KE Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 18, 2023

Key Takeaways

  • Q1 2023 revenue reached RMB 28.3 billion (up 61.6% YoY), with existing-home GTV rising 78% and new-home GTV up 44%, significantly outperforming industry growth of 51% and 7%, respectively.
  • Gross margin expanded to 31.3%, driven by streamlined costs and a larger contribution from higher-margin home renovation and furnishing services, leading to non-GAAP net income of RMB 3.55 billion (vs. RMB 28 million YoY).
  • Management emphasized a long-term strategy to bolster its “ACN” agent collaboration network, elevate high-quality brands and service providers, and leverage scientific management and AI tools to enhance customer service and agent productivity.
  • KE Holdings ended Q1 with a robust cash balance of RMB 85.3 billion and positive operating cash flow of RMB 7.6 billion, ensuring financial flexibility to invest in growth and innovation across its housing ecosystem.
  • For Q2 2023, the company expects revenue of RMB 18.5–19 billion (up approximately 34–38% YoY), subject to the evolving real estate policy environment and broader market normalization.
AI Generated. May Contain Errors.
Earnings Conference Call
KE Q1 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for KE Holdings, Inc. 1st Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. Today's conference call is being recorded. I would now like to turn the call over to your host, Ms.

Operator

Soutine Lee, IR Director of the company. Please go ahead, Soutine.

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings' North Baker's Q1 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. Ke.com.

Speaker 1

On today's call, we have Mr. Stanley 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 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 Baker'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.

Speaker 1

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, Siting. Hello, everyone. Thank you for joining Baker's Q1 23 earnings conference call. During the past quarter, we have witnessed the real estate market in China, Along with various other industries rebounding from the pandemic, GTV of existing home sales in China increased by 51%, while GTV on new residential home sales increased by 7% With sales of the top 100 developers growing by 2%, all on a year over year basis, Existing home transactions, GTV, on our platform increased by 78% year over year in the Q1, And our new home sale GTV increased by 44% year over year in the Q4, outperforming the industry by a great In the past few years, aimed at the tremendous vitality in the market, Our continued investment in our ACN network and infrastructure, our persistent More efficient development have enabled our outstanding performance during the market recovery process. As the external market gradually stabilizes and our organization gets stronger, We face people to questions such as where we can find our more growth opportunities going forward, What are the drivers and how much upside is there in the next 10 years?

Speaker 2

Will we play defense We'll continue to pursue high speed growth. And how will we allocate Our significant cash position. These questions are important to both our investor and our company. Having pondered these questions, today, I would like to take this opportunity to face the future Together, I share my thoughts on our calls over the next decade. Most importantly, We are an organization that always seeks development because we are committed to making the industry better.

Speaker 2

Our mission give us a great cause. Beike was a bit of a bit of a bit of a bit of a bit

Speaker 3

of a bit of a bit of a bit of a bit of a bit of a bit of a bit

Speaker 2

of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a bit of a Joyful living. It has made us who we are rather than the other way around. So we won't stop. The cost in our business, developments and growth cannot be measured with high frequency data, but it needs to be viewed with a 3 year aesthetic. Sustainable growth is not expansion, not scale, Rather, it addresses from customers and their unmet needs.

Speaker 2

In the past, our initiatives Such as transparent transactions, authentic listings, full commission refunds, fulfilled transactions And protection of secure transaction were all originated from the question, Which needs in the housing industry have not been made, meeting these needs requires us to think big I think far, at this point in time, customer demands in the housing industry are far undeserved. Customers' demands for better living, including the quality of homes, quality of home renovation and furnishing products and services and a better home rental insurance remain largely unfulfilled. These unreal needs, which will provide us with significant room to grow in the future To achieve sustainable developments and growth, the key is to improve our capabilities. First, our developments will be built on our stronger engine collaboration network, which forms the foundation of our infrastructure, Holding quality as a pre requisition and home listings at its core, a series of rules and mechanisms In PowerSimulates collaboration of brands, stores and agents within this network, our ACM's core underlying assets Our customer trust in agents, we believe that a rule based competition for quality service among service providers We will offer customers higher transaction efficiency and enhance their service experience.

Speaker 2

In the future, Our ACN can include additional rules and cover more links along the housing ecosystem value chain, which translates to huge potential for innovation in the network. As such, the most critical foundation for our development It will take advantage and maintain the connection between ACN and stores as well as ensure collaboration quality, while increasing customer trust in the ACN, altogether making our ACN stronger. 2nd, development comes From the rise of high quality brands, brands are built on commitment to customers and their costs As well as an organization's ability to create emotional connections with its customers, in the future, I believe virtual competition will empower high quality brands to connect and aggregate more outstanding stores and agents, which in turn will have foster stronger capabilities within the AC network to improve service providers' efficiency, thereby taking their incomes to the next level. 3rd, development is also propelled On the enhancement of such providers' efficiency that center of raw quality, for 20 years in the past, We benefited from the tailwind of rapid market growth. The main development cost of the real estate brokerage industry was about achieving scale growth with quality as a pre acquisition, Whereas fundamental industry efficiency did not improve substantially, due to average transaction per agent has been hovering at 0.3 a month.

Speaker 2

Looking at the next 10 years, we think We will see a shift to enhance efficiency with quality as a core focus. We firmly believe That this is the right task even even though it is difficult as quality improvement deliver a better customer endurance And efficiency gains driver agent success, ultimately resulting in the success of store, brands, our platform And the industry as a whole, on our store front, the trend toward large stores is invisible going forward. Owning large stores can bring high incomes to store owners and agents who are raising the operational We need to invigorate store owners' entrepreneurial spirits and furnish them with thoughts to strengthen their multiple and larger store management capabilities. Meanwhile, We will need to stimulate high quality agents' motivation to help them grow as well as nurture and retain them, which also serves as a crucial measure to enhance store efficiency. On the service provider front, In the residential service industry, where agents and stores are at the core, the rising Personal value of service providers is also an irresistible trend With the potential for lifelong careers, the value of service providers in our industry grows over time, and they deserve more in terms of income and rewards.

Speaker 2

Their growth and developments also lead to better appearances for customers, which is why we are committed to prioritizing the rights and the interest of service providers. Our next step is to improve the working environment and the mindset of service providers by committing to the institution of initiatives that ensure their well-being with focus on areas such as rest And the vacation time, there are many opportunities for improvements and progress in this industry, And we are determined to make that happen. In terms of efficiency improvement, the adoption of scientific management and technological applications are consistently driving progress in the industry, and we will continue to empower Future efficiency gains. Scientific management has been a crucial component and way of thinking for Lianjia to overcome growth Autonix in the past, through a series of tools and measures that we have accumulated, we can discover the laws Dictating events to guide our actions and ensure we achieve our goals, ability to balance both long term and short term objectives is also crucial during the process of developments. We believe that combining scientific measurements with care Stand from a combination of service oriented and engineering oriented genes and the integration of industry practice Such as AIGC is also possessed to significantly improve industry efficiency and make high quality service providers You're more valuable, preparing us to new heights.

Speaker 2

Everything we do starts with taking care of customers. Reflecting on our path to success, we recognize that our ability to adequately address customer pain points as we integrate to our growth and customer satisfaction is a foundation of our success. The optimal charts generally benefits both customers and service providers. Taking Authentic Home listing as an example, It's clear that such listing are precisely what our customers' needs as we persist in promoting This listing customers gradually progress from that to belief, Fulfilling our service providers with a tremendous sense of motivation that propels the entire team to improve their abilities, We apply this same mentality across our organization from the existing home business, new home business, home rental business and home renovation and the furnishing business to broader housing sources in each cases. This mindset has inspired us to develop our capabilities, earn customer recognition and enforce our own growth, Opening vast possibilities for expansion.

Speaker 2

Every time we embark on a new venture, we remain true To our original exploration, we strive for development and growth in order to meet our customers' needs and resist Tendencies geared towards entropy increase. We reduced costs and increased efficiency to avoid large company syndrome and improve our operational capabilities. We firmly invest in our All of these efforts are aimed at providing the best possible service to our customers and creating lasting value through and transcending market cycle. We also focus on shareholders' return to both rewards and align ourselves with like minded Investors who share our long term vision have been with us through the market cycles. Finally, what makes Our organization differs in the culture shift for our group of people.

Speaker 2

We have been inspired by customers and service providers. Behind this culture, there is a mission that drives us to keep motivating forward. At the multiple service, Joyful living, we aim to have service providers understanding and pursue what's right and to help customers to give meaningful feedback To our service providers, our value lies in harnessing what's right to motivate Positive feedback and to have to reward what's right. We are generally inspired And I'm moved by this. We firmly believe that our presence in this industry represents a difference For industry practitioners and customers alike, this difference will spread and influence more people.

Speaker 2

And together, We will climb to a top of our next mountain. Thank you. Next, I would like to turn the call over to our CFO, Qi Tao, to review our

Speaker 3

Thank you, Stanley. Thank you, everyone, for joining us. Before going to the detail of our Q4 financial results, I would like to provide a brief update on how to market in the Q4. Since the beginning of this year, Zodou's market has staged a significant recovery, bolstered by our February policy of preventing risks and supporting demand, coupled with concentrated release of pent up housing demand from the pandemic. Notably, the same home market saw a strong peak up with housing prices begin to narrow their year over year decline and showed a return to quarter over quarter increase from the sequential decline in previous periods.

Speaker 3

The new home market Also experienced a moderate recovery with the consumer confidence improving as the fact of the one off release of pent up demand At the seasonality world, starting in March, market transaction volume began to normalize From an excessively high level, by taking from relatively stable scale of our ATM network During the market protracted slump and the effective promotion of refined operations for stores and agents, We proactively capitalized the market recovery Q1s and the seasonal dividend as the market rebounded at the beginning of the year. As a result, our GTV growth significantly outperformed the market. According to Beike Research Institute, In Q1, GTV of its in home sales in China increased by 51.2% year over year, Wealthy's in home transaction GTV on big profile grew by 77.6% year over year. Data from National Bureau of Statistics also showed that the GTV of the new home sales in China increased by 7.1% year over year, While the new home transaction GTV on bigger platform drove by 44.2% year over year. Our net revenue In the Q4, we reached RMB28.3 billion, representing a 61.6% increase year over year, Meeting both the hand of our guidance and the strict consensus, the increase was driven by our highly efficient operations, Stable monetization capability and organic growth in our home renovation and the furnishing services.

Speaker 3

Our gains were further bolstered by the better than expected market recovery. Moreover, in the difficult environment since the second half of twenty twenty one, We implemented the stonerty cost and the expense of optimizations and consistently refined our operations, which made our organization more efficient than agile. These efforts empower us to deliver strong performance in profitability during the market They have also allowed us to start this year in a position of the strength, gaining greater benefit from our increased operating leverage. Therefore, we reported continued improvement in multiple financial metrics. Our Q1 gross margin was at 31.3 percent GAAP net income reached RMB 2750 1,000,000, while non GAAP net income Jumped to RMB3551 1,000,000 in the quarter, compared with RMB28 1,000,000 in the same period of 2022 and an increase of 137% compared from the Q1 of 2021 with a similar revenue scale.

Speaker 3

By segment, our net revenue from the in home concession services increased by 49.3% year over year to RMB9.2 billion in Q1 primarily driven by a 77.6% increase in GTV. Among that, the existing home transaction GTV from Lianjia rose by 43.2%, of which the revenue was recorded on a gross basis, While GTV by connected agent jumped by 117.9% year over year in Q1, fueled by the notable property market recovery in many Tier 2 cities, of which the revenue was recorded on a net basis, resulting in the slight smaller growth of the existing home revenue compared to GTV. Our net revenue from the new home transaction services increased by 42.2% year over year to RMB8.4 billion in Q1. Thanks to our outstanding sales through capability, vast customer base from the Sing Home transaction and the operation integration of the New Home and Sing Home business, Foster new home settlement by Lejia and the targeted market coverage in the 4th and the second tier cities Zedge were forced to recover at the beginning of the year, particularly cooperation with the state owned developers accounts for 46% of our sales revenues. Benefiting from the financial coordination with home transaction services, The contract sales of our home renovation and the furniture business totaled RMB2.7 billion, up 108.2 percent year over year, The revenue amounted to RMB1.4 billion, rising by 54.3% year over year, both on a pro form a basis.

Speaker 3

Our net revenue from emerging operating services increased by 222.1 percent year over year RMB2 1,300,000,000 in Q1, primarily attributable to the increase of net revenues from rental property management services and the financial services. Our most streamlined cost and expense structure has led to a significant increase in single quarter jumped to 49% in Q1, up by 11.3 percentage points from the same period of 2022 An 11.9 percentage points from Q4, benefiting from the notable revenue increase, the year on year decrease in the fixed cost and the relatively stable variable cost ratio. The contribution margin of the new home transaction services reached 27%, up by 8.8 percentage points from the same period of 2022, mainly driven by the increased percentage of the high profitability projects under the mode streamlined personnel structure. Therefore, driven by the higher margins from Yifixin and the new home business, Increased proportion of home renovation and the furniture services with a higher margin as well as a smaller percentage of Costs related to store and other costs of the net revenues, gross profit increased by 186.1% to RMB6.3 billion in Q1. Gross margin increased to 31.3% in Q1 from 17.7% in the same period of 2022.

Speaker 3

Our GAAP operating expenses increased by 7.5% year over year to RMB3.4 billion. Among that, sales and marketing expenses increased by 50.3 percent to RMB1294 1,000,000, mainly due to the consolidation of Chengdu and the organic growth of Home renovation and furniture services. General and administrative expenses increased by 6.1% RMB2621 million, mainly due to the increase of the share based compensation expenses. Notably, With the healthy cash collection of the New Home business, we have a better provision written back of RMB127 1,000,000 in Q1. Research and development expenses decreased by 39% to RMB457 1,000,000, mainly due to the decrease of the personnel cost and services compensation as a result of the decreased high cost.

Speaker 3

While maintaining our investments in the new business, including the home renovation and the furniture, our total non GAAP expenses in Q1 was at RMB2.61 billion, representing a notable decrease both year on year and quarter on quarter. Income from operations was RMB2987 1,000,000 in Q1 compared to loss from operations of RMB RMB 980,000,000 in Q1 2022. The increase in gross margin and improved operating leverage have brought about the increase in operating margin to 14.7% in Q1 from negative 7.3% in the same period of 2022. Our non GAAP income from operations was RMB3830 1,000,000 in Q1 Compared to non GAAP loss from operations of RMB450 1,000,000 in the same period of 2022, Non GAAP operating margins increased to 18.9% compared to negative 3.6% in the same period of 2022. Q1 net income was RMB2750 1,000,000 compared to net loss of RMB620 1,000,000 in the same period of 2022 and the net income of RMB259 1,000,000 in Q1 2021.

Speaker 3

Non GAAP net income was RMB3561 1,000,000 in Q1 compared to RMB28 1,000,000 in the same period of 2022. Our cash position and cash flow remains robust at the end of March On the basis of one time payment of year end bonus before the spring festival, the combined balance of Our cash, cash back items totaled RMB85.3 billion or 12,400,000,000 offered by RMB7 1,000,000,000 from the end of December and RMB16.2 billion from the end of Q1 2022. Among which, the combined balance of our cash, cash equivalents, restricted cash and short term investments was RMB66.6 billion. The balance of our long term cash like items, mainly included in the long term investments, amounted to RMB18.7 billion. Our net operating cash inflow was RMB7.6 billion in Q1, remaining positive for the 6th On our stringent receivable management, our cash collection from the NIOHAN business has exceeded NIOHN revenue for 2nd quarter's EMEA, totaling RMB8.84 billion in Q1.

Speaker 3

NIOHONG DSO was at only 89 days in Q1, further shortening by 5 days from Q4 and the 93 days from the same period of 2022. Turning to the guidance of the Q2 of 2023, We expect total revenues to be between RMB18.5 billion and RMB19 1,000,000,000 in Q2, representing the increase of approximately 34.3 percent to 37.9 percent from the same period of 2022. This forecast This is the potential impact of the recent real estate related policies and the macro economy recovery status It constitutes the current and the preliminary view on our business situation and the market conditions, which are subject to change. The past 3 quarters represent 3 distinct market conditions. In the Q3 of 2022, The market was on the path of the recovery.

Speaker 3

Despite the impact of our newly held summer, recurring pandemic outbreak in sporadic cities and the financial strength in the new home market. Based on historical trends, we believe the market had returned to 80% of its normalized level And we recorded a non GAAP net income of RMB3888 1,000,000 during the quarter. The Q4 of 2022 nevertheless was extremely difficult. The market was hit hard by the homebuyers' low purchase intentions. So widespread epidemic outbreak across country facing these formidable challenges, we demonstrate resilient Moving to the Q1 of 2023, the market become excessively heated during the 3 factors driven by 3 factors, The regular home purchase demand, the concentrated release of pent up demand that has been surprised pandemic and some homebuyers early entry into the market for the fear of the rising prices.

Speaker 3

This led to the market to rapidly rebound at the start of this year. Interest in the short environment We reported a non GAAP net income of RMB3561 1,000,000 during the quarter. Industry consecutive neutral, extremely cold and hot markets, We maintain the remarkable profitability, which clearly demonstrates the value of our platform. We do not favor over heating market, Not only fair excessively cold ones, rather, we prefer the markets that prioritize Housing is fully meaning not for speculation, where supply and demand are balanced, enabling us to showcase our value In terms of our financial strategy, building upon our core business fully optimized cost and expense structure, We will continue to enhance caustic of our operations and foster effective growth. While external industry Capabilities that have survived the market deep adjustments, we will connect them, but target the regional resources allocation To improve the collaboration quality, attract the industry to compete for the access and improve the agents' productivity and the store efficiency.

Speaker 3

Regarding the Nihong business, we will continue to strictly abide by our management for Qumran and aim for corporate skills function Based on the balanced operations, financial health and the risk control and the new accordance with the market conditions. Meanwhile, we will make a reasonable and appropriate investment in sales and the marketing based on the pace of market's We will also decisively invest in the application of Carton Edge Technologies. Regarding our True Wings business, home renovation and furnishing and the rental property management services, we are now in pursuit of Far as scale is function that can be done in the short term. Rather, we expect to validate Our unit, Kong Immorto, had some core cities this year and the buildings of benchmark cases to replicate it in the larger scale. In addition, we are more determined than ever to invest in our long term capabilities, including product development capability, The patient and the service cost improvement as well as continuously enhance the service providers' professional competency and elevate customer satisfaction.

Speaker 3

Overall, we will be more proactive with our initiatives that contributed to long term growth And a great vision. Similar to what we did before with our commitment for the transparent pricing and authentic listings, We will ultimately invest in our people, our growth and our service quality. We're also endeavor to explore the applications of new technologies such as AI to operational scenarios in order to tap into more productivity potential of the Frontier service providers and the industry in general. The journey of 1,000 miles is made one step at a time. In vast market of request digital services, we will fortify our foundation with quality at our core, make a relentless effort to input service providers' working environment and bring a better housing service experience to customers.

Speaker 3

With respect to recent government guidance, we carried out studies right away and we'll make on remitting efforts with all parties to serve customers for joyful living. This concludes my prepared remarks. Now We are open for questions. Operator, please go ahead.

Operator

Thank If you are going to ask the question in Chinese, please follow with the English translation. Today's first question comes from Harry Chan with Citigroup. Please go ahead.

Speaker 4

This is Helen Chen from Citigroup. So thank you management for the opportunity and first of all, I'd like to congratulate on Extremely solid results in the Q1. So my question is regarding the general housing market. We see that the housing market was in great shape In the Q1 of this year, have there been any structural changes in the market and a series of leading indicators since March And to show both the existing and the new home markets are relatively soft. What are the company's observations of the latest market conditions and how to interpret these leading indicators.

Speaker 4

What's the company's view about the future trends of the existing and the new home market And how will the market performance differ among different city peers? Thank you.

Speaker 3

Thank you, Harry. Regarding your first question, in the Q1, the release of Pentaho home construction demand, Along with the support of the leasing policies, contributes to a significant revolve in China, existing and the new home market, followed by a normalization of the market. Overall, the China housing market experienced a moderate recovery with new characteristics including the demand for home upgrades And the 2nd tier cities are the strongest players. In particular, in the 4th quarter, The GTV of its in home sales in China increased by 51% year over year, but was 25% lower In that, in the Q1 of 2021, the PFE of the new home sales grew by 1.4% year over year, The 4th year over year increase in past 6 quarters, while GTV rose by 7% year over year, the 2nd highest year we have growth in history. Price wise, the Zhihong price ended their 17 consecutive quarters of decline And the growth by only 0.4% quarter over quarter with the year over year decline narrowing to 5.5%.

Speaker 3

New home prices increased by 0.7% sequentially in the Q1 with year over year decrease narrowing to 1.4%. Home upgrade demand was the main contributor to the market For the recent round recovery and the future market growth, this demand come from the people that already own at least one home and are looking for the upgrade. The proportion of the home upgrade demand exceeded 70% in the Q1 of this year, up 7 percentage points from 2019. Notably, over 45% of this demand was for the first time upgrades. The implication of this increased demand on the market As follows, number 1 is client with home upgrade demand are Bong Chu, enter the Yixin home market first.

Speaker 3

As most of the new home channel sales customers come from the in home market, new home recovery is perceived on the rally of the existing home market. Number 2 is for clients, especially for those who home upgrade demand is rigid, they are usually time sensitive As they are facing the life changing events, such as getting married or have children or for the children's education, as such, Dominant by home upgrade demand, supply and demand in the market changes simultaneously. Current demand for the home upgrade Naturally, this is a home listing result of putting downwards pressure on the housing prices. Cities with the higher increase in the home listing also have larger transaction volume and higher prices. For example, at the end of Other than transaction volume, all grow at the higher rate with a steady price increase.

Speaker 3

Number 4 is due to a longer decision making process and the higher transaction complexity. Home upgrades transaction have the higher requirements for the professional and the quality housing services, which will promote industry upgrades. So in the most recent round of market recovery, The existing home market significantly outperformed to the new home market. The scheduled support of the home upgrade demand and delivery issue of the new home both made the homebuyers more inclined to purchase existing homes. As a consequence of this, the new home market recovered in January, already ahead of the ready in February.

Speaker 3

Resume home concession in various regions also accounted for rising share of the total housing transaction, up from 32% in 2020 to 38% in the Q1 of this year. The housing market recovery of the 2nd tier cities was In the Q1, GTV of the in home sales in the 2nd tier cities on our platform increased by 120% year over year, far higher than the 40% and 105% in the 1st tier and the 3rd tier cities, respectively. The greater rebound in the 2nd tier cities is attributable to a lower base in 2022, Better local infrastructure and infrastructure, stronger population appeal and the more relaxed mortgage and the home purchase restrictions. With the new home market, it's just marginal sales recovery in the 4th quarter. High quality private developers HIBU regained some of their own enthusiasm for the land auction in core cities.

Speaker 3

The proportion of land acquired by the private developers In terms of value, we recovered from 70% in 2022 to 32% in the Q1 of this year, and the land option premium rebounded to 3.2%. Regarding your second question, we would like to say that the market from January to May, We not only need to prevent the slightness to the difficulties, but had due to our beliefs, but also prevent ourselves from closing our lives through any improving business data right in front of borrowers due to the Glad to be missed opportunity of the market. It's true since March, the market has indeed Experience a certain degree of adjustment, but we need to remain calm during the significant market off swings and the refrain from the being already bearish during the market crashes. The market crashes Partly returned to normalcy after release of the pent up demand, it also reflects the intensification of gains and the buckling between the homeowners and the buyers, which slowed down the transaction pace. The market rebound in the Q4 quickly increased the homebuyers' expectation for the higher housing prices, which are well ahead of the macro economy growth as the home buyers expect income improvement.

Speaker 3

The disparity in private expectations, combined with the long listing, is a market The new homes intended for the home upgrades reinforce the bad and the force between the homeowners and the buyers, slowing down The transaction pace. Nevertheless, we believe the current market adjustment is within the range of normal seasonal adjustment. The transaction volume of the adjustment remained at a relatively higher level. In April, the existing and the new home subscriptions still grow by over 40% year over year. Meanwhile, the market stabilized beginning in May.

Speaker 3

Therefore, we are still in a schedule for moderate recovery. We believe the future market will be generally stable, but it will take more time to determine the certainty around the pace and the magnitude of this of the market recovery. Our continued positive policy environment includes the housing price expectations And the recovery of the resident income expectations as well as the progress on the timing delivery of the pre sold homes will all provide support On the policy front, a series of which acts as anchor of the China macroeconomic development. Further party Relaxations with the room for the improvement and the deepening will help further economy recovery. The eastern policy have recently supplied to the 1st Guangzhou and Beijing have relaxed their policies and the strong second tier cities like Hefei have narrowed the scope of purchase restrictions.

Speaker 3

Targeted is in part in the 1st tier cities and increasingly relaxed cities in the 2nd tier cities and the 3rd tier cities On the resident housing participation need to continuously improve according to survey data from the Baker Research Institute. In the Q1, the share of the respondents expanding the housing price to rise increased by 9 percentage points Quarter over quarter, which may provide support to subsequent market recovery. And as the rest of the income expectation need to improve further as well, This cannot be realized immediately after policy are relaxed. It will take more time and patience. The Central Bank's 1st quarter data Already shows the improvement in rest of the employment and the income expectations.

Speaker 3

And also for the delivery issue of Pre sold new home and developers that before continue to exert pressure on the recovery of the new home market. By the way, we did notice that delivery of pre sold houses have improved this year. As long as these factors continue To improve, the market's moderate recurring momentum will be sustained. Going forward, the in home market We will continue to outperform these new home markets, particularly in the 1st and the strong second tier cities. This is because the cities Our greater room for the policy implementation and the higher proportion of existing homes, relatively limiting the new home supply and inventory,

Speaker 4

Thank you, management.

Operator

Thank you. And our next question today comes from Eddie Huang with Morgan Stanley. Please go ahead.

Speaker 3

Thank you, management, for taking my question and congratulations on the very great results. So my question is that Baker has significantly outperformed the market across different business lines in the Q1. Could you please share How the company achieved this very strong results and performance? And how should we think about your performance Thank you, Eddie. In Q1, our company significantly outperformed the market across all of our live business.

Speaker 3

Our GTV of the same home sales increased by 78% year over year in the Q1 compared to the market growth of 51%. And our market penetration rate increased by 6.6% quarter over quarter. And our GTV for new home sales increased by 34 Compared with the market of the 7% increase and our penetration rate increased by 1% quarter over quarter. Firstly, we need to emphasize this, our significant strong run outperformance This is similar to what happened in 2 years ago, that is the Q2 of 2020, follows the pandemic outbreak. And we expect a return to normal in this year as well.

Speaker 3

In Q2 2020, our market penetration of existing The new home increased by 6% and 2%, respectively, both quarter over quarter. In the 3rd quarter, As the market has normalized, our market gain has also returned to 1% increase quarter over quarter. Meanwhile, The difference in the sales recognition may also be one of the reasons why our data significantly exceeds market. The existing home market data is based on the online registrations when transactions are closed, while our data is based on the contract signing, which leads to the online closing date by around half a month to 1 month. Excluding of all factors, our Q1 performance Also demonstrate our strong ability to capture the market opportunities during the recovery cycle.

Speaker 3

Firstly, we supported and retained the high quality service providers during the market downturn, which has enabled us to raise the benefit of the market recovery. Our view on the future market is that those Kukai attracts existing and the high quality service providers, will be the ultimate winner. In the 4th quarter, We took advantage of the recruiting season and the exit of many other players in the industry to grow our coverage of the same stores and agents. As a consequence of this, we ended the 5th and 6th consecutive quarter of decline in the number of stores and the agents respectively. Our number of active stores increased by around 6% quarter over quarter to over 39,600 The number of our active agents increased by as much as 18% quarter over quarter, crossing the Number of agents is 410,000.

Speaker 3

Secondly, our service provider in Northern Leidl During the March downturn, we continued to improve our professional skills and the consigns of community friendly services during the pandemic, which earns in the long term trust of the current and the potential customers. As the market recovers, those better known professionals In 2 years period of 2021 to 2022, 4,600 store owners complete courses in our Beihuaqiao Academy, Well, agents on our platform completed over 24,000,000 hours of professional training through various online and offline courses. Investments in enhancing the capability and accelerating the growth of both agents and the store owners We'll use benefit to the Transcend multi cycle. We also iterate and refined our business operation strategy. Before 2020, we're focused more on growing our number of store and agents.

Speaker 3

Beginning This year, we will limit number of new store agents, leverage our analysis of the different businesses Hey, Strix. We will only allow the new addition in non saturated areas. Meanwhile, we will identify the problem Our capabilities in the skin home market enable us to succeed in the new home market. More than 50% of our new home customers Our proficiency in the Sing Home sales support our ability To better seize the business opportunities, as the new home market recovers, in cities where we hold advantage in the existing homes, We have transformed our reach more significantly in the new home market. For example, in the Q1, Our new home sales market penetration in the city such as Wuhan increased by more than 5% quarter over quarter.

Speaker 3

Finally, our housing ecosystem in both the new home and the new home markets will help establish a virtual business cycle, naturally leading to a sustained market penetration gains. Regarding our home renovation and furniture services, The overall renovation market rebounded in the 4th quarter along with the real estate market. The contracted sales of the vehicles, Home renovation and furniture services grew by 108% year over year on a pro form a basis. In particular, referrals from our We have been witnessing a continuous improvement in their single city operational ability with an increase The volume of the renovation orders surpassing that of existing home transactions, setting the new records In summary, while our market penetration will be normalized in the short term, in the long run, we will consistently expand our reach Thank you. Congratulations on the results again.

Speaker 3

Thank you.

Operator

Thank you. And our next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.

Speaker 5

Hi, Thank you for taking my question and congrats on the very strong results. My question is about the efficiency improvement as you mentioned in your prepared remarks. And just wondering if management see any opportunities for further efficiency improvement after very strong Q1 results? And how do you plan to achieve them? And additionally, are there any specific measures that management have in your mind for this year to fully improve the quality of the services to customers?

Speaker 5

Thank you.

Speaker 3

Okay. Thank you for the question.

Speaker 2

Regarding efficiency improvements, we have already mentioned some ideas in our prepared remarks. The key to focus on customer experience and enhance Attributities of stores and agents, while improving our platform ecosystem and mechanisms, we have implemented many initiatives enhanced the customer experience over the past 20 years. This has helped us to win customer trust and become a top choice for both customer and service providers through initiatives such as transparent pricing, authentic listing and housing dictionary. And our commitment to the protection of secure transactions through these efforts, we have addressed many key pain points That a customer face on the transaction side, SMU continue to improve the industry ecosystem as well as its efficiency. As the market supply and demand gradually balance, pinpoints of owners become increasingly prominent.

Speaker 2

Their needs have undergone changes and ability to better meet these needs and be an important direction for Enhancing customer experience in the next stage. Furthermore, this year, we will iterate our commitment System for housing transaction services, enhancing the overall customer experience by addressing core pain points. At the end of 2022, our platform offered 56 service commitments Customers in our housing transaction services, the fulfillment of this commitment is far more important than the Therefore, we will prioritize commitments and address our customers' most relevant pain points and promote high management of our service commitments. Firstly, we will focus on more targeted brand level service commitments. Secondly, we will steadily improve the quality and the fulfillment of commitments that cover key customers' pain points Thanks for compensation for damage caused by water leakage.

Speaker 2

Certainly, we will provide commitment guarantees to both any customers and our business partners. For our home renovation and furnishing business, the key to success lies not in customers' Acquisition of our marketing, but in the quality of delivery, fulfilling commitments is more important than simply making promise. To address key pinpoints of our renovation sources, we must have clear fulfillment, standardize our responsibilities, Enhance our fulfillment capabilities and tackle industry wide challenges. This is next breakthrough that we are targeting. Meanwhile, the pinpoints for our core business customer arise more from the housing product side.

Speaker 2

For the transaction side, the key drivers for improving efficiency like this, helping high performance agents to better and earn more and provided them with a clear career path to become experts in community and housing related services. Only in doing so could customer receive professional quality and diversify housing and related services. On efficiency enhancement for the long term, we have put tremendous effort. First, the average incremental hedge in our industry still Can they maintain a long term career and achieve higher productivity, reach stability and continue to a healthy ecosystem Competition. By providing long term high performance practitioners with more resources and improving their income, We can return them in the industry.

Speaker 2

These can be achieved through platform system, refinement, Adequate SG and A will have coverage, efficient cooperation, professional training for store owners and agents as well as by adopting the cost of the Statue large store model. Secondly, technological advancements Such as AIGC continue to present opportunities for service providers to improve their efficiency, exploring and effectively Utilizing these products and tools, we have unlocked significant efficiency for more for our service providers in our core and emerging business. This is my answer. Thank you, Joe.

Speaker 3

Thank you.

Operator

Thank you. And our next question today comes from Xiaodian Zhong with CICC. Please go ahead.

Speaker 6

This is Xiaodeng from CICC. Thanks management for taking my questions and congrats on another strong quarter. So my question is on the new home transaction services. As mentioned in the last quarter's call, they could plan to dynamically adjust Credit ranking of developers based on market conditions, which may in turn expand the addressable market. So could you please update us on the progress of that?

Speaker 6

Additionally, have you noticed any changes in the channel penetration rate, commission and split rate in the market? And what are the measures the company has taken in response to those market changes. Thank you.

Speaker 3

Thank you, Brenda. Baker is accounting with a strategic focus. Regarding the market conditions, we know what to do and what not to do. And this is Especially true for our new home business. Last year, we established a solid foundation for the safer operation and optimize the business conduct of the new home transaction service industry.

Speaker 3

We have improved the service capability for the high quality SOE developers. And in Q1, the proportion of the new home sales had increased to nearly 46%. Our cooperation with a larger number of SOE developers is also a validation of our ability to provide the high quality service and our high sales efficiency. We have transformed the industry payment mechanism to protect the receivable security of the service providers, projects with the commission in advance have higher sales efficiency than those results, which is a win win situation for all parties involved. We have also established a safer work environment for both consumers And service providers, this is the right choice regardless of the market environment.

Speaker 3

In this year, the overall market is experiencing a moderate Currently, strategic wise, we will maintain consistent and stability, results Focusing on the short term or being overly aggressive and friendly pursue scale, We will focus on the better collaboration with upstream developers and further safeguard the interest of all of the service providers in Beike platform. First, we have set minimum commissions to be with our channel partners to prevent the planned pursuit of profit, which would lead to a deterioration of downstream ecosystem. 2nd,

Speaker 2

We are

Speaker 3

strengthening the requirements of the reciprocal protection period, which extend our receivable requirements to Ensure the equal protection of the agents and the developers. 3rd, the refined management way are Strengthening the management of the new home sales, external Fang Jiang Hu channel to achieve the tight management, further empowerment And to allocate resources more efficiently to them, we also conduct a rating for the new home projects in order to further organize and allocate our agents to accelerate the sell through of the high quality listing, therefore improving the And the firstly, we are enhancing our efforts in ecosystem governance. With more than 5,000 cooperating new Home project is taking a private phone number protection services and more than 4,000 new home projects covered by commitment from both developers and the platform to transparent operations. Overall, with our 4 strategic initiatives And a stable market environment, we expect our new home business will achieve a more win win situation,

Operator

Thank you. We are approaching the end of the conference call. I will now turn the call over to your speaker host today, Ms. Soutine Lee 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 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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