a naturally so-called fast industry, right? It means we continue dedicate doing the things difficult, but right, right. That’s behind that that means there will be a lot more challenges as well as different process of – we will be facing, but we do believe our faith as well as our opportunities. That’s why, as a master we actually have been accumulate in the past two decades, we’ll bring the continuous value into this industry. And meanwhile from the cognitive side I think some people is talking about the difficulties for the home decoration business whether it could be somehow like a RMB1 billion raveling in one city. And weather a company could achieve like a RMB10 billion of the ground news overall. So, we do believe, I mean, definitely there will be some of the new players emerging from that industry and to reach of those kinds of RMB10 billion revenue milestones in the foreseeable future, and definitely this also, we have a lot of opportunity to achieve that as well. So in summary, as I mentioned before, so we do continue to focus on the street part of the asphalt, right? So firstly, how we can around the home services we can further improve SOP management as well as by upgrading the whole surveys procedures by the continuously digitalization. Secondly the scientific environment will be our key focus as well. By doing this, we can continuously improve the efficiency for the whole industry. On the third part, and most of importantly is, how we can continue to bring the value to the service providers into the home decoration and renovation services and continuing to improve their professionalism as well as improve their dignity for the product. So all in all as I mentioned internally speaking in terms of our renovation and operation services will continue to focus on how we can further improve the overall customers user experience we do believe that’s a very tough campaign for us but we have the trough as well as confidence we can continue or bring our mission into we had this has means the service provider with dignity as well as stock leaving ultimate to this. Thank you. Stanley Yongdong Peng: This is Stanley. I also wanted to give you additional colors in terms of the previous question regarding to the so-called the e-government and administrative systems rumor, right? So what we do believe is definitely there always be a – it’s a bigger problems and their needs of the smaller platforms, right. So in order to better to see what’s the intention behind all of the government we need to look at as a policy trend in China. If we look at the general, the policies in China, definitely there are two major parts. One is regulation, and other one is the encouraging of both of the housing purchase and renting right. So based on those two of the fundamental policies as well as add on the recently trends, such as a pilot program for the property tax, we do believe, during that kind of the stability of the policy trend, the Beike’s value will continue to shine since we can provide a very comprehensive solutions, and which is quite in line in those kinds of policies trends going forward. And the meanwhile we do believe our, as we mentioned before, so our – the fundamental orientation for our business is also quite in line with two of the policies direction, right. So and there are those kinds of assumptions, we do believe some of the rumors will be definitely the way in the market. And as far as we can continue to hold on but here to the policy, continuing to improve that efficiency, as well as improve the user experience, we do believe the Beike’s value will continue to shine. Now we’ll continue to bring the value into the whole industry. Thank you. Operator: Thank you. We have the next question from John Lam from UBS. You may proceed with your question. John Lam: Thank you. I have two questions. The first question is mainly on the property tax. So how the property tax affect the buyers and also the sellers sentiment and also their purchase behavior? And also not sure your management here any things regarding on the implementation details of the property tax. Second is regarding on the competitive landscape. So first on the one hand, we have seen centralized have a massively lay off people about 7,000 people and also their senior management also left the company. But at the same time, a major online news media company they also announced to enter into the property agency sector. So how the management feel the property agency competitive landscape? Thank you. Tao Xu: Thank you, John. Let me address you first question regarding the property tax. Recently as indicating as published by President Xi China should strengthen the regulation and adjustments over as a high income class, proactively and prudently promote legislation and the reform our property tax, and ensure effective implementation of a pilot program. We believe that the government will definitely duly sponsored scope was pilot property tax to most cities. In October, the council is authorized to carve out pilot property tax reform in certain regions. Property tax as a new local tax package well plays a fundamental role to narrow down the gap between the rich and the poor. Considering the requirements on proactively and prudently promoting the legislative reform on property tax coupled with the current market collection since late September. I made affording increasing home sells volume and the price as well as the monthly invest in delevers. We witnessed the current focus while stabilizing expectation and preventing an overcrowded market. As expanded, the scope of pilot property tax was extended in most cities are applicable to all existing residences and the incremental. Nevertheless, the focus of the property tax to be multiple residents of the residents with higher total value or a high unit price fully consider is the affordability of the household to ensure the basic living needs. While we’re attaching importance to change the worlds get amounts of household to better trips go on for common prosperity. The introduction of a parking tax will have a significant shorter impact in market. So owners of multiple residents may sell part of their properties leading to a higher market supplier in the hands a wait and see sentiment amongst buyers in the short term. However, from the long-term perspective, transaction volume is a predictor – is predicted on housing supply and demand fundamentals. The rationale long term of the property tax by laying a solid foundation for effective common prosperity will contribute to a stable long-term market expectation the prices, only in such scenario which stabilize the price like rationalize the market and there is some filtration is a long run can ratchet demand the further unleashed resulting you a higher home churn rate better affordability and the roofs for one and hence potential growth in transition volume Regarding the current market situation for cross industrial traffic advantage that is the natural impulse for them to try to maximize their traffic in different areas. We believe that the both the investment community. simply fully understands that industry with low frequency, high value transaction, and the long decision making process, the value provided by the online trust most relatively meet and cannot truly meet customer demand for information. Without a thorough understanding of the customer, and the industry, even traffic advantages are difficult to convert to the transactions. To integrate an online module with offline module, one cannot result with short term, such as unfair competition and the capital base disorderly dysfunction, including citing low commission rate, high rebate, unrealistic binding valuation promise that’s a false proposition which will not sustain and could cause antitrust violations. In part in the last year, mega internet companies and developers entered into the industry with high profile all walked away later, with the rationalities approved, are good showcase for their reference. In this industry, there must be more than one business model. At the moment, one company that can be successful, although forward starts only one way go to success. We believe in the value of taking good care of the consumers. We believe in the value of sharing successful experiences infrastructure to the industry, and empower and enhance industry efficiency. We believe in the value of protecting the interests of the service providers paying commission in time. And so work with the Center for Security and fairness. We believe in the value of hundreds or thousands as a service provider, who have been serving the community for many years, and establishes its unique moment in our home services. And we believe in the value of time, just as what we have been doing not perfectly, by the way, our way. Last, but not least, if beta towns do decide to move to the offline transaction, especially on the current market moment, we believe that will have their lessons learned from the market and the players who truly understood the system industry like Beike. And for the central plan and I do serve news, and I cannot comment our multi players decisions and the behavior but I would like to say the key and the high quality service providers represent the most valuable assets of the industry. During the period of downturn they go well for me suppose the retention of poverty and the high quality service provider. So our compensation, and the benefits of team culture and organization, the capability and the business strategy developed over years. Meanwhile, because this information mechanism, the network effect allow each agent to have much more opportunities to participate in transaction and secure most of our incomes and so on to other platforms, and have the enabling collaboration and short success. As a result, the overall turnover rate of agents and the percentage of store closure on the platform are significantly lower than the industry average while more resilient in the downturn, and have the ability to outperform when the market recovers. As the market is in the downturns. The industry production capabilities shrinking as the performance of the stock on pay per performance also have some impact. In South Korea, the number of stocks below the minimum sustainable level of turnover, the so called the bright line, the annual GDP of 50 million on the platform continue to rise and as a percentage of store above such level decrease from 37% in Q2 to 33.7% in Q3. So we don’t know the overall turnover rate of the industry. But we can imagine how the price industries. Into downturn cycle, the trends of hardening together to keep warm in the industry is the more evidence, we noticed that the coding of the marquee promotes most door and the agents who were reluctant to join platform finally joins a bigger platform, so number of branded natural Beike increased to 300 in third quarter and also the percentage of newly added stock from new home sales channel increased greatly from 22% in second quarter to 29% in the third quarter. The percentage of store closed due to the poor management, poor operation in Beike only 1.7% compared in Q3 compared to 1.1% in second quarter. Indicating no large scale store closure. Most of the third party store owners chose to stay with the platform in down turn cycle and the operator conservatively, but it missing inefficient personnel and the – by merge store as a percentage of store merge on the platform increased from 0.8 in the second quarter to 1.4 in the third quarter, this is the quarter our number of clients store and the agents and for the or turnover rate was 8.8% compared with 8% in first quarter. The turnover rate of Lianja in Beijing and Shanghai remained stable while our turn rate of non danger agents increased by 1% quarter-over-quarter than remain remained flat compared to last Q3. So, average turnover rate in the industry is 15%. On normal days, on the work it was in down turn cycle. So agent on Beike is still consistent, it’s considerably lower than the industry average. So, based on our judgment of the market, the industry production. So, based on our judgment on the market, the industry production capability will continue to shrink and it is bound to the – agent will be bought in March in the first quarter of 2022. Consequently, we would like to see the term overall putting performance store and agent increase significantly in line with the market trend, but outperforming the market condition. Okay. Thank you, John. John Lam: Thank you, Tao Xu Operator: Thank you. We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Mr. Matthew Zhao for closing remarks. Matthew Zhao: Thank you all for being here. Thank you once again for joining us today. If you have further questions, please feel free to contact the Beike’s investor relation team through the contact information provided on our website. This concludes today’s call and we look forward to speaking with you again next quarter. Thank you and goodbye. Thank you. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now all disconnect.BEKE Ratings Summary
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Related Analysis
Barclays Analyst Sets New Price Target for KE Holdings
- Jiong Shao of Barclays has set a new price target for KE Holdings at $30, indicating a bullish outlook with a potential upside of approximately 76.78%.
- Recent positive trends in the company's earnings estimate revisions and a strong consensus among Wall Street analysts suggest a significant 27.4% upside for BEKE.
- BEKE's recent stock performance and its substantial market capitalization of approximately $20.95 billion underscore its potential for growth and resilience in the market.
Jiong Shao of Barclays has recently made headlines by setting a new price target for KE Holdings (NYSE:BEKE) at $30, significantly higher than its current trading price of $16.97. This bold move indicates a bullish stance on BEKE, suggesting a potential upside of roughly 76.78%. Such optimism from a reputable analyst at Barclays, as reported by TheFly, underscores a strong confidence in the future performance of KE Holdings. This company, known for its leading role in the Chinese real estate market through its online platform, has been a subject of keen interest among investors.
The upward revision in BEKE's price target is not without foundation. Recent developments, as highlighted by Zacks Investment Research, point towards a positive trend in the company's earnings estimate revisions. This optimism is further supported by a consensus among Wall Street analysts predicting a significant 27.4% upside for BEKE. This collective anticipation of growth is a testament to the confidence in KE Holdings' operational and financial health.
The stock's recent performance adds a practical dimension to the analysts' optimism. BEKE's shares have been trading with positive momentum, marked by a recent increase of $0.31 or 1.86%. The stock has experienced fluctuations within a day, ranging from $16.62 to $17.08, reflecting the dynamic nature of the market. Over the past year, the shares have navigated through lows and highs, from $12.44 to $20.48, showcasing resilience and potential for growth.
The company's market capitalization, standing at approximately $20.95 billion, coupled with a trading volume of 12.02 million shares on the NYSE, underscores its significant presence in the market. This financial stature, combined with the recent positive earnings estimate revisions, provides a solid foundation for the bullish outlook presented by analysts like Jiong Shao of Barclays.
In summary, the adjustment of BEKE's price target to $30 by Barclays, supported by solid earnings estimate revisions and a strong consensus among Wall Street analysts, paints a promising picture for KE Holdings. The company's recent stock performance and its substantial market capitalization further bolster the case for potential growth, making BEKE a stock to watch in the near term.
KE Holdings’ Upcoming Q1 Earnings Preview
Citi raised its price target for KE Holdings (NYSE:BEKE) to $25.20 from $24.50, while reiterating its Buy rating ahead of the company’s upcoming Q1/23 earnings, scheduled to be released on May 17.
The analysts expect the company's earnings to be revised upward due to several factors: successful execution of their strategy, changes in the housing market that favor existing home listings, and being well-positioned in the property agency services sector.
The analysts highlighted the growth in new homes and existing homes, with the latter showing significant year-on-year growth. Additionally, they expect revenue from renovation and refurnishing services to contribute positively. The company's adjusted net profit margin is expected to be strong due to reduced operating expenses.
KE Holdings’ Upcoming Q1 Earnings Preview
Citi raised its price target for KE Holdings (NYSE:BEKE) to $25.20 from $24.50, while reiterating its Buy rating ahead of the company’s upcoming Q1/23 earnings, scheduled to be released on May 17.
The analysts expect the company's earnings to be revised upward due to several factors: successful execution of their strategy, changes in the housing market that favor existing home listings, and being well-positioned in the property agency services sector.
The analysts highlighted the growth in new homes and existing homes, with the latter showing significant year-on-year growth. Additionally, they expect revenue from renovation and refurnishing services to contribute positively. The company's adjusted net profit margin is expected to be strong due to reduced operating expenses.
