KE Holdings Inc. (BEKE) on Q2 2023 Results - Earnings Call Transcript
Operator: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Inc.'s Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Siting Li, IR Director of the company. Please go ahead, Siting. Siting Li: Thank you, operator. Good evening, and good morning, everyone. Welcome to KE Holdings or Beike's second quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on our company's IR website, investors.ke.com. On today's call, we have Mr. Stanley 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 strategies and business development, and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our safe harbor statements in our earnings press release. Please apply to this call as we will make forward-looking statements. Please also note that Beike's earnings press release and this conference call include 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 unaudited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead. Stanley Peng: Thank you, Siting. Hello, everyone. Thank you for joining Beike's second quarter 2023 earnings conference call. In the first half of the year, our performance improved significantly compared with the same period last year, with 43% year-on-year growth of our total GTV and 51% year-on-year growth of our total revenue. Although, the housing market, there is a surge and a subsequent adjustment on a quarterly basis compared to the same period last year, China's real estate and residential market as a whole still demonstrated recovery. In addition, during the market correction, we successfully retained service providers, effectively reduced costs and raised our efficiencies, all while rapidly expanding our emerging businesses. This combination of initiatives has enabled us to capitalize more effectively on the market rebound and outperform the market. In the first half of this year, for our primary business or home transaction services, we continue to retain our ACN optimize an ecosystem and refine platform operations while exploring vast [indiscernible], this all propelled our organic growth. The capabilities of our service providers have also extended. Our home renovation and furnishing services have gained reputable momentum. We constructed the industry competitive mechanism to have good, get better and establish capabilities in customer acquisition, conversion project delivery, data, products, supply chain and others. This has led to breakthroughs in our service quality and scale as well as the economic performance of our home renovation and furnishing service businesses, while total contract sales in the first half of the year reached RMB6 billion and total revenue reached RMB4 billion. Going forward, we expect to replicate our success in leading cities to more areas and gradually establish a virtuous cycle across the board. Our rental property management services business has also achieved meaningful developments in the second quarter. The scale of our Tier 3 rents improved significantly to reach 120,000 units under management and occupancy rate reached 94.5%. Today's house industry has reached an inflection point in the course of its development. The traditional golden edge of real estate was accompanied by 30 years of reform and opening up, along with rapid organization and a substantial demographic dividend and the per capital living area increased. House, houses have been in short supply, leading to a runway increase in property prices, buying a house behind the core goal of many people in China. In the process, real estate has gradually strained away from its initial function providing -- to provide residential house, instead it has taken on the dual role of investment assets and speculative tool. However, all that variation from their intended costs will return to their original track. And today, the industry is reverting to its core value proposition. The essential function of real estate is once again serving people with quality living. The true golden edge of focusing on people and living has just begun. And this shift, consumer raising demand for better living is far from being fulfilled. In other words, there is a central challenge in today's house market and the foreseeable future, all of the disparity between customer demand for more joyful living and inadequate supply of quality services and products. This contradiction motivates us to climb our next mountain and introduces substantial growth opportunities in our future. Our solution to resolve the supply and demand imbalances including -- includes two essential components, providing joyful living for customers in China. In Chinese, we call it [Foreign Language] facilitating for fueling careers for service providers, which we call [Foreign Language] in Chinese. This is also a continuation of our mission of admirable services, joyful living. Specifically, we have upgraded our corporate strategy to One Body, Three Wings accompanied by our organizational alignment. This evolution represents the strategic expansion and keeping of One body, Three Wings model with a focus on our customers and a frontline value creation. We have stability for business lines, housing transaction services, home renovation and furnishing services, home rental services and our newest addition Beihaojia where we are engaging new home supply side upgrades. Each of these tailored businesses captures to customers residential explorations and service providers diverse career aspirations. In the process of providing joyful living [indiscernible] for customers, superior goods and services will see great benefits, whether they relate to the property itself or the provision of a wide range of residential necessities such as renting, purchasing, [indiscernible] home renovation and furnishing and so on. Next, I will go into more detail about how we define good products and services for joyful living within the context of our One Body, Three Wings strategy. Regarding our One Body Home transaction service businesses, its value will be more of a various aftermarket normalizes in operating more sustainable and a healthier development. When identifying the right property becomes more challenging and emotional for customers, service providers must establish trust emphasizing the importance of building emotional connections around these relationships, fostering this type of customer relationships, which allow service providers the opportunity to provide more value-added services and attended value for communities around joyful living. It will also enable consumers to redefine how service providers view and unleash the huge potential of our ACN. We also have significant room to further enhance customer experience with our home transaction services. On one side, the bucket in power of homebuyers continue to rise and on other side, home owners are replacing intense demand for quick property sales and exchange as we inevitably reshape the service dynamics of the brokerage industry and direct the way to better consumer experience in the next phase of industry evolution. Meanwhile, we see room for further value creation and deeper integration with the communities and in the evolution of consumers and aesthetics. All these opportunities are allowing our core business to become a key force in joyful living. Next, we come to our fast growing business, home renovation and furnishings. At a time when the housing [indiscernible] is becoming increasingly important, consumers have high expectation for housing improvements. As such, home renovation and furnishings are often top of mind and consumers require a better home [indiscernible], but the pinpoints for this industry are very clear. To address these pinpoints, we are moving away from an assembling model and toward a product centric philosophy and focus on people. Customers should feel at ease, when they undertake renovations and we can help them through this process. This means providing [indiscernible] stock services, which removes many of the complications felt by customers. We should also be able to have consumers pursue a better living, for example, in addition to construction and installation, our refined capabilities, facilities, smart homes maximizing the efficiency of homes living area and offering flow designs and complement customers' preferences. To achieve this, we will continually push industry transformation through digitalization and a complex working process, reconstruction to enhance customer experience and increased service providers' efficiencies. Our second wing is big rental services. Today, renting is gradually becoming a way of life with houses are for living – living more for speculation. We're shaping the market dynamics at previously favor property sales of rentals. The resiliencies between growing rental supply and demand represents a historical opportunity for us to expand our rental services. On the supply side, a substantial portion of Chinese assets is tied to real estate, making preserving a reasonably appreciating property value crucial to families. Owners want their properties to be better care for and the rental property management services can be streamlined and more convenient. On the demand side for tenants, we aspire to comprehensively elevate the rental endurance (ph) through customer-centric products and services, transforming the concept of renting a house from a transitional compromise to [indiscernible] option. In turn, this can foster a balanced approach between renting and purchasing. We are pleased that our Tier 3 reps has made initial strides in the rental space. And we will keep looking for ways to use our technological platform and operational adventures to create value for the marketplace and society. Moving to our newly added serving Beihaojia. The traditional model has been driven by first home buying demand, increased leverage and attempt to rapidly acquire house and enjoy asset appreciation. This driving forces are becoming outdated in the market with stabilizing housing prices. A new consumer trend is taking shape that prioritize quality and endurance (ph). As a result, there is increasing evident demand for high quality housing products. Going forward, market differentiation might come from the difference in the quality of houses inbuilt. This translates to a call for supply side improvements in the new home market is our responsibility and opportunity to hit this call with its [indiscernible] capabilities and to explore innovative offerings in order to define quality houses based on customer demand, build good products and services and enable value chain partners to promote the housing industry supply side upgrades. Moving to how we can let service providers have a full -- fulfilling career? [Foreign Language] The residential service sector operator operates and resource around agents and stores. Service providers on our core efforts, investing in their growth and guiding their sales improvement results in a steady increase in our corporate assets. As real estate resumes its fundamental purpose of providing our space to live, stores and agents will also shift from scale expansion to optimize efficiency. In this regard, several trends coming into view. Firstly, build a sustainable relationship based on professionalism and integrity is increasingly crucial for rental -- for real estate agents. As properties return to the most fundamental residential function, the dynamic between customers and agents changing from information based to trust-based. A knowledgeable and reliable agent becomes more valuable when market transaction slowdown and it becomes harder to identify the right property. As such, agents roles and skills must evolve from transaction facilitators to long lasting community housing service experts. We see many areas of this dynamic where we can have. For example, the operational efficiency of mid-level agents has the potential to be significantly improved. Additionally, there is great room for development in terms of community engagement. Our goal is to support our agent to become the bridges that community with better living conditions in the future. Second, the trend towards a large store model is unquestionable as more commission might be directed to agents who provide value to customers directly, store owners' profitability might decrease. As such, bigger stores with higher revenue potential are crucial to improving efficiency and realizing greater returns for both store owners and agents. To this end, we have persistently pursue a large store strategy since 2022. By the end of June this year, we have effectively restructured over 7,500 stores on our platform achieved an average efficiency improvement of 80% year-over-year in the first half of this year. Certainly, the life store model fosters a new relationship between our store owners and agents. That goes beyond a mirror employer -- employee relationship evolving into a partnership or collaboration. Store owners must treat agents as both employees under management and clients who require support, empowerment and services. On our end, we need to stimulate creative thinking amongst store owners in order to benefit from the new trend. With these changes, we hope not only to make a timely adjustment but also to become a trend setter. We have started by [indiscernible] our entire rankings infrastructure for stores and agents as well as standards for both stores and individuals. These are the first step to enhance the management and operational capabilities of the platform and store owners having to calculate a robust agent talent pool. Our continuous efforts encompass similar on [indiscernible] rules and protocol base management, training and empowerment programs [indiscernible] systems and establishing a more rational payment distribution structure. Through these initiatives, we can enhance the efficiency of store owners committed to taking good care of service providers and facilitate service providers at transformation from taking a job to entering a professional and engaging in fulfilling careers. To close, I'm both energized and all the tremendous possibilities and growing time ahead and housing industry transformers from high-growth to a focus on quality and endurance. We will continue to solidify our core competencies. At the same time, we will have the courage to reform the brand new [indiscernible], altogether creating new values while on attacking historical mission and social responsibilities. We are in the foothills of the next mountain [indiscernible] and we look forward to an exciting road map ahead. Thank you, everyone. I want to invite our CFO, Mr. Tao Xu, to present the financial highlights for the second quarter. Tao Xu: Thank you, Stanley, and thank you, everyone for joining us. Before going into the details of our second quarter financial results, I would like to provide a brief update on the housing market over the first half of this year. The market trends for the first half of the year in line with the projection that we made at the beginning of this year. Overall transaction volume gradually normalized following by the [indiscernible] rebound fueled by the pent-up demand. Since the second quarter, the lingering effects of the pandemic have become more pronounced with the pressure on household income and the employment expectations, sluggish export and declining FDR posing traders to the economy recovery. In the real estate market, diverting the price expectations between buyers and sellers, along with the policy loosening speculations have intensified the market wait and see attitude leading to a deceleration in transaction cycles. Meanwhile, in the high-tier cities, product optimization, [indiscernible] whole market demand have yet to materialize, maintaining optical to the release of the reasonable demand. Under the various factors, the market underwent a noticeable quarter-over-quarter adjustment in transaction volume in Q2. Meanwhile, the home market continues to gribble with the debt risks of developers. Both supply and demand have remained weak due to the constraints of effective new home supply and ongoing consumer concerns about project delivery following a series of defaults by some top property developers. However, we also noticed that the leading indicators of the home demand have been relatively resilient. For instance, the number of home tools made in Q2 remained above the historical average in recent years, which is indicative of the continued underlying strength in overall demand. In general, the overall market saw notable year-over-year growth in the first half of the year. We have always maintained a neutral market view and our participants is being filled (ph). We have continuously enhanced the support for the service providers and store owners, implemented effective cost reduction and efficiency improvements and fine-tune of our operations. These matters, coupled with the rapid growth of our emerging business, have resulted in our outstanding performance and have a better position to seize opportunities into market recovery amidst the fluctuations. In the first half of this year, our GTV reached RMB1.75 trillion, up 43% year-over-year. During the second quarter, our GTV amounted to RMB780.6 billion, reflecting a 22.1% year-over-year increase. Furthermore, our net revenue in Q2 increased by a faster rate at 41.4% year-over-year to reach RMB19.5 billion, beating both the high end of our guidance and the street consensus. In addition, net revenue from the new home sales services have responded quarter-over-quarter for the past five quarters. Our business apart from the Housing Transaction Services, which includes home renovation and furnishing and the rental services were achieved a significant on year growth, contributing to a revenue share of over 20% for the first time. In Q2, our gross margin stood at 27.4% and GAAP net income reached RMB1,300 million on a non-GAAP basis, on net income reached RMB2,364 million compared with a net loss of RMB690 million for the same period last year. By business segment, in Q2, this in-home transaction GTV increased by 16% year-over-year as the market recovered to a certain extent from the lower base last year and thus through our continued enhancements into operation efficiency which further supported our performance. Nevertheless, on a quarter-over-quarter basis, the in-home market experienced a considerable adjustment in Q2, following the intensive release of pent-up demand, resulting in a 31.3% sequential decrease in our in-home GTV. In particular, due to the more pronounced market sentiment adjustment in the first tier cities, sequential adjustment in its in-home GTV was notably higher than [indiscernible]. With a relatively stable monetization rate in Q2, net revenue from the in-home transaction services amounted to RMB6.4 billion, up 15.9% year-over-year and down 38.1% quarter-over-quarter. Whilst the overall new home market remains subdued, the awareness of developers to adopt [indiscernible] channel continue to increase, offering us a resilient target market. Building upon this foundation, our new home business maintained a robust operational momentum and commendable sell-through rate, hosted by our ongoing refined operations, ecosystem optimization and our commissioning alone model which is repaired by developers. In Q2, new home transaction GTV on our platform increased by 32.4% year-over-year and 6.2% quarter-over-quarter. Net revenue from New Home grew by 30.4% year-over-year and 3.5% quarter-over-quarter. Total RMB8.7 billion, of which commissions from ISO (ph) developers constitute 46.8% and the project with the commission in the bonds contributed 53% of total commission collected remaining at a high level. Our home renovation and furnishing business has taken off this year, with breakthroughs in both scale and efficiency, reaping the benefits of the steadfast investment in our capability over the past few years as well as a successful integration with [indiscernible]. Starting from February, monthly contracted sales have consistently exceeded RMB1 billion for five consecutive months and the total contracted sales for the first half of this year, reached over RMB6 billion. In Q2, total contracted sales stood at RMB3.4 billion, reflecting a year-over-year increase of 170% and a sequential increase of 28.2%. Our pace of revenue recognition accelerated in Q2 at the seasonal factor from the [indiscernible] subsided and our delivery capability improved. As such, we achieved net revenue of RMB2.6 billion, up 157.5% year-over-year and 86.4% quarter-over-quarter. Net revenues from the first six months of this year exceeded RMB4 billion. In our leading cities, such as Beijing, we have established positive operational cycles in Beijing, our monthly contracted sales surpassed RMB200 million in May and June. With the city level that margin exceeding the industry setting. Diversified business model in Beijing provides a foundation for our rapid replication in additional cities. We will roll out this proven module in new cities we enter, which will gradually make higher contributions to our total revenue as we respond. In Q2, our net revenue from emerging and other services increased by 213.9% year-over-year and 36% quarter-over-quarter to reach RMB1.7 billion primarily driven by the growth of our rental property management services and financial services. In terms of the profitability, contribution margin for its in-home transaction services expanded by 8.9 points year-over-year to 45.6% in Q2 driven by this in-home revenue growth or decline in fixed labor costs and a relatively stable variable cost ratio from previous year. On a sequential basis, despite a 30% quarter-over-quarter reduction in revenue scale, contribution margin for the in-home construction services only decreased by 3.4 points from Q1, remaining at over 45%. This is signified to sustain the robust prosperity in our core business. Contribution margin for the New Home transaction services grows by 3.6 points year-over-year to reach 27.2%, resulting from the revenue function and a relatively streamlined personnel costs, making the highest point since our listing for five consecutive quarters. Our gross profit in Q2 registered 97.3% year-over-year growth to RMB5.3 billion as we benefited from the improved contribution margin of our major business segments as well as a decrease in store and other costs as a proportion of revenue. Our gross margin stood at 27.4% compared to 19.7% in the same period of last year. The slight 3.9 points declined from Q1's was mainly due to the change in our revenue mix with the adjustment of its in-home revenues. In Q2, our GAAP operating expenses amounted to RMB4.3 billion, among which sales and marketing expenses were RMB1,649 million, increasing by 47.1% year-over-year and 27.5% quarter-over-quarter due to the uptick in the marketing expenses for the home renovation and furnishing services and our home transaction business. General and administrative expenses were RMB2,005 million, down slightly from RMB2,250 million in the same period of last year, while increasing by 29.9% from Q1, primarily due to the lack of the better provisions written back in Q2. The increase in the share-based compensation and the growth of emerging business. While we have a job of riders provision method over the past two years to fully provide for all foreseeable risks, we have encountered on forcing incidents of continued price crisis faced by the top property developers. With a growing number of developers, filing for the liquidation of bankruptcy, we have further rate expected loss ratio for developers with some being elevated to 100%, especially in Q2, we set us at approximately RMB64 million as a better provision for Country Garden. With the provision ratio exceeding the 85%, we hope the industry can emerge quickly from this predicament (ph) and achieved stable and healthy development. Research and development expenses decreased by 39% year-over-year to RMB475 million, primarily due to a high count reduction, leading to a lower personnel cost under share-based compensation. Sequentially, R&D expenses remained relatively stable with a slight increase of 4% from Q1. Our non-GAAP operating expenses for Q2 amounted to RMB3.3 billion down 4.6% year-over-year. In Q2, revenue from operations amounted to RMB1,081 (ph) million, a significant improvement from a loss from operations of RMB1,518 million in the same period of last year. The operating market increased to 5.5% in Q2 from negative 11% in the same period of 2022, thanks to our gross margin function and greater operating leverage. Our non-GAAP income from operations for Q2 reached RMB2,148 million compared with non-GAAP loss from operations of RMB690 million in the same period of last year. Our non-GAAP operating margin was 11% compared to negative 5% in the same period of 2022. Q2 net income was RMB1,300 million, compared with a net loss of RMB1,866 million in the same period of last year. Non-GAAP net income for Q2 reached RMB2,364 million versus a net loss of RMB690 million in the same period of 2022. Our balance sheet remains robust. As of June 30, 2023, the combined balance of cash, cash equivalents, restrict cash and short-term investments amounted to RMB60.8 billion or $8.4 billion. We spent approximately $346 million or RMB2.51 billion in the share repurchase in Q2. On top of that, of total cash liquidity, which accrued customer deposit payable amounted to RMB79.4 billion, up RMB680 million from Q1. Our net operating cash outflow was RMB196 million in Q2. Excluding customer deposit payable, the operating cash flow or the operating cash inflow was RMB1,754 million. We remain strong in our commitment to [indiscernible] receivable management. In Q2, our cash collection from new home business increased to RMB10.06 billion surpassing the new home revenue for the eighth consecutive quarter. New home DSO in Q2 was 52 days, making a new record low since we went public. Turning to our guidance for the third quarter of 2023. We expect the total revenue to be between RMB15.5 billion and RMB15 billion in Q3 representing a decrease of approximately 9.1% to 11.9% from the same period of 2022. This forecast consists of potential impact of the real estate-related policies, the macroeconomic [indiscernible] status that constitutes the current and preliminary view on our business situation and the market conditions, which are subject to change. We have always placed great emphasis on the shareholder returns, leverage our robust cash reserves and prudent financial management while enhancing shareholder value through the proactive shareholder return initiatives. We have maintained strong share repurchase efforts. And from the program initiation in September 2022, we have concluded a year of buybacks. Over this period, we cumulatively repurchase share worth around $605 million, representing approximately 57% of our free cash flow during 2022. The ADS [indiscernible] totaled nearly RMB41 million, accounting for approximately 3.24% of the comp's total share prior to launch of our 2022 repurchase program. These shares have already been fully canceled. This year alone, we have spent close to $414 million in buybacks and the repurchase share amount for 2.12% of our total shares. Moreover, today, company's board approved the extension of existing share repurchase program until August 31, 2024. With the repurchase authorization being increased from $1 billion to $2 billion. At the same time, we are pleased to announce that the Board has approved a special cash dividend of $0.057 per ordinary share or $0.171 per ADS, to holders of ordinary shares and the holders of ADS as of recorded September 15, 2023, respectively. To aggregate [indiscernible] of the special dividend to be paid will be approximately $200 million, which will be funded by surplus cash on the company's balance sheet. We hope to share the benefit of the development with [indiscernible] investors, who accompany its company into growth journey and the transcend cycles. While distributing the dividends, we are also continuously expand into the new business, seeking organic and a sustainable growth. At this stage, the primary contradiction in our society is a contradiction between the unbalanced and inadequate development as the people's ever-growing needs for better life. The [indiscernible] meeting held in late July, made an important assessment of the new situation where supply-demand dynamics of the real estate market have undergone major changes. The real estate market is going through a rapid transformation from a seller's market to a supply/demand balance. Against this backdrop, the home upgrade-oriented demand is gaining prominence. This trend is accompanied by the elimination of excess capacity, consumers' strong demand for the better living and the establishment of long-term mechanism within the real estate market. All of this will all contribute to a more stable environment and sustained the impetus for the industry development. Our financial strategy entails maintaining a robust balance sheet and a healthy cash flow while practicing stringent risk management. We will persistently enhance efficient capital allocation concentrate on critical growth drivers, foster frontline endeavor support, continuously efficiency gain for our agent and store, respond our [indiscernible] healthy platform ecosystem, increase income for the service providers and solidify the fundamental capability of emerging business, including home renovations. Amidst the recovery of the real estate market and ongoing breakthroughs in our new business, we will make a reasonable investments in scale and marketing to further boost our business momentum. Furthermore, we will prudently explore transformation and upgrades in other areas related to better living. On the cost side, we will have a clear total cost level managing the efficiency of the investment and ensure that money should be spent, must be spent and the money that should not be spent, will now be spent, as the money spend should demonstrate clear efficiency and effectiveness that supporting the business operation effectively. We believe that in the vast market of the residential services, we will gain huge potential and certainty of growth. We will always uphold neutral market perspective, while formally believing that the Chinese economy will continue to adjust, consolidate, enrich and enhance a long path of the high-quality growth. We still hold a strong belief that connect China with China. This concludes our prepared remarks. Now we are open for the questions. Operator, please go ahead. Operator: Yes. Thank you. [Operator Instructions] And the first question comes from Alex Yao with JPMorgan. Alex Yao: [Foreign Language] [Interpreted] Can you guys talk about the market -- property market volatility in the first half this year? And also whether the supply and demand structure has changed in the current home transaction market? And finally, how do you think about the market outlook after the recent policy statement? Thank you. Tao Xu: Yeah. Thank you, Alex. Overall, we believe that its in-home market will improve this year from extreme conditions in 2022 at the bottom of the cycle. The recovery trend will strengthen confidence in the market both supply and the demand side have become more responsible to the policy relaxation. The market's recovery and the supportive policies are inspected to eat the lingering effect of the three years pandemic. We believe the China economy cycle has a strong vitality and we believe the property market will usher in a new period of the recurring growth. The new home market faces the risk of concluding the year with a year-over-year decline. Considering the current market recovery pressure, unemployment rate and the rest of the expectation that still require further improvement and the impact of the continued debt crisis that are leading the private developer face. The willingness of the developer to adopt [indiscernible] sales channel continue to increase. Rather than fix it on the overall market scale, we placed a great emphasis on the sustainable, healthy and stable growth of the broker channel sales market. This is our target as market and where we see more opportunity to be benefited. In the first half of the year, we experienced a market surge and subsequent quarter. The rapid increase in the first quarter elevated to market expectations. Since April, the market has been retreated notably with in-home sales on our platform continue to decline from April to June. New home sales also contracted on a sequential decline and showed a year-over-year decline in June for over 28%. The reason for this decrease are three folds: first, the market is normalizing. Second, the market provided expectation was too high. During the normalization, the gap between the reality and the expectations for the dampened market confidence. Third, the macro-economy has been under pressure since the second quarter of this year. That has shown in the employment rate and the [indiscernible] data, which also caused the fluctuation in resident competence. The three year pandemic has left a long-lasting impact on the economy. I think it will take time and effort to [indiscernible] this prolonged effect to further eliminate. As for the market, in the first half of the year, first, the market trends have severely divergent. We are seeing this even in different [indiscernible] within a single city. In recent five years, just take Beijing and Shanghai as example. The core area of Beijing, Shanghai has performed very differently since that in the outer suburbs with the housing price impact of the [indiscernible] to reach 40% to 50% higher than the later. Second, in terms of the supply-demand structure, the home upgrade demand is due to the most essential force in the market. On supply side, the proportion of newly homes with age under five years and the age over 10 years has increased most significantly. The increase in supply of the high-quality and relatively new homes in the in-home market provides more choices for buyers. From a demand perspective, in the first half of the year, the proportion of the transaction involving the demographic and housing unit type of this home upgrade demand have further increased. The proportion of customers aged 35 to 44 increased by 2% to 35% compared with the year of 2022, and the proportion of the unit above 90 square meters has increased by 3 percentage to 37% compared with year of 2022. Whether from supply or demand perspective, the houses in key cities area and the homes from upgrade-oriented demand are due to primary market focus. Third, the in-home are playing a bigger role in satisfying the home upgrade demand, supporting always in-home demand to be stable whereas in the new home market, it still takes time to [indiscernible] the cumulative risk ready to developers. And the effective supply in core areas is limited. We are in a market with a strong performance of in-home and the demand for the new home continues to be diverted to the in-home market. The comparative advantage of the [indiscernible] in-home remains significant and this in-home demand is also relatively stable. In June, our monthly this in-home tools index that field only by 1.7% from April and even [indiscernible] as a rebound in July. According to our research, in the second quarter, the number of the residents with home participant emerges by 1% compared to Q1. The steady demand side data support -- system supports our view that the market adjustments in the second quarter are short term, normal correction, not implication point indicating a long-term trend. For the second half of this year and going forward, we [indiscernible] to emphasize that, our market is not suitable for linear [indiscernible] based on a single quarter's fluctuation. It has inherent cycle and resumes for structure and the directional growth. In the future, we believe the active policies will bring better support for the market recovery and based on [indiscernible] market dynamics as a neutral market perspective, we also believe the market will recover. The Politburo meeting held on July 24, [indiscernible] that the need to effectively prevent and resolve risks in the key areas, particularly well adopting the significant change in the [indiscernible] dynamics of China growth market. It is necessary to adjust and optimize real estate policies in [indiscernible]. Make good use of positive two box for city specific measures to better meet the [indiscernible] and improvement oriented housing demand, promoting the stable and healthy development of the real estate market. With the implementation of the relevant supportive policies, we expect the city home market to be bought in June and recurring in the second half, while the new home market will find [indiscernible] among the fluctuations in the third quarter. Since the Politburo meeting we have observed that in Beijing, Shanghai, the number of home tools, new customer demands and the transaction volume are the force to pick up. The potential rollout of the improvement in demand policies is expected to activate more than 50% of the population in the demand structure for the undefined and activating the home replacement chain. At the same time, real estate is not only [indiscernible], but also a carrier of the economy, [indiscernible] and the expiring dreams is long run growth assets, service and efficiency needs to be comprehensively improve to better evaluate to the customer demand for the better living. Recently, the government authorities issues measures on promoting home function consumption, focusing on some of our homes, one-stop home furniture solution, old home renovation, et cetera. The recommendation put forward measure to comprehensively promote the house furnishing consumption fully release the potential of the housing industry value chain and facilitate the over improvement of people's code of life. We believe that in the future, the housing industry will be more mature and [indiscernible] entering into a new stage of growth funded by higher quality. Thank you. Operator: Thank you. And the next question comes from Timothy Zhao with Goldman Sachs. Timothy Zhao: [Foreign Language] [Interpreted] Comment and share yourselves on how we should look at the longer-term growth outlook for the core home construction businesses, including the new home and secondary home transactions as well as what is the room for the further efficiency enhancement in the [indiscernible]. And what is your specific strategic actions in this regard? And any color that you can share on the progress year-to-date would be helpful. Thank you. Tao Xu: Yes. Thank you, Timothy. Benefiting from the better empowerment and the retention of the service providers, effective cost reduction and efficiency enhancement measures during the market corrections, [indiscernible] achieved a rapid growth during the market recovery in the first quarter of this year. Our housing construction services are built on this foundation and continuing to more deeply refine form operations and drive breakthroughs of the [indiscernible] business. This has led to the steady growth of our housing transaction services while allowing [indiscernible] to better meet customer needs and elevated service providers efficiency and income. As for our corporate needs, we are implementing policies according to the distinct key development centers of different regions. In the cities where our exiting connected store are insufficient in scale. We aim to ramp up the connection with high quality stores, while supporting stores ability to recruit agents, conduct suitable training and overall management. The number of our stores in the first half of this year increased by almost 10% from the end of last year and number of agents increased by 17%. Even cities where we reached a certain scale. We are dedicating our efforts to enhancing our efficiency and quality, which are mutually reinforcing and inseparable. On the store front, we are promoting a competitive mechanism based on store ramping, which has also been extended to our new home sales channel. We are also dedicated to promote our large store strategy and are creating dedicated home page for store owners and are leveraging digitalized operation analysis tools to enhance their efficiency in business management and facilitate more in Q2 interaction with our platform. Our next step will help store owners elevate their business on selling and improved the management approach, using online products and the dedicated operations support staff, thereby driving successful store and brokerage brands. Targeting three more granular elements in our operation, the houses, customer and agents. We continue to refine our recent operation and promote collaboration and a more focused operation by agents ultimately achieving enhanced efficiency. For instance, on the home listing side in the first half of this year, underpinned by our systematic capabilities, we implement home listing operation mechanism of home listing mechanism score and store to home listing [indiscernible] nationwide. This allows the agents to focus on specific community while improving home maintenance capability and the transaction efficiency. On New Home side, we are also implementing the focused project strategy to drive sales through efficiency. In terms of home customer margin, we launched a product called point-to-point as an intra-agent channel for the flow of the home listing, improving the home customer matching efficiency and the home listing inventory liquidity. As a result, the 14-day sell-through rate of our home listing through this to improve from 6% to around 12%. As for agent customer managing, we completed the comprehensive optimization of our online sales lead allocation for the in-home and new home transaction services, which is taking into account both earnings and efficiency to support junior agents growth. With respect to the ecosystem governance, to drive the issue of the issue of the probably the transfer orders that every platform in the industry is facing. We achieved new breakthroughs in our business [indiscernible]. We empower our [indiscernible] team by creating digital tool and promoting close loop management awareness, identify risk and fixed initial [indiscernible] through our integrated online offline government system service providers on our platform now engaging a proactive self-review instead of being passively supervised. Store owners and agents now hold elevated trust in our platform and their sense of compliance has improved. For new homes, we promote developers with all sales channel to jointly abide by the [indiscernible]. A series of proprietors of the transparent operations and promoted an industry-wide compliance. As of end of June, [indiscernible] cooperative, real estate projects have been covered by this assumption promise. Going forward, we will continue to focus on enhancing our service capability for store owners and homeowners. In the context of the increased cross district, new home purchase and the transaction of the in-home. We hope to further improve our customer targeting capability to large customers with the respective new home projects and enhance our understanding of the customer needs in more systematic way, thereby strengthening our collaboration network and improving match efficiency. In the cities where our network coverage are already at a high level, we are further enhancing efficiency and [indiscernible] ACN. We're pursuing the growth of our core in the emerging business and the breakthroughs of our emerging business. Meanwhile, despite the possible volume decline in the new home market, developers have been more willing to adopt [indiscernible] sales channels. This state of the total addressable market will put more emphasis on and the benefit more from sustainable, healthy and steady growth of our addressable market that is brokerage China sales market. For our direct operation business, first, we continue to leverage our large store model to take our agent income to the next level. In the first half of this year, the average number of agent per store reached 18, up 15% year-over-year. The average agent income to average social income compared index, also improved by 40% year-over-year. Second, we continue to power innovative agent frontier mechanism. Our goal is to create a working environment to the benefits professional agents and managers long-term development. Third, we will continue to enhance our service capability and increased investment in traffic acquisition to boost the brand momentum, elaborating the [indiscernible] brand. In the first half of this year, we refocused and centralize our service commitments and that we will invest more brands cultivating going forward. Thank you. Operator: Thank you. And the next question comes from Harry Chen with Citigroup. Harry Chen: [Foreign Language] [Interpreted] How is your home renovation and furnishing service business progressing? Any update on the development of your core capabilities. Could you share some key operating metrics and the unique economic model for the benchmark cities like Hangzhou and Beijing. Tao Xu: Thank you, Harry. The progress of our home renovation and furnishing business continue to exceed our expectations. In the second quarter, our home renovation and furnishing service business sustained its growth momentum. The contracted sales reached around RMB3.4 billion in the second quarter, making the first half [indiscernible] sales volume to reach more than RMB6 billion. The year-over-year growth rate in the second quarter continued to reach over 100%. Notably, the home renovation order volume increased by over 90% year-over-year. Contributing significantly to our [indiscernible]. As project condition and delivery accelerated, our revenue for the second quarter surpassed RMB2.6 billion, making a 91% increase year-over-year and 86% increase quarter-over-quarter. In cities where we have the leadership, we have established a virtuous cycle of the skill, quality and economy performance. Beijing and Hangzhou was the fourth cities we entered and are leading the way in establishing virtuous cycle. Just take the net showcase. In terms of the scale, our contract sales in the city exceeded RMB600 million in the second quarter, with monthly contracted sales surpassing RMB200 million for two consecutive months with reported revenue to reach over RMB500 million. [indiscernible] contract sales to exceed RMB2 billion in this year. For Hangzhou, the contract sales volume for the second quarter also reached over RMB500 million and we expect the annual contract sales in this year to reach most RMB1.8 billion. We can now simultaneously initiate and complete sale home renovation units from us in Beijing just is a significant breakthrough for the industry. In terms of the profitability, the quarterly operating profit in Beijing reached RMB 50 million as the monthly operating profit exceeded RMB10 million for five consecutive months. Using Beijing and Hangzhou as guiding examples, we are replicating the model and experience from this well-established city across entire countries. Shanghai is expected to break through the milestone of RMB1 billion in annual contract sales and it contribute annual revenue of RMB700 million this year, which means it will reach the same scale as Beijing [indiscernible]. We expect cities like Wuhan, Nimbo, Suzhou and so on to reach the same scale as Beijing and Hanging our third wave of expansion. As of middle of this year, after just nine months of the integration of a [indiscernible] we achieved RMB240 million in contracted sales and RMB120 million in revenue, each showing the growth rate exceeding 120% year-over-year, which is a strong testament to the effectiveness of our laser focused sales strategy. Focusing on the capability development, the virtuous cycle we have established at the city level as a result of our committed effort in developing capability combined with consistently equation for the improvement over years. Number one, for the customer acquisition, we continue to empower agents to be the quality and committed expert and home adviser. Their effective and the intensive customer acquisition and the conversion has helped us break through the home renovation and furnishing industry [indiscernible] at the top of the funnel. This year, more than 45% of the home renovation customers were reported by our core business. Simultaneously, home renovation business is contributing to the growth of the home transaction and home rental services, the other way around. In Beijing, designers are involved in the environment during the initial stage of the home transaction and create the renovation design plan during the negotiation stage to facilitate the transaction completion. Our customer acquisition advantage [indiscernible] from putting our main effort into lining to a customer like our peers typically do. With that we can focus more on enhancing our core capabilities in home renovation and furnishing business. This enable us to concentrate on the sense of the operation and overcome growth barriers. Now for the management of the service provider, we have invested our resources in service providers fundamentally redefine how they can earn the income and how they participate in the industry. This is achieved by the positive and systematic order, is actually timely settlement, providing the incentive and respect for the high-quality service providers, both financial and culturally. This shift has transformed the industry practice of the bad money drives out of good money into the good quality wins. Number three, for the delivery capabilities, we invested quality and research focusing on two things: First, we enhanced our reliance on the system and the rooms for the progress management, not just on people. So we can build an end-to-end system that covers design, construction, materials and supply chain. Moreover, we spot AI-driven technology into improved customer acquisition and efficiency, which empower [indiscernible] beyond the traditional boundary of the project management, enable us certificate and efficiently manage time line [indiscernible] the government and the service online. This will ensure a high-quality breakthrough in scale. Number four, for our product capability, we invested in product capabilities. Our products are based on the deep user insights covering the rich SKUs offers to meet specific user demand. As we keep developing our capabilities, we are confident that we can continuously improve our business towards a virtuous cycle of quality, scale, [indiscernible] across various regions. Thank you. Operator: Thank you. Next question comes from Miranda Zhuang with Bank of America Securities. Miranda Zhuang: [Foreign Language] [Interpreted] Thank you for taking my questions. So can management elaborate more on the recent organization upgrade and structural change? So what are the changes that have taken place and what are thoughts behind this upgrade? Stanley Peng: Okay. Thank you, Miranda. The purpose of organization structure adjustment to establish a new formation to achieve our strategic goals. The strategic and business concept requires new organization structure to undertake and implement them, focusing on joyful living, fulfill career services and aspirate the [indiscernible]. We upgraded our strategy to One Body, Three Wings. Our corresponding organizational adjustments is also an upgrade of our management philosophy and mechanism. The new organization structure is centered on customers and placing the front line at the center of our value creation. We have established 4 business lines that are home transaction services, home renovation and furnishing, rental property management services and [indiscernible], function lines comprising finance, R&D, strategy, quality assurance, human resources, users, compliance, public affairs and corporate collaboration. Together, these are designed to provide joyful living for customers and fulfill careers for service providers. Our business lines will work to take care of our customers, inspiring joyful living for customers in each city and fulfilling careers for different type service providers. The function lines will leverage their professional capabilities to provide good services to hold their defined and company's internal customers and have different cities achieve the goals of the admirable services and joyful living. So these actions, we aspire to get right of our create and big company [indiscernible] and return to under [indiscernible] how we view ourselves, our customers and internal partners. The adjustment of organizational structure lays the foundation for company-wide consensus and invite every individual to participate in very [indiscernible] creation, it will facilitate unifying ideas and goals [indiscernible] of our industry throughout the cycles and return to the natural houses for living and in service of people and [indiscernible] demands of better living. Thank you. 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. Siting Li for closing comments. Siting Li: Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact Beike's Investor Relations team to 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. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.BEKE Ratings Summary
BEKE Quant Ranking
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.
