KE Holdings Inc. (BEKE) on Q3 2024 Results - Earnings Call Transcript

Operator: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.'s Third Quarter 2024 Earnings Conference Call. Please note that today's call, including the management's prepared remarks and question-and-answer session will all be in English. Simultaneous interpretation in Chinese is available on a separate line for the duration of the call. To access the call in Chinese, you will need to dial into the Chinese language line. At this time, all participants are in listen only mode. [Operator Instructions] 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 Holding's, or Beike's Third Quarter 2024 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 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 statement in our earnings press release, which applies 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. Certain statistical and other information relating to the industry in which the company is engaged to be mentioned in this call has been obtained from various publicly available official or unofficial resources. Neither the company nor any of its representatives have independently verified such data which may involve a number of assumptions and limitations, and you are cautioned not to give undue way to such information and estimation. For today's call, management will use English as the main language. Please note that the Chinese translation is for convenience purpose only. In the case of any discrepancy, management statements in their original language will prevail. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley. Stanley Peng: Thank you, Siting. Hello everyone. Thank you for joining Beike’s third quarter 2024 earnings conference call. In the third quarter, we continued demonstrating our dynamic and sustainable growth momentum. Despite challenges in the market, each of our business segments delivered solid results. GTV for our existing home transactions business reached RMB477.8 billion in the third quarter, up 8.8% year-over-year. According to the estimate from data disclosed by the housing bureaus and housing associations of the four first-tier cities, the total number of online registered transactions for existing homes grew by about 21% year-over-year in the third quarter, while the number on Beike platform saw by 44% year-over-year, for reference. For new home transactions, GTV on Beike platform increased by an impressive 18% to RMB227.6 billion in the third quarter, while new home transaction GTV of CRIC’s top 100 developers declined 29% year-over-year. In the third quarter, our home renovation and furnishing and home rental services revenue grew year-over-year by around 33% and 118%, respectively. By the end of Q3, a noticeable shift in policy also boosted a solid market rebound. In this market cycle, one thing we have become increasingly certain about is the importance of thinking long-term. We are growing to deeply understand the power of a long-term perspective. For our organization, survival and development are our core imperatives. Among these, our foremost priority is to survive -- enduring and thriving. Therefore, our focus is not just on how to navigate the next year but on how to become a company that can thrive for 30, 50, or even 100 years. The greatest threats to a company's longevity are rigidity, bureaucracy, and loss of vitality to grow and innovate. To truly last, a company needs two things. The first is integrity; doing the right thing and creating value for society. And second, creativity. Every step we take today is guided by these principles; doing the right thing even if it’s difficult and fostering creativity. This is how we’ll become a company that stands the test of time. Let me share how we’re putting this vision into action. For any large organization, the biggest threat is lack of growth. The proactive business growth strategy we put in place this year has yielded remarkable results. In terms of scale, by the end of the third quarter, we had increased the number of active stores on our platform by 14.6% year-over-year, with a net addition of almost 6,000 stores compared with the same period last year. We now have more than 46,800 active stores. The number of active agents also grew to over 420,000, which means we added 24,000 agents since the third quarter of last year. Our strategic collaborations in the new home market now span all top-tier developers. In August, the number of transactions from our strategic partner developers accounted for 26% of our total new home transactions. We also made strides in improving store and platform operating efficiencies. In the third quarter, the average revenue per store on our platform, excluding Beijing and Shanghai, surpassed levels from the same period in previous years. The support ratio of platform staff to frontline agents also reached a record high. We also maintained robust risk control and strive for higher service quality. The right mechanisms are also crucial for fostering an organization's creativity. In the third quarter, we officially established a small leadership committee as an innovative step toward rethinking large organization governance. It is a governance system that ensures forward-thinking and our long-term outlook. After a year of trial implementation, the committee is now officially in place. It consists of the leaders of our main business lines, as well as the heads of our finance and HR departments: Xu Wangang, Li Fengyan, Wang Yongqun, Xu Tao and Zuo Donghua. The committee will report directly to me, and is tasked with carefully considering and planning the Company’s key strategies and initiatives. Its goal is to ensure collaborative leadership, clear accountability and continuous self-reflection. By design, this model brings together diverse perspectives to help us make better decisions and strengthen our unity as a team. In the future, we will continue to refine and promote the innovation of our company’s governance mechanism to further strengthen our leadership framework. In addition, we officially appointed the CEOs of our new initiative businesses. Xu Wangang, who has already been serving as the CEO of Beihaojia, will now also lead our home renovation and furnishing business. Wang Yongqun will head our home rental services business and also continue in his role as the COO of Lianjia. They will both report to me. These appointments reflect our commitment to tackling future challenges and our focus on aligning resources to achieve greater synergies across the Group. With development over the past few years, our home renovation and furnishing, and home rental services businesses have achieved several key milestones. In the first three quarters of this year alone, revenue from our home renovation and furnishing business surpassed RMB10 billion across more than 45,000 projects. Revenue from our home rental services business approached RMB10 billion during the first three quarters, with the number of rental units managed under Carefree Rent exceeding 360,000. I am truly grateful to our excellent team for fostering these achievements. That said, we have more work to do. There are still many fundamental unresolved problems in the industry. We will iterate our scientific management and other capabilities to address the industry’s underlying issues related to quality and commitment, among others. We hope that when people talk about this industry and our brand in a few years, they will say: your quality is exceptional. Today, we are at a pivotal moment in this undertaking. Over the next two years, we will strengthen our core capabilities to reach our vision. For our platform ecosystem, we are more committed than ever to working with store owners and store managers. They are the high-frequency players in this low-frequency industry. Our top priority is helping them achieve better returns. If they adopt a long-term mindset, our platform can achieve lasting growth. In the third quarter, we introduced new operational mechanisms to support this goal. We launched a store points incentive program that rewards store owners for long-term platform loyalty, strong performance, integrity and innovative business practices. This initiative is to significantly enhance store owners’ satisfaction and allegiance to our platform. In Q3, we distributed around RMB18 million in cash equivalent incentives to store owners in pilot cities. Take Shenzhen, one of our pilot cities, as an example. Over the past two to three years, more than 1,000 new stores have joined our network in Shenzhen. While growing in scale, these new stores faced three major challenges: insufficient emphasis on existing home transactions, slow progress in the new initiatives like home renovation and rentals, and weak collaboration across the platform with relatively high post-transaction customer complaint rates. We tailored specific incentives within the store points system to address these issues and motivate positive change. Stores can now receive 20% extra bonus points for completing existing home listing transactions. They also receive two to three times bonus points for conducting non-housing transaction businesses. Stores are also awarded separate bonus points if they have been in our network for a long time and have a history of compliance and collaboration. Store owners can convert their points into additional benefits. In October, store owners in Shenzhen received a total of RMB2.49 million equivalent incentives and 930,000 Beike coins, with top single store receiving RMB210,000 equivalent incentives. Notably, the platform's profit-sharing payouts to store owners boosted their income, offsetting the costs of renting a storefront. At the same time, we effectively addressed the three core problems. Monthly existing home transactions began to recover and increased by 12% sequentially in September. Number of units leased out under Carefree Rent grew by 21% in Q3 compared with Q2. And cross-store existing home transactions reached 74.5% of total transactions, a record high. Of course, these metrics only indicate short-term achievements. More importantly, our goal is to use the store membership points system to encourage store owners to think long-term, share value with them, and provide a clear development path on the platform, driving growth for both stores and the platform. Moving on to our proprietary brand, Lianjia, we have continued to advance its Take-off Plan’ this year. Our decision to invest in Lianjia during tough market adjustments is also firmly rooted in our long-term vision. First, Lianjia is the cornerstone of our one body, three wings strategy. Maintaining Lianjia's solid fundamentals is critical while we promote its expansion based on sustainable operations and ongoing efficiency. Lianjia also needs to lead the way in innovation and be the frontrunner in tackling industry challenges, reconstructing organizational capabilities and advancing agents' professional development. The number of Lianjia’s active agents grew by almost 13% year-over-year, exceeding [108,000] (ph). The Lianjia agent attrition rate in cities, excluding Beijing and Shanghai, dropped to 4.4% by the end of September, down 0.4 percentage points from 2023. In addition, we also continued to make headway in the large-store model, with the average number of agents per store across Lianjia nationwide climbing to 19.2. As of September, nearly 3,800 Lianjia manager-level employees and above had trained in the Lianjia Large Store Leadership Development Program. To sustain creativity, we will consistently map out new opportunities and possibilities for the future. We cannot afford to wait until growth slows down to start innovating, nor should we fall into complacency or simply defend what we have. Instead, we must plan ahead, remain open to embracing new ideas, and invest in long-term strategies. That said, we won’t make blind bets. Each segment in our industry is substantial, and entering any new venture requires an intensive decision-making process. Our approach includes extensive forethought, pilot trials by dedicated teams and deep engagement. A thorough understanding is essential before taking any action, we don’t rush. This is our underlying rationale for exploring Beihaojia’s business opportunities. Lastly, we are greatly encouraged by the central government's recent positive statements, and a series of coordinated policy measures to support stabilize the property market. Since the end of September, the market’s reaction has been strong and far-reaching. We’re now seeing signs of market recovery, with regards to both volume and prices. As we navigate through highs and lows, we must remain calm at the peaks, steadfast at the troughs, and grounded in the reality in between, this is how we find true stability. With the broader environment improving, the truths we have learned during this period of market adjustment are clear: staying committed to the long term, maintaining optimism, fostering resilience and unity. These truths, and the bold efforts we made in challenging times, will enable us to go even further in a more favorable environment. Thank you. Next, I would like to turn the call over to our CFO, Xu Tao, to review our third quarter 2024 financials. Tao Xu: Thank you, Stanley, and thank you everyone for joining us. Before we dive into our Q3 performance, I would like to briefly touch on some updates in the housing market. The market's performance in Q3 was in-line with our previous projections. The market experienced gradually retreated following the pulse-like rebound fueled by intensive supportive policies released in May. Particularly in September, the year-on-year decline in market performance widened due to high base. In Q3, the existing home market was relatively stable, with a year-over-year increase in transaction volume. This is primarily attributed to home buyers’ preference for readily available existing homes. In comparison, the new home market was still in a bottoming-out stage with weak supply and demand, as it would take time to resolve real estate developers' debt risks. By the end of September, there was an intensive array of real estate policies from the central and local authorities. These included lowering interest rates, reducing mortgage rates for existing homes, and aligning the minimum down payment ratio for first-time and second-time home buyers. These policies further stimulated housing demand, encouraging more people to enter the market. Meanwhile, other macro-economic policy such as monetary policies indirectly fueled market confidence, which stimulated market activity. We are highly anticipating the market's performance after the third quarter. Turning to our financial performance in Q3. Our total GTV reached RMB736.8 billion, up 12.5% year-over-year. Net revenue was RMB22.6 billion, representing a year-over-year increase of 26.8%. Gross margin declined by 4.7 percentage points year-over-year to 22.7%. GAAP net income reached RMB1.2 billion, showing a year-over-year decrease of 0.2%. Non-GAAP net income reached RMB1.8 billion, reflecting a year-over-year decrease of 17.5%. Non-GAAP net income exceeded market consensus. Moving to our home transaction services. Revenue from existing home transactions reached RMB6.2 billion, down 1.4% year-over-year and 15.2% quarter-over-quarter. GTV was RMB477.8 billion, up 8.8% year-over-year and down 16.3% quarter-over-quarter. Our GTV and revenue showed similar sequential declines, keeping our monetization rate relatively stable. Year-over-year GTV growth surpassed revenue, which was mainly due to a higher contribution from GTV of existing home transaction facilitated by connected agents. Their revenue was recorded on a net basis. The contribution margin from existing home transaction services reached 41%, a decline of 7.7 percentage points year-over-year and 6.5 percentage points quarter-over-quarter. This decrease was primarily due to increased fixed labor costs related to an increased number of agents and improved welfare of agents under the retreated market circumstances. In terms of new home transaction services, although the market remained sluggish, we significantly outperformed the market across all metrics. CRIC shows that sales from the top 100 developers decreased by around 29% year-over-year and around 27% sequentially in Q3. In contrast, our new home GTV reached RMB227.6 billion in Q3, up 18.4% year-over-year while down 3.3% quarter-over-quarter. This remarkable performance, notably above the industry's, was mainly propelled by deeper cooperation with developers and our refined operations that strengthened our capabilities. Revenue from new home transactions rose by 30.9% year-over-year to RMB7.7 billion but dropped by 2.6% from the previous quarter. Revenue outperformed GTV both year-over-year and sequentially, once again demonstrating our strong and steady monetization capabilities in new home transactions. The contribution margin from new home transaction services fell by 0.4 percentage points year-over-year to 24.8%, largely as a result of the strategic increase in variable commissions due to greater emphasis on building harmonious ecosystem and better rewards to agents. Sequentially, the new home contribution margin declined by 0.3 percentage points due to the increase in fixed labor costs. In Q3, the commission income percentage from SOE developers rose to 58%, and the proportion of Commission in Advance projects maintained a relatively high level at 44%. Revenue from home renovation and furnishing business, home rental services, emerging and other services grew by 54.3% year-over-year in Q3, accounting for a portion of our total revenue at 38.3% with a record high and surging by 6.8 percentage points from the same period of 2023. Our home renovation and furnishing business maintained steady growth. In Q3, contracted sales reached RMB4.1 billion, up 24.6% year-over-year. Revenue amounted to RMB4.2 billion, rising by 32.6% year-over-year. The revenue growth rate outpaced that of contracted sales, mainly due to higher delivery efficiency. The contribution margin for the home renovation and furnishing business reached 31.2%, up 2.1 percentage points year-over-year and relatively flat sequentially. This was primarily driven by gross margin improvements in our home renovation business. The contracted sales of furniture and home furnishing retail, which are outside of our home renovation package, reached approximately RMB1.1 billion in Q3, accounting for approximately 28.1% of total contracted sales, improving by 2.1 percentage points from the same period of 2023. Our home rental services business continued to grow at an accelerated pace. In Q3, its revenue reached RMB3.9 billion, up 118.4% year-over-year, benefiting from the rapid growth in the number of rental units under management. By the end of Q3, the number of units managed by our home rental services exceeded 370,000. Specifically, the number of rental units managed under Carefree Rent exceeded 360,000, compared with around 160,000 in the same period of last year. Its contribution margin was 4.4%, declined by 1.4 percentage points sequentially. This was mainly due to its higher commission expenses due to seasonality. In Q3, our net revenue from emerging and other services decreased by 21.5% [Technical Difficulty] and expenses in Q3. Our store costs and other costs remained generally stable year-over-year and quarter-over-quarter at RMB703 million and RMB502 million, respectively. Gross profit rose by 5.2% year-over-year to RMB5.1 billion. Gross margin was 22.7%, down 4.7 percentage points year-over-year and 5.2 percentage points sequentially. The primary reason for the decline was the falling contribution margin of the existing home transaction services led by the increased fix labor costs. In Q3, our GAAP operating expenses were RMB4.4 billion, up 11% year-over-year and down 2.1% sequentially. G&A expenses were relatively stable year-over-year at RMB1.9 billion while falling sequentially by 8.6%. This was mainly attributable to the reduction in share based compensation. Sales and marketing expenses grew by 18.6% year-over-year to RMB1.9 billion as we invested in the rapid expansion of our home renovation and furnishing business, increasing associated sales and marketing expenses. Quarter-over-quarter, sales and marketing expenses rose by 2.8%, remaining largely stable. Our R&D expenses were RMB573 million, rising by 21.5% year-over-year and 13.6% sequentially, primarily due to increased R&D expenses in our home transaction services and higher expenses of exploration for some advanced R&D projects. In terms of profitability, GAAP income from operations totaled RMB727 million in Q3, down 20.2% year-over-year and 63.9% sequentially. GAAP operating margin was 3.2%, a decrease of 1.9 and 5.4 percentage points from Q3 2023 and Q2 2024, respectively. Non-GAAP income from operations totaled RMB1.4 billion, declining by 27.7% from the same period of last year and 51.5% quarter-over-quarter. Non-GAAP operating margin reached 6%, down 4.6 and 6 percentage points from Q3 2023 and Q2 2024, respectively. The decline in operating margin was mainly due to lower gross margin. GAAP net income totaled RMB1.2 billion in Q3, showing a year-over-year decrease of 0.2% while dropping by 38.5% quarter-over-quarter. Non-GAAP net income reached RMB1.8 billion, down 17.5% year-over-year and 33.8% quarter-over-quarter. Moving to our cash flow and balance sheet. We realized a net operating cash inflow of RMB449 million in Q3. The new home DSO was 47 days in Q3, which is a testament to our effective risk management. On top of the approximately $204 million allocated to share repurchases during Q3, our total cash liquidity remained at a high level of RMB76.3 billion, which excludes customer deposits payable. With our robust cash reserves, we continued to reward our shareholders who have grown with us through active share buybacks, enhancing capital operation efficiency and sharing the benefits of our development with investors. As of the end of Q3, we had repurchased around $584 million worth of shares this year, which accounted for around 3.3% of the Company's total shares outstanding at the end of 2023. We have consistently delivered on our promise to reward shareholders. Since the launch of our share repurchase program in September 2022, we have repurchased around $1.49 billion worth of shares as of the end of Q3, which accounts for around 8.1% of the Company's total shares outstanding before the program began. As our business becomes more diverse and expands in scale, we have set higher requirements for the reasonable allocation of resources and financial prudence. Our financial strategy is to focus on the essence of operations and support the growth of our one body, three wings business by strictly controlling our risk threshold and maintaining a healthy cash flow. For housing transaction services, under the situation of our store expansion strategy, we have implemented a comprehensive upgrade of the financial accounting module. Regarding our home renovation and furnishing business, while upgrading our centralized purchasing module nationwide, we have further enhanced the level of automation in our business and financial processes. As for our home rental services, with the continuous iteration of our business model and the rapid scale-up in the number of management properties, we continue to comb through and update our business and financial processes to facilitate business development. Regardless how the external environment changes, we still remain true to our original intentions, facilitating consumers' better living, enabling service providers' bright prospect, promoting industry’s advancement and building harmonious ecosystem. We believe we will gain huge potential growth in the vast market, and advance towards one-stop residential service platform. This concludes my prepared remarks for today. Operator, let’s open for the questions. Operator: [Operator Instructions] Your first question comes from John Lam with UBS. Please go ahead. John Lam: [Foreign Language] So maybe I translate my question in English. So my question is more regarding on the recent property policy. So how does the management view about this policy versus in the past? And so far, how is the effect from the policy leasing? How is the sustainability? And also, what kind of market forces is required in order to have a market stabilization? Thank you. Tao Xu: Thank you, John. In Q3, our market performance was muted. As a factor of the May 17th policy stated, coupled with the low summer season, the same home transit to market shows a month by month decline in July, August and September. For the new home market, the year-over-year decline in GTV of CRRC 1200 developers also worsened month by month in Q3, even after seasonal improvements in middle year. However, since the launch of the policy package at the end of September, transaction volume in existing and the new home market surged nationwide. Tier 1 cities led this job. Meanwhile, with the huge transaction volumes, home prices also showed signs of temporary stabilization. Overall, this round of policies has driven stronger market recovery than last two previous rounds on August 31, last year and May 17, this year. For details, this round of the policy exceeded the last two rounds in both scope and intensity. Unlike previous relaxation in either purchase restriction or mortgage condition, This round of policy introduced a whole package of the countercyclical policies directly initiated by the Politburo in response to new issues in the current market economy. Combined with greater credit support from the central bank and the swift implementation of purchase restriction relaxation in Tier 1 cities that led to the market outperformance. In particular, the political meeting explicitly emphasized the first time to stop decline of the rail market. This work shows the country's commitment to stabilizing the housing market and that leads to a stronger recovery in market expectation compared to previous two rounds. For the same home market, following this round of policies, transaction volume have increased significantly across 1st, 2nd and 3rd tier cities. This contrast with post May 2017 policy response where the rebound was only in the fourth-tier cities. In October, the number of existing home transaction on our platform marks the highest monthly level, rising by over 17% year-over-year and 60% from September. Notably, the transaction volume in Tier 1 cities saw year-over-year increase is over 100%, with Shenzhen up by over 250%. In October, Shenzhen average daily transaction volume reached the highest level in near four years. Year-over-year growth in Beijing and Shanghai was also more than 120%. For Tier 2 and Tier 3 cities transition volume saw a year-over-year growth of more than 60%. Regarding existing home prices, a positive signal is that October saw a month by month price stabilization with a slight 0.3% increase thanks to the surge in transactional volume and the improving market sentiment. This marks a notable improvement from the 2.1% decline in September and is the first increase since the beginning of 2023. Prices in Beijing, Shanghai and Shenzhen were up 2.2%, 2% and 0.7%, respectively, compared with September. This was mainly due to the fewer homeowners rushing to sell at a steep discount. This shift is a reflection in the paper prospecting tax, which tracks the percentage of the price increase in all price adjustments of listed homes on bigger platform. After hovering below 10 since its rise early this year, the index recently recovered to 14. In Tier 1 cities, it rose to 19, with Shenzhen jumping to 32 to a relatively active range. This shift indicates an incremental increase in the number of homeowners, rising their home listing prices. Regarding the transaction structure, the market was primarily led by home upgrades who had purposely been viewing properties, but were in a wind and sea mood. According to Baker Research Institute survey, after policy rollout, the proportion of consumer looking to buy a home quickly increased by 5 percentage point. In Tier 1 cities, this grow from the 17% to 31%. The proportion of the wait and see consumer decreased. Regarding the new home market, the latest round of policies also led to a rebound in the new home market. In October, the GTV of CRRC 1200 development increased by 73% from September and 7% from the same time last year. New home subscriptions on our bigger platform during National Day holiday nearly matched the subscription level for the entire month of September. New Home experienced a greater month by month rebound than existing homes. One reason is the lower base in September. The other reason is that the new policies mitigates the consumers' concern about the home delivery issues and developers' active promotions during the National Day holiday also helped boost the new policy effectiveness and accelerate the sell through. Regarding the market outlook in the future, the latest round of parts has more enduring effects on housing market, given its wider scope and the intensity compared to previous ones. It is worth noting that since October and through the first – two weeks of November. The weekly existing home transaction volume on the platform have remained stable at high-level, demonstrating a strong short-term momentum. We expect the market to be relatively stable in the Q4. For existing home prices, they are remaining stable in the short-term, but there is a sustainability required for the observation. However, beyond the boost to the sentiment, so for the recovery of the economy fundamental, there's a key to ensure the property market bottom out. This relies on enhanced policy, focus on the overall market economy improvement. On top of policy stimulating housing demand, the further rollout of the measures on supply side, such as the support for developers and the inventory reduction will help rebalance supply demand in new home market and the revitalize the industry. Continued favorable policy for the real economy will also provide greater support for residents' income expectations and the purchasing power, fundamentally stabilizing the real estate market. Thank you. Operator: Thank you. Your next question comes from Timothy Zhao with Goldman Sachs. Please go ahead. Timothy Zhao: Great. Thank you, management, for taking my question. My question is regarding your home renovation and furnishing business. As we have seen signs of recovery in the home transactions in both existing home and new home markets in September, how should we think about the growth outlook for home renovation business? Could you share some recent progress on this business line such as how you managed to improve the operating efficiency? Thank you. Tao Xu: Thank you, Timothy. In Q3, our home renovation and the furniture business achieved a steady growth. At full scale, our contracted sales reached RMB4.1 billion, making a year-over-year increase around 25% with revenue rising to RMB4.2 billion, up 33% year-over-year. Our cities such as Beijing, Guangzhou, Zhengzhou and Nanchang performed especially well and each achieved over 50% year-over-year growth in contract sales. As for the profitability, home renovation contribution margin reached 31.2% in Q3, showing an improvement compared to the same period last year. That's mainly due to the following factors. First, we focus on re-formed operation management. Since the home renovation construction involves lots of complex steps, we conduct a thorough review of each phase to identify key areas for the improvement. For example, we will notice excess materials. We quickly adjust our construction problems and strengthen the internal control to minimize the material waste. We also continue to updating our product package during the initial design phase. We carefully analyze the cost and the construction standards for each type of product, running profitability model to ensure that each package makes a reasonable gross margin during the initial development phase. Additionally, we increased the proportion of centralized purchasing. For products with a high degree of authorization, we scale up the centralized purchasing at the group level. The centralized procurement ratio for both maintained supplementary material reached over 30% in this quarter -- in third quarter, while it was over 20% in the second quarter. As our home renovation business has responded rapidly, we not only increased purchase volume from existing products, but also renegotiate unit prices to reflect our larger scale. While strengthening the profitability management, we're also continuously focused on improving our operational process and the models to enhance quality and boost customer satisfaction. For timeline management, we further shortened construction timelines by optimizing workflow and dispatch efficiency. This brought the combined timeline for basic construction and the preliminary material to average around 99.5 days in Q3, compared to 109.3 days in the same period last year. Regarding after sales, while implementing priority and maintenance services, we responded our in house after sales team nationwide. Our up sales team grew from over 200 people at the end of last year to over 500 at the end of September this year. This team remotely and carefully address customer repair requirements and further enhance our customer satisfaction. In our home renovation business model of the quality, scale and efficiency, quality remains as a core where we will continue to iterate and invest in building our infrastructure and the capability to strengthen quality foundation, which is essential to our -- to remain competitive in the future. Thank you. Operator: Thank you. Your next question comes from Griffin Chan with Citi. Please go ahead. Griffin Chan: [Foreign Language] So this is Griffin from Citi. I will translate my own questions. Beike has outperformed the market for both existing and new home business. With the management have confidence in sustaining this outperformance. Besides, Data has been actively expanding store this year. Would management please share your plan going forward? Thank you. Tao Xu: Thank you, Griffin. This year, we focused on Hezhen and store level expansion and ecosystem development and proactively strengthening high level collaborations with developers in new home business. These efforts have all paid off, enabling us to continuously outperform the market. Regarding scaling our platform, our agent store network continue to respond. By end of Q3, the total number of active non-Lianjia stores on our platform was more than 41,000 and the number of active non-Lianjia agent was 315,000, up 16% and 4% year-over-year respectively. We provided brands with the fitness comps, installment plans and other support to attract them to join our network. And in a volatile market, our platforms reach customer resources, extensive cooperation network, professional empowerment and the diversified service such as new home and home renovation had a stronger appeal to store outside of [Nanook] (ph). Returns from our investment in stores function have remained good. From the platform perspective, by end of September, newly sent store in Q1 this year had a positive ROI with all regions covering their cost. As we made a steady progress in connecting stores, we have further shift our strategy into second half of this year from connecting small and the scattered community stores to large stores. Accordingly, we raised the threshold of average number of agents per store, performance requirements and incentives. Our goal was to attract more quality store into the industry to join Beike to boost overall scale and efficiency. Regarding the store network operation, we'll adopt a more refined strategy at each individual business district level. For the areas fully covered by our network, we placed more emphasis on ecosystem optimization. We helped the store owner and agent retain more income through a series of the platform benefits and supporting measures. Stock productivity in these commercial areas was 1.2 times as high as other commercial areas. In areas where our store collaboration was insufficient, we focused on our target management and the empowerment through the platform data analysis, problem diagnosis and the strategy support aligned with the involvement of the store owner or governance counsel. We promoted to focus on the card home listings, enhanced sell-through and boosted the cooperation among stores. In areas with insufficient network coverage, we actively connect to the new stores through various types of storage function package. For existing stores, we piloted a points based incentive system in Q3 to multiple stores to enhance efficiency and optimize our ecosystem. This system is essentially a membership program for the store owners through which the platform giving back returns, as incentive to outstanding stores. This was aimed to achieving share value and win-win between the platform stores. Amongst 9 pallet cities in Q3, the platform issues over $18 million in equivalent cash benefit to store owners with 30% of store receiving this reward. The incentive system will bring more flexibility to our housing transaction business operation, while motivating store owners to engage more in our new business, including renovation and rentals. In our new home business, we continue to outperform the industry. In Q3, our new home GTV reached RMB227.6 billion, up 18.4% year-over-year, compared with a 29% decline in the GTV of charity top-line development. Meanwhile, our multifaceted rate continued to increase in Q3. The proportion of revenue from commissions, in our new home business, our auto performance mainly comes from continuous increase in the number of home business projects, which reached a high of over 8,000 in Q3. In September, the number of our home new projects accounted for 64% of all new home projects across cities where we operate, excluding Beijing and Shanghai, compared with 53% in the same period of last year. This was a result of growing recognition among developers for our sales capability as well as proactive effort to respond to collaborations. We continue to make the breakthrough new strategy collaboration. We have already covered 7 out of the 10 top developers. Strategic collaboration differ from the top single project cooperation, which typically featured a competitive relationship between the two sides. In strategic collaboration, the two sides work as a partner to enhance the mutual understanding. We inform our corporate partner of the operations and the needs of our agents, market dynamics and additional service and value our platform efforts beyond the profit channel. Through the top down promotions of such a warning in real estate companies, we have overcome difficulties in negotiation of city level projects, leading to more corporate projects. Through the strategic collaboration, we can also better protect agents' rights. For instance, we incorporate customer private home -- private phone number protection and the equal protection period into the strategic collaboration framework to promote the fair cooperation. Moreover, we enhance the business conduct governance to improve operational transparency, putting developers' minds at ease in their cooperation with us. Our stable monetization and the receivables collection also motivate agents to work more actively on the new home sales, boosting our new home sales through. Meanwhile, the agents' operational ecosystem has continued to improve the penetration of the customer profit from number protection rose to [67%] (ph) in Q3, up by a year from Q2, bringing more sense of security of agent, which also improves our awareness to sales new home. Thank you. Operator: Thank you. Your next question is from Thomas Chong with Jefferies. Please go ahead. Thomas Chong: [Foreign Language] Thanks management for taking my question. My question is about our home rental business. As we see our KFC rent is undergoing fast growth pace. While this business requires quite a lot of involvement in operation, can management share about how we are different from others in terms of operations? Thank you. Tao Xu: Thank you, Thomas. In Q3, revenue from our home rental services reached RMB3.94 billion, up 118.4% year-over-year. It is mainly due to the continuous increase in the number of the home unit under our management. By end of Q3, we were managing over 360,000 units under our Carefree Rent module compared to over 160,000 in Q3 last year. The contribution margin of our home rental services feels slightly quarter-over-quarter in Q3 due to the seasonality. In the summer peak season of July August, our Carefree Rent saw rapid growth in unit size and occupancy, which increased commission costs for the channel referrals and the related personnel, which impacts contribution margin. Excluding the seasonal impact, the core metrics of the category run imports significantly year-over-year from January to September. Our operations focus on quality and efficiency have yields good results. On improving services to customers, we provide pre-moving inspections, standardized handover services and tenant side property transfer services with a cumulative service count exceeded 970,000 provide a series of the core increase in the grants guarantees to our tenants. Also, we centralized the management of the two type of property managers, tenant service manager and the property service manager, to realize the centralized empowerment and the standardized services. This has enhanced our post-lease service capabilities and quality, while also leading to a continuous decrease in customer compliance rate. In terms of the operation efficiency, we continue to increase the percentage of the lease renewals which helps reduce the channel cost associated with the re-ranking and finding new tenants. We achieved this through improved post-lease services, leading to increased tenant satisfaction and user retention. At the same time, we actively engage with tenants prior to lease expiration to discuss renewals, thereby boosting the renewal rate. By end of Q3, the lease renewal rate was around 52%, compared to 48% in the same period last year. Regarding management's rental costs due to the vacancies, we shortened the days needed to rent out the properties through the refined operations. The time required to rent out the property for the second time decreased to 7.5 days at the end of Q3 from 14.7 days at the beginning of the year. We also continue to optimize and upgrade our product module. The coverage of our new product module, which incurred no vacancy period, continue to rise in Q3. This model enhanced our resilience against the rental price volatility and reduce the vacancy costs. The deposit cost per unit of our new Carefree Rent product module also dropped. This was mainly due to the improvement in the successful rate of the first time rentals which rose to 82% at the end of Q3 from 76% the same time of last year, driven by higher personnel activities. We continue to build our own rental occupancy team which enhanced the leasing efficiency, while keeping overall cost lower than the channel cost. By end of Q3, the rental occupancy contribution by this team was at 19%, up 5 percentage points from the same period last year. In addition, regarding Q3 operations, we took targeted measures to ensure the health and efficiency of our business in gig and the live seasons respectively. The specialization strategy for the service providers based on their roles significantly boost our efficiency, leading to large scale growth and the incremental profit margin. In the peak season of July August, in particular, the personnel productivity of the unit since [ops] (ph) and occupancy improved notably year-over-year. Since entering the off-season in September, we have implemented multiple strategies, including strengthening the rental occupancy, mix through our self-built team and agent and improving their productivity using various marketing methods for the targeted customers, continuously manage lease renewals and the second time leasing presales and focusing on key areas of the housing unit subs and effectively managing inventory. Thank you. Operator: Thank you. Your next question comes from Miranda Zhuang with Bank of America Securities. Please go ahead. Miranda Zhuang: [Foreign Language] Thank you for taking my question. My question is about Beihaojia. We see the news that Beihaojia has successfully been in line in Chengdu City. So can management share with us about the project and the rationale about it? And then what's the company's business model for the Beihao? Thank you. Tao Xu: Thank you, Miranda. Our new business Beihaojia, won a piece of land, sold the auction in Chengdu Kuo area of [Sichuan District] (ph), Financial City Phase 3 in September. We undertook this project after carefully review and the selection, and it will be operated by Beihaojia team independently. We aim to use the pilot project like this to better validate our ability to implement our C2M solutions at every stage, including the land auction, product positioning, design and marketing. By creating multiple project, we can build trust with future partners such as developers, contractors and property owners towards our business model and the product solution, ultimately helping us achieving a long term life asset service platform model. But it is very clear that we do not intend to become a real estate developer. In terms of our long term business model, we will not use our own capital for large scale heavy assets investment. We position the Beihaojia, as a data driven residential development service platform achieved through our one plus two business model. This includes C2M product solution, supported by our accumulated user insight and the big data and complemented by efficient customer acquisition and the marketing capability. This empower our partners in that chain to create homes that are well suited to customers. C2I will be our core capability. It leveraged vast amount of data and AI technology to ensure the customer preference and demand are reflected in the new home plus such as possible. Regarding commercialization, we will charge service fees for offering an integrated set of solutions, including product positioning, initial and in-depth design rather than through the largest capital contribution or earning investment returns. Lastly, we were fortunate to acquire the land on September 20, right before the government roll out the subsequent bundle of favorable policies. This has made the land acquisition price highly competitive. We believe this project will serve as a test bed for our capabilities, allowing us to accumulate know how to support the realization of our long-term platform model. 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, Ms. Siting Li for closing remarks. Siting Li: Thank you once again for joining us today. If you have any further questions, please feel free to contact Beike's Investor Relations 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.
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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.