KE Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for KeyE Holdings, Inc. 3rd Quarter 2023 Earnings Conference Call. Please note that today's call, including management's prepared remarks and question and answer session, will all be in English. Simultaneous interpretation of Chinese is available on a separate line for the duration of the call. To access Today's conference is being recorded.

Operator

I would now like to turn the call over to your host, Ms. Siting Li, IR Director of the company. Please go ahead, Siting.

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to Katy Holdings OR Baker's 3rd quarter 2023 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. Kei.com.

Speaker 1

On today's call, we have Mr. Danny Peng, our Co Founder, Chairman and Chief Executive Officer and Mr. Cao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategies and business developments, and Mr.

Speaker 1

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 press release, which contains a reconciliation of the unaudited non GAAP measures to the comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB.

Speaker 1

For today's call, the management will use English Please note that the Chinese translation is for convenience service only. In the case of any discrepancy, management statements in the 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.

Speaker 2

Thank you, Suiting. Hello, everyone. Thank you for joining Baker's Q3 2023 earnings conference call. In the Q3, the real estate market showed a notable rebound following the tone setting of the political bureau meeting And a series of supportive politics, including modification to first time homebuyers qualifications in 1st tier cities, The degree of support and the implementation of these favorable measures as well as the real estate market's performance Both went beyond our expectations. Our focus this year has been on contemplating the future Over the long term and align our strategy with it, we are entering a new phase that we call crossing the NASM mountain.

Speaker 2

This phase begins as the market continues its shift from same property purchases as investment assess To prioritizing residential housing for the quality of living itself, in this transaction, We must also involve from a transaction centric operating model to one that is dedicated to ensure better living experiences For our customers, this is a largely untapped market with vast opportunities. Real Estate's return To our focus on people's better living signals, our promising future ahead of us. With the industry experience and insight we have cultivated over the years, we are well positioned to grow in a new phase Encompassing many possibilities of better living, Baike has been established the industry's most powerful infrastructure, Our ACM throughout our existing home transaction business. This infrastructure integrating our online databases And traffic networkers with offline stores and edge networkers laid a solid base for us to explore new possibilities. Additionally, our management is advertised for large growth in our digital capabilities and data driven strategies, Collectively support our journey into this exciting future.

Speaker 2

This July, We took an important step toward our objectives by upgrading our corporate strategy to 1 Body 3 Wins. This is a key step in our roadmap to becoming a well installed residential service platform for better living. As we navigate the dynamic landscape, we need a deeper differentiated mindset and knowledge base as well as a set of mutual principles and guidelines to identify call value propositions to drive us forward In the right direction, to their end, there are a host of key questions we are asking ourselves. What value can technology bring to both customers and the service providers? Our business segments are separated, The customers are asking for a one stop solution.

Speaker 2

In what ways Can we unite our vertical business segment to create horizontal one stop services that meet customers' needs? How can we maximize customers' living experience and extend beyond merely delivering transactional value? What's our value proposition to different stakeholders in our industry, including our partners and service providers? How do we focus on offerings to value and humanistic care for our service providers Rather than treating people as tools and channels, we are addressing the broader residential industry. We look for growth through physical expansion or through generating chemical reaction to drive industry wide evolution.

Speaker 2

The next step to posing these questions It's calling on everyone in our organization to think about them and working together to address these topics. While engaging in these crucial reflections to direct our strategy, we are also Implementing the organizational modifications and the business initiatives of our One Body Through Win strategy, which will be reflected in our performance metrics. With the easing of COVID restrictions, Tencent op demand dropped the market's recovery in the Q1 of this year. However, Subsequent home transaction market activities deviated from historical seasonal trends. New home market is still facing some changes.

Speaker 2

In the Q3, we recorded a GTV of RMB RMB 655.2 billion, there was a 2% 27% year over year decrease In existing home transaction and new home transactions, respectively, and our overall performance has exceeded the expectations. Our revenue for the quarter was RMB17.8 billion, up by 1.2% year over year. Year to data, DTV has grown by 23% with existing home transaction up 28%, new home transaction Up by 13%. In our efforts to manage risk and improve efficiency over the past 2 years, Our one body operations, which is our home transaction sources, are more agile and efficient. It's now time to broaden our collaboration with more industry partners and service providers, and we advance together To our offering 1 stop residential services for better living, here we will further institute Stand on vision for people, objects and services to promote the industry and investments over the next decades.

Speaker 2

Starting in the Q3, we accelerated our store network expansions. In September alone, We added around 1300 newly connected stores nationwide, excluding Beijing and Shanghai. In the Q3, contracted sales from our home renovation and the furnishing business reached RMB3.26 RMB26 billion, an increase of 66% year over year. Year to data Contracted sales reached RMB9.39 billion, up 19% year over year on a pro form a basis. Additionally, contracted rental units of our rental property management services grew from 50,000 in the Q3 of 2022 to 160,000 In the Q3 of this year, many of the metrics that I mentioned are derived from our emerging businesses.

Speaker 2

More importantly, the long term driver behind our business developments is a consistently enhanced Understanding of the industry landscape, rapid growth and scalable operations have provided us With a deeper understanding of the industry and the capabilities to execute on small scale testing approaches to make rapid business Interaction across our service ecosystem. The build up of such system systematic capabilities means knowing which metrics To use and how many parameters we should set in the business rather than how high the parameter is set, The deep dive and scale of our 1 Body business have accelerated our scientific management and the competitiveness. It's the equivalent of taking 50% step 50 steps forward. However, with our emerging business, we have only just taken out FirstDay. It's crucial to note that while growth Building scale, our best growth, they are not the sole objectives.

Speaker 2

We also deeply understand the importance I'm supporting the industry ecosystem. Platform wise, while we have notably improved our efficiency and operational capabilities over the last 2 years, We need to be careful about path dependence, building and maintaining Synergistic relationships with all of our partners, whether they are brands, Store owners or developers is of great importance to us. We will make an adjustment To our operational strategy to better improve store owners' endurance and engagement, refining our platform capabilities in parallel And it's a Beijing store owner committees that ensure collaborative development and governance. We started Linjia and Big Ke driving by a wheel to make the industry better. And today, we need to adhere To align with an understanding that in order to becoming an industry leader in advanced productivity, It's essential to bring unique value to the industry.

Speaker 2

We are not competing against the existing service providers or business partners in the industry, But rather against low quality supply that damage the industry reputation and diminishes customer experience. This is why we need to work hard to push for an overall improvement in the quality of the industry. Given our recent progress and the growing consumer demand for service and quality, we have seen tremendous Promise, we also believe that one day we will proudly advocate for this industry. Thank you. Next, I would like to return the call over to our CFO, Xu Tao, to review our Q3 financials.

Speaker 3

Thank you, Stanley, and thank you, everyone, for joining us. Before we dive into our performance, I would like to brief touch upon some updates on recent housing markets. The 3rd quarter saw the property market ticked up From the bottom was month over month sequential recovery. Important policy directives were made during the party meeting in late July. We're driving new trends in real estate supply and demand.

Speaker 3

Since end of August, a wave of supportive policies has been rolled out With many cities, take steps to modify the criteria of first time homebuyer qualifications, lower down payment ratios, cut mortgage interest rate and the relaxed purchase restrictions. Market sentiment Notably improved with the transaction substantially rebounding in September. This recovery was particularly pronounced For the esteemed housing market in 1st tier and some strong secondary cities, our expectations for policy relaxation And the demand for housing upgrades are the most substantial. The recovery of the new home market lagged slightly behind is in home due to the varying demand across cities and the volatilities on the wafer supply side. Nevertheless, Since August, there has been some improvement in the new home markets, and the new home subscription data on Plifor showed both year over year and the month of our mass recovery in September.

Speaker 3

We have been proactively advancing our One Body 3 wins growth strategy. In terms of our overall financial performance, in Q3, we maintained resilient top line performance With total revenue growing 1.2% year on year, reaching RMB17.8 billion, exceeding our guidance, Among which, we achieved better than expected revenue for housing transaction services. We also made remarkable breakthroughs For our home renovation and furniture business was revenue of which jumped in 72.1% year over year RMB2.2 billion. Lastly, our enhanced operational capability coupled with our by 0.4 percentage points from the same period last year. With overall revenue at a level relatively consistent with the same period last year, Our GAAP net income grew 63.4 percent year over year increase, reaching RMB170 1,000,000, While non GAAP net income grew by 14.4 percent to RMB 2,059,000,000, Non GAAP net margin rose by 1.4 percentage points year over year to reach 12.1% Showing a stronger profitability.

Speaker 3

Looking at our home transaction services. In Q3, on national level, Both existing and new home markets saw decline quarter over quarter and year over year due to notable quarterly disparity in market dynamics compared to previous years. However, benefited from our enhanced operating efficiency, our GTV of steel homes Only fell by 2.2% year over year, despite the higher base set by 4th tier cities in the same period last year. Revenue from existing transaction services declined by 11.9% year over year to RMB6.3 billion. The bigger contraction of the steam home revenue compared to that of GTV was primarily due to a lower contribution From the GTV sold by Linjia Brands, which has a high monetization rate.

Speaker 3

Linjia GTV fell by 13% Year on year, on a higher base set by 4th tier cities in the same period last year. While existing home GTV sold back line agents increased by 8.1% year over year in Q3 and the revenue of which is recorded on a net basis resulting in the gap between the growth rate of our revenue and GTV. Meanwhile, on September 26, Beijinglin Jia dropped its commission rate with the buyers and sellers, each paying 1% of the property total transaction volume For about 12,000 ongoing transaction initiated before the adjustment came into effect, we are refunding the differences Resulting from the rate adjustment and hiring to our principal for putting customer first, the corresponding impact has already been reflected in our Q3 in home revenues. We firmly believe that by sincerely serving our customers' best interest, with a long term trust as it brings us lasting growth opportunities. Contribution margin for its in home construction services was at 48.7%, reflecting a year over year increase of 2.6 percentage points and a quarter over quarter increase of 3.1 percentage points.

Speaker 3

This is indicative of how our core streamline cost structure has enabled us to achieve stronger profitability instead of year on year decline in revenue. Let's move to our new home business. The industry is undergoing a phase of reduced supply and continued risk mitigation. Evidenced by more than 30% year over year decline in sales from the 1200 developers in Q3. We have stopped an active strategy of expanding channel collaboration with developers and continued to improve our business ecosystem, While strictly adhering to our risk control bottom line, as a result, our new home DTV decreased by 26.5 percent year over year, outperforming the overall market.

Speaker 3

The decline of 24.3% in new home revenue was smaller compared to GTV, owing to a slight increase in our monetization rate. Our new home business contribution margin grew slightly year over year to 25.1 percent despite the decline in revenue, Fully demonstrating our operational resilience. In Q3, the percentage of commission income from SOE developers We remain at 46%. Project with commissioning advanced module contribute 54% of total commissions collected, Remaining at a high level. Regarding our emerging business, the revenue from our business excluding home Transaction services grew by 100 12 percent year over year versus percentage to total revenues rising to over 30% in Q3 compared with 15% in the same period last year.

Speaker 3

Our home renovation and the furniture business has remained on a fast track with the robust growth momentum that was not resilient on the trends of housing transaction services. Contracting sales reached RMB3.3 billion in Q3, a year over year increase of 55.6 percent. With fast delivery and accelerated revenue recognition, Revenue grew at a higher rate of 72.1 percent year over year, reaching RMB3.2 billion, A quarter over quarter increase of 21%. In Q3, Shanghai deposited 2 months with revenue exceeding RMB 100,000,000 becoming the subsidy for Beijing and Hangzhou to achieve monthly revenues surpassing RMB 100,000,000. Other cities are also growing rapidly.

Speaker 3

Cities including Wuhan, Chengdu and Guangzhou Achieving a quarter over quarter revenue growth of over 50% in Q3. Our customer acquisition capability continued to improve With both Beijing and Shanghai, achieving business lead conversion rate in the middle to high single digit percentage, The percentage of contract sales contributed by our home transaction services continue to increase to about 45% of total GTV. The sales of Decoration Home Furniture increased by 93% to RMB920 1,000,000 with a proportion of 28%. The contribution margin for home renovation and furniture business in Q3 remains at 29.1%. A further solidifying foundation in product design and Ku Assembly is developing a positive cycle of profitability across the leading cities.

Speaker 3

10 cities include Beijing, Shanghai and Hangzhou realized the positive city level profit in Q2 and Q3, conceptually. Among the top 10 cities in terms of the contract sales, some of them have a positive operating profit. The breakthroughs We have made have given us greater confidence in our strategy. In October, we announced the proposed acquisition of Baiqongjian As the deal is subject to the customary closing conditions, this will strive to bring higher cost offering To the residential industry, in Q3, our net revenue from emerging and other services increased by 202.7 percent year over year to RMB2.4 billion, primarily propelled by the expansion Of our rental property management services, contribution margin remained stable at 25.3% year over year. The total of our store costs and other costs remained stable in Q3.

Speaker 3

Our gross profit grew by 2.6% year over year, reaching RMB4.9 billion as a result of our increased operating leverage. Our gross margin ticked up to 27.4% compared with 27% in the same period last year. In terms of expense, year over year, Our GAAP operating expenses for Q3 totaled RMB4 1,000,000,000, increasing 12% from the same period last year. Our non GAAP operating expenses amounted to RMB3.1 billion, up 14% year over year, primarily due to the structural impact of the increased proportion from new business, including home renovation and furniture. Looking at quarter over quarter performance, we have maintained effective cost control in our home construction services.

Speaker 3

Notably, with the RMB32 1,000,000 bad debt provision reaching back during Q3, providing us with improved In terms of the profitability on the GAAP measures, our income from operations for Q3 was RMB911 1,000,000 compared with RMB1.2 billion in the same period last year. Our operating margin was at 5.1% compared with 6.9% in the same period last year. Our non GAAP income from operations was RMB886 million compared with RMB2008 1,000,000 in the same period last year. Non GAAP operating margin was 10.6% compared with 12% same period last year. The date was mainly due to our investment in new business, including home renovation and furniture, which was in ramp up period.

Speaker 3

Our GAAP net income for the quarter reached RMB170 1,000,000, reflecting a significant growth of 63.4% year over year. Our non GAAP net income increased by 14.4% year over year, Reaching RMB279 1,000,000, non GAAP net margin rose by 1.4 percentage points year over year to reach 12.1%. Now let me highlight our cash flow and the balance sheet metrics. Excluding customer deposits payable, we realized the net operating cash inflow of RMB 2,000 $658,000,000 in Q3. The new home cash collected surpassed the new home revenue for 9th consecutive quarter With the cash to income ratio, further rising to 1.21.

Speaker 3

New Home DSO for the 4th 3 quarters For the 52 days, in Q3, we spent approximately $152,000,000 in share repurchase and around $200,000,000 in special cash dividend. On top of that, our total cash liquidity, which excludes customer deposit payable amounted to RMB79.8 billion, up RMB440 1,000,000 from Q2. Over the recent period, supported by our solid cash results and prudent financial management, We will demonstrate our commitment to efficient capital allocation and delivering returns to our investors So the active share buybacks and the dividend repatriation. In September alone, our total stock repurchase amount over $130,000,000 Since the initiation of our share repurchase program in September 2022, As of September this year, the total number of shares that we have cumulatively repurchased amounted about 3.91 percent of company's total share prior to launch our program. Moreover, recently, we have completed The special cash dividend distribution totaling around US200 $1,000,000 Looking at our guidance for the Q4, We expect the total revenue to be between RMB 18,000,000,000 and RMB 18,500,000,000, representing an increase of approximately 7.5% to 10.5% from the same period of 2022.

Speaker 3

This forecast includes the potential impact of the real estate related policies and the macroeconomic status that constitutes the current and preliminary view of our business And the market conditions, which are subject to change. The property market transformation and upgrade Towards living and the strength of our organization structure have all bolstered our aspiration and momentum For continuous growth, our focus remains on responding connections with top tier industry capability and fostering a cooperative ecosystem of the Far East and the Wind Ring scenarios. We are simultaneously developing Our high quality service provider, Palenpu, and formally dedicating resources in infrastructure development As we thrive in the vast residential sector, we are positioned to respond into the significant opportunity The slide I have. Our ability to effective balance scale, efficiency and the financial stability has been further validated during the market fluctuations over the past few years. Under this volatility, We also achieved the consistent improvement in business growth, profitability and cash flow.

Speaker 3

Looking forward, We will maintain our disciplined approach to financial management, further enhance our capital allocation efficiency. We will prioritize our investment in business areas that can bring key outputs and values, investing in growth, investing in future. We'll also share the benefit of the development with our shareholders. We believe this will enable us To achieve organic and a substantial growth, creating long term value for our shareholders. This concludes our prepared remarks.

Speaker 3

Now we are open for the questions. Operator, please go ahead.

Operator

Thank you. Your first question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

Speaker 3

Thank you, management, for taking my question and congrats on the very strong results. Just one question. Could management provide us an overview of the housing transaction market in the past quarter? And what is our outlook for the Q4 this year? And after the mortgage easing policy announced in the 3rd quarter, what is management observation in terms of the policy impact on home transactions?

Speaker 3

Thank you. Thank you, Kim Si. Regarding your question, we noticed that the investors pay close attention To the market change in property market, I can share some of our perspectives. In terms of the policy, There has been relaxation or even remove of the restrictions on housing transaction in certain second tier cities Since the July party bureau meeting, from the end of August, July, September, 1st tier cities Have implemented policies to recognize households with mortgage record by the no local property ownership as a first time homebuyers. Additionally, Guangzhou, being the 1st among Tier 1 cities, has eased its home purchase restriction in September.

Speaker 3

Moreover, mortgage rates for both first and second time home in top 100 cities decreased by 25 basis points and 34 basis points, respectively, year over year. In the 3rd quarter, The existing home market improved from its strong performance, driven by the anticipation of supportive policies to come and subsequent past release. To elaborate this, the number of existing home transactions grew by single digits month over month in both July August. This update shows that things are stabilizing and recovering due to the expectation for new policies. After the relaxed, 1st time homebuyer qualification policy was implemented in September.

Speaker 3

Our platform saw an operating Surge in the in home sales with growth rate of 25% compared to previous month and 32% compared to last year. In particular, for the 1st tier cities, the recovery actually starts quite early And they also rebounded most in September. After polypuro meeting at the end of July, this city Has already seen certain market recovery expectations, the number of the home showing and the listing increased by 5% to 10% From July to August, while transaction volume in September grew by over 30% month over month, Stronger second tier cities like Nanjing, Hefei, Wuhan and Hangzhou relaxed their home buying restrictions in September, That was stronger recovery in transaction volume of 25% growth month over month. This also demonstrates the effectiveness of The policy matters. For home prices, according to data from Baker Research Institute, Beijing and Shanghai start to stabilize in July.

Speaker 3

And in September, the EBIT increased by 1.6% and 1.9%, respectively, compared to July. While many other cities across the country still So a decrease in the home prices, the rate of decline has slowed down in September. The new home market in the Q3 of 2023 has also shown signs of rebound, Following the resurgence in existing home market, a notable disparity was seen in both supply and demand side. Subscriptions for new homes experienced a more than double digit month over month recovery in August. However, in September, The new home subscription volume on the bigger platform increased by more than 40% month over month and 15% year over year.

Speaker 3

This is a significant divergence from the historical month over month decline in September over The last 3 years indicating that this September's rebound was largely driven by positive support And the include market sentiment rather than seasonality. Transaction date typically lags behind the subscription data by about 3 weeks. Accordingly, more positive change in transaction data is expected in October. A closer look indicates That's the new home market displays a high growth disparity. In September, 1 year Year over year growth rate for new home subscriptions was through the roof in 1st tier cities by the 49%, Pretty solid in stronger second tier cities at 20%, but negative 18% for other low tier cities.

Speaker 3

The demand for home upgrades is higher in 1st tier cities. The first time homebuyer qualification policy Help pump more liquidity into this respective new home market and give a big boost to those top tier cities Like Guangzhou, Nanjing and Changsha, that have stronger fundamentals. But when the year stopped On purchase restriction in these leading cities, it also caused the taking away soft demand from neighboring low tier cities. As new home sales market being heavily influenced by the supply side, it leads to significant fluctuations in high frequency data, Whilst the in home market shows more consistency, making it a better indicator for overall market activities. Looking ahead, the party effects of new policies will continue to unfold.

Speaker 3

The date of existing home Transaction in October has been pretty consistent on a weekly basis with a gradual increase. Nevertheless, it is important to remember that it takes time for policies to be kicked in And for demand to turn into actual sales, nearly spanning several months, down 30 new home price trends We'll make potential buyers cautious and adopt wait and see attitude. To keep up with And to stimulate home buying and upgrading activities and attract more buyers to market, We need further policy support, stable housing price and the proxy that matches the changing needs of consumer for better living conditions. Additionally, easing in purchase restrictions in different cities, along with the revised qualification For first time homebuyers, I started to boost reasonable demand for 1st homes and further activate the transaction in the market. Thank you.

Operator

Thank you. Your next question comes from John Lam with UBS. Please go ahead.

Speaker 4

Congrats for the great results. And the question is more regarding on the new home business. So how do we I see the property developers for their sales strategy in the upcoming Q4 strong season and also how do they think about the cooperation with the channel. Regarding on the recent relaxation of the price gap for both property price and also land price, would that mean that this is a positive to your new home business? Regarding on the operation, Baker has been the industry leader for the new home business.

Speaker 4

So any

Speaker 3

Thank you, John. The current new home market is complex and consistently changing, which poses significant challenges for everyone involved in the industry. Auto New Home generally offer better design and quality compared with existing ones in cities Where there are risks associated with delivery for sold home on time. Consumers tend to lean towards buying existing homes. In key cities, the percentage of consumers interested in purchasing new home has dropped from 33% in 2021 to 70% as of September.

Speaker 3

In one of our core central cities, the proportion of the transaction in its new homes Has rising from 25% in September 2021 to 70% this year. New cities, like Chengdu, While timing delay of pre sold homes is ensured more effectively, people still prefer buying new homes. However, A situation has emerged where prices of the new home are significantly higher than those of the existing homes. This creates a large price gap that handles new home upgrades or reduce developers' motivation To increase inventory and offer promotions, there are also cities where demand for new homes has considerably improved this year, such as Shenzhen. The weekly subscription volume of the new homes in Shenzhen reached a record high by end of September.

Speaker 3

However, a considerable proportion of this recently increased demand has already been met In response to the market changes, most big national and local developers are excited To really step up their sales game at the end of the year with more promotions, along with policy support. On the other hand, some smaller local developers are taking it easy starting early September. Following current policies, some developers have taken the initiatives to start promoting their projects, But we don't expect to primarily rely on the significant price reductions. In terms of the developers working with the brokerage services, the penetration rate for brokerage market to the new home market has been On the right this year, for instance, in Q3, the penetration rate of broker service in Shenzhen increased by 6% compared to the same period of last year. While Chengdu witnessed the growth of 10% to 15% year over year, Auto developer sentiment may fluctuate due to the market change.

Speaker 3

A relatively stable and balanced cooperative relationship has been established. From Baker's perspective, our goal is to establish a mutually beneficial partnership The low satisfaction level among customers regards to the new home product is one of the main reasons why market lacks momentum. By getting deeper insight into the customer preference through interactive data analysis and extensive research, we can develop Better products that cater to the new home housing upgrade needs, while also enhancing the overall experience. Recent projects like Chengdu 1 OTC Riverside, Wuhan, Tiandi and the Beijing 1 Signal Park demonstrates the high quality of new home products Still generate significant demand in today's market. This divergence indicates a clear Direction for future development in the new home market.

Speaker 3

Additionally, if 1.0 Flow area to land area ratio restriction is to be removed for largely populated area. It can really help boost the development Of high quality, low density residential property in future housing market, this will stimulate the improvement in demand and enable residents to experience a leap forward into our future health experience. Going forward, As we consolidate and deepen our fundamental work in core areas such as commissioning demand, cooperation with the state owned developers and focused sales strategy. We will prioritize enhancing our new home market coverage and the sell through to withstand potential market downturn risks. Our strategy will primarily cover the following: number 1, building new partnership with developers.

Speaker 3

As developers move from local autonomy to centralized management, we will work closely with them at every level To establish deep and meaningful collaborations. Number 2, we will tailor our strategy and policies Number 3, Refund Operations Management. We will bid fab Our infrastructure starting with our housing dictionary, ecosystem, standardized process and building the skill to make the product That the customers will love. Thank you.

Operator

Thank you. Your next question comes from Miranda Zhuang with Bank of America Securities. Please go ahead.

Speaker 1

Thank you. So my question is like historically, we have seen MMA was used to grow company's home brokerage business and company recently also announced a proposal to acquire To further grow the home furnishing business. So can management share your thoughts About the importance of MMA versus organic growth in your growth strategy and also your thoughts about the future investment and the pace

Speaker 2

Okay, I'm Stanley. Thank you for the question. So generating sustainable internal innovation and organic growth is definitely a long term goal for us. In the process of achieving the As long term goal, we have some phased strategy opportunities that we need to achieve to Revolutionizes the home innovation and the furnishing industry. We need to have ample scale and the business density in a single city.

Speaker 2

This allows us to experiment, refine and enhance our competencies promptly. Acquisitions are the most suitable route to achieve this short term strategic opportunity. Hence, our emphasis on acquisitions isn't Merely for immediately revenue or financial growth, but to attain the necessary scale and the density as a fertile piece Our land to foster industry innovation. It's very difficult to kickstart industry transformation without any And existing scale, many capabilities can only grow out with certain operational scale, But in the home renovation sector, that kind of scale has been pretty rare historically. Furthermore, The requirement for achieving a billion, a 30,000,000,000 or 15,000,000,000 scale in our university differ across Verreal's capabilities is like evolution.

Speaker 2

We must remain agile and non conformity To establish the norms, for example, with a strong presence in the city or region, we can establish the entire scale, Supply chain and delivery process, which allow us to tap into economical scale, addressing deeper rooted industry challenges And a preparing a way for our transformative business methodology. Looking ahead, if acquisition can help us While you factor a team of FERC's strategic objectives, then they are crucial and valuable. However, they are just a means to reach a grander vision, not the end goal. Right now, acquisitions brings in the necessary resource and like minded individuals. I think these are important assets for transforming the industry.

Speaker 2

That's my answer. Thank you.

Operator

Thank you. Your next question comes from Xiaoden Zhong with CICC. Please go ahead. So the company has made remarkable It would be great if you can share with us some of the milestones you have achieved. Thank you.

Speaker 3

Thank you, Sophie. To start with, the home renovation supply chain is long and complicated. Not all stage can or should be standardized. We can break it down into 3 categories: Standardization, personalization and the betweenness. Standardization is in act in pricing, Customer practice and the streamlined process of use, personalization within this offering is emphasized By our tailored design solutions and the rich variety of products that are offered, the degree of the sanitization For personalization for renovation mature lies somewhere in between just two rooms.

Speaker 3

Mature selection are based on stringent criteria, While still providing our customers with ongoing diversity to make a personalized choice that makes their individual taste. For IRRs that need a scenario, we need to reshape the process and set standards. We will define strategic roles within our operation flow, establishing a set of mechanisms for collaboration, Allocation and the gate incentives. For example, in terms of the role definition and the fee settlement For renovation construction, it used to be common practice in the renovation industry for the project managers To bring their own team of workers in control to the workshop, while the renovation company only dealt with payments with the project manager. This open result in the project manager starting off at a loss position when they took on the new project.

Speaker 3

This led to several issues. The focus gets pulled into the actual charts and the task for more profits As a manager access labor schedule for other projects. Additionally, many renovation companies Have limited expertise in managing workers and leading to the cost issues. On our platform, Our project manager role is to ensure project goes smoothly and the customer are happy. As they're not allowed to touch money, The job is to manage project timelines, ensure labors are delivering quality, craftsmanship and so on, All of which improved customer satisfaction.

Speaker 3

While the platform is responsible for dispatch orders, Setting up standards and certifying workers' qualifications, implementing evaluation and the reward system, etcetera, and complete the salary settlement based on the performance system centered around the cost services. As such, we redefined the roles, workflows, standards and the incentive mechanism within the industry. Regarding the digitalization, it is essentially a manifestation of in-depth industrial understanding And it serves as a means to facilitate the implementation of standardization. Here, Let's take the example of project manager and the workers for illustration again. This part of the digitalization is now achieved through our HomeStar system.

Speaker 3

This module covers various sub modules such as project schedule management, Material dispatching and the construction quality control, it enables automated assignment of task, Tracking of the main material orders, acceptance inspections, ratification process, etcetera, providing a streamlined management approach. Additionally, it encompasses digital talent management For both workers and the product managers, including scoring system, performance incentives, training certification and more. The HomeStar system will be upgraded to version 2.5 in November. This new version combines the industrial expertise of both making it more compatible and inclusive of the various module like Construction delivery, customer acquisition, sales, centralized design control, supply chain delivery, In problem truth and the data strategy, moving forward, our focus will be on debriding The designer and the delivery leader ops module in order to standardize workflow process and achieve what you see is what you get design approach. This will also save designers' time in reputable workers and improve our Interaction with client design solutions, which they care more and more these days.

Speaker 3

Lastly, we want to reiterate that The core goal of personalization and the systemization is to establish a customer centric digital infrastructure That is supposed to industry ongoing development. This infrastructure should be able to accommodate the diverse Industry players allowing participants across the value chain to operate on the streamlined and the well structured guideline. As we gain deeper understanding of the industry through the experiments and its fruition in various cities as well as the collision of our peers following the merger and acquisition. We will continue rapidly iterate The process of standardization and the digitalization. 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.

Speaker 1

Thank you once again for joining us today. If you have any further questions, please feel free to contact Beike's Investor

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Earnings Conference Call
KE Q3 2023
00:00 / 00:00