KE Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 31, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by for KE Holding, Inc. 2nd 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

Siting Li, IR Director of the company. Please go ahead, Siting.

Speaker 1

Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings, Oral Baker's 2nd quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on our company's IR website, investors. Ke.com.

Speaker 1

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.

Speaker 1

Before we continue, I refer you to our Safe Harbor statements in our earnings press release. Please apply to this call as we will make forward looking statements. Please also note that Baker's earnings press release and this conference call will include discussions on 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 R and E.

Speaker 1

With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Tong. Please go ahead, Stanley.

Speaker 2

Thank you, Siti. Hello, everyone. Thank you for joining BIG Q2 2023 earnings conference call. In the first half of the year, Our performance improved significantly compared with the same period last year, with 43% year on year growth Our total GTV and 51% year on year growth of our total revenue. Although the housing market experienced a surge and a subsequent Adjustment on a quarterly basis compared to the same period last year, China's real estate and residential market As a whole, still demonstrated recovery.

Speaker 2

In addition, during the market correction, we successfully retained service providers, Effectively reduced costs and raised our efficiencies, all while rapidly expanding our emerging businesses. This combination of initiatives has enabled us to capitalize more effectively on the market rebound and outperform the market. In the first half of this year, for our primary business or home transaction services, we continue to retain our PC and Optimize its ecosystem and refined platform operations, while exploring grassroots in Lianxia, This all propelled our organic growth. The capabilities of our service providers have also expanded Our home renovation and furnishing services have gained rapid growth momentum. We constructed the industry competitive mechanisms To have the good get better and established capabilities in customer acquisition, Conversion, project delivery, data, products, supply chain and others.

Speaker 2

This has led to grassroots in our search Quality and scale as well as the economic performance of our home renovation and furnishing services businesses, while total contract sales In the first half of the year, reached RMB 6,000,000,000 and total revenue reached RMB 4,000,000,000. Going forward, we expect to replicate our success in leading cities to more areas and gradually establish A virtual cycle across the board. Our rental property management services business has also achieved meaningful development The scale of our Tier 3 rents improved significantly to reach 120,000 units Under management and occupancy rate reached 94.5%. Today's house industry has reached An inflection point in the course of its development, the traditional golden edge of real estate was accompanied By 30 years of reform and opening up, along with rapid organization and a substantial demographic The dividend as the per capital living area increased, houses have been in short supply, Leading to a one way increase in property prices, buying a house become the core goal of many people in China. In the process, real estate has gradually strayed away from its initial function to provide residential homes.

Speaker 2

Instead, it has taken on the due role of an investment asset and a speculative tool. However, all that aviation from their intended costs will return to their original track. And today, the industry is reverting to its core value proposition. The essential function of real estate is once again Serving people with quality living, the true golden edge of focusing on people and living has just begun. Amdis Shipt, customer rising demand for better living is far from being fulfilled.

Speaker 2

In other words, There is a central challenge in today's house market and the foreseeable future. All of the disparity Between customer demand for more joyful living and the inadequate supply of quality services and products, This contradiction motivates us to climb our next mountain and introduces substantial growth opportunities in our future. Our solution to resolve the supply and demand imbalances, including includes 2 essential components, Providing joyful living for customers in China. In Chinese, we call it Anji and Facilitating fulfilling careers for service providers, which we call lei In Chinese, this is also a continuation of our mission of admirable services, Joyful Living. Specifically, we have upgraded our corporate strategy to 1 Body 3 wins, Accompanied by our organizational alignment, this evolution represents the strategic intention and the deepening Of our 1 body to 1 business model with a focus on our customers and the frontline value creation, We have established 4 business lines, housing transaction services, home renovation and furnishing services, Home rental services and our newest addition, Beihou Jia, where we are engaging new home supply side upgrades.

Speaker 2

Each of these Taylor Businesses captures to customer residential aspirations and service providers diverse career aspirations. In the process of providing joyful living ENGIE for customers, superior goods and services will see great benefits, Whether they relate to the property itself or the provision of a wide range of residential Necessities, such as renting, purchasing, craftsmanship, home renovation and furnishing and so on. Next, I will go into more detail about how we define good products and services for Joyful Living Within the context of our 1 Body's revenue strategy, regarding our 1 Body home transaction services businesses, Its value will be more obvious after market normalizes, enabling more sustainable and healthier development. When identifying the right property becomes more challenging and emotional for customers, Service providers must establish trust, emphasizing the importance of building emotional connections around these relationships. Firstly, this type of customer relationships will allow service providers the opportunity to provide more value added services and intended value For communities around Joyful Living, it will also enable consumers to redefine how service providers view and And unleash the huge potential of our ACN.

Speaker 2

We also have significant room To further enhance customer experience with our home transaction services, on one side, the power of homebuyers On the other side, homeowners are expressing intense demand for quick property sales This will inevitably reshape the service dynamics of the Brokerage industry and direct and the way to better consumer experience in the next phase of industry evolution. Meanwhile, we see room for further value creation in deeper integration with communities and in the Evolution of consumers and aesthetics. All these opportunities are allowing our core business to become a key force Enjoy for a living. Next, we come to our first winning business, home renovation and furnishings. At a time when housing is becoming increasingly important, consumers have high expectation for housing Improvements.

Speaker 2

As such, home renovation and furnishes are often top of mind when consumers require a better home experience. But the pinpoints for this industry are very clear. To address these pinpoints, we are moving away from an assembly model And toward our product centric philosophy and focus on people, customers should feel at ease when they undertake renovations, And we can help them through this process. This means providing 1 stop services, which removes many of the complications felt by customers. We should also be able to help Consumers pursue better living.

Speaker 2

For example, in addition to construction and installation, our refined capabilities, facilities, Smart homes, maximizing the efficiency of our home's living area and offering floor designs that complement Customers' preferences. To achieve this, we will continually push industry transformation Our second win is big rental services. Today, renting is gradually becoming a way of life with Houses are for living, not for speculation, reshaping the market dynamics The previously favored property sales of rentals. The resiliencies Between growing rental supply and demand represents a historical opportunity for us to expand our rental services. On the supply side, a substantial portion of Chinese assets is tied to real estate, making Preserving a reasonably appreciating property value crucial to families.

Speaker 2

More homeowners want their properties to be better cared for and the rental property management services can be streamlined and more convenient. On the demand side, for tenants, we aspire to comprehensively The rental imperatives through customer centric products and services, Transforming the concept of renting a house from a transitional Congrats to our appealing option. In turn, this can foster a balanced approach between renting and purchasing. We are pleased that our Tier 3 reps has made initial strides in the rental space, and we will keep looking for ways to use our technological platform and operational adventures to create value for the marketplace and society. Moving to our newly added Servin, Beiho Jia.

Speaker 2

The traditional model has been Driven by 1st home buying demand, increased leverage and attempt to rapidly acquire A house and enjoy asset appreciation. This driving forces are becoming Outdated in the market with stabilizing housing prices, a new consumer trend is taking shape There are priorities quality and experience. As a result, there is increasing evident demand for high quality Housing Products. Going forward, market differentiation might come from the difference in the quality of houses Inbuilt, this translates to a call for supply side improvements in the new home market. It's our responsibility and opportunity to This call will establish capabilities and explore innovative offerings in order to define quality houses Based on customer demand, build good products and services and enable value chain partners to promote the housing industry supply side upgrades.

Speaker 2

Moving to how we can let Service providers have a full fulfilling career. The residential services sector operator Investing in their growth and guiding their self improvement results in the steady increase in our corporate assets. As Real Estate resumes its fundamental purpose of providing a space to live, Stores and agents will also shift from scale expansion to optimize efficiency. In this regard, Several trends come into view. Firstly, building sustainable relationship based on professionalism and integrity It's increasingly crucial for rental for real estate agents as properties return to the most fundamental A knowledgeable and reliable agent becomes more valuable when market consumption slowdown It becomes harder to identify the right property.

Speaker 2

As such, agents' role and skills must evolve from transaction facilitators To long lasting community housing service experts, we see many areas of this dynamic where we can have, for example, The operational efficiency of midlevel agents has the potential to be significantly improved. Additionally, there is great room for development in terms of community engagement. Our goal is to support The trend towards a large store model is unquestionable as more commission might be directed to agents We'll provide value to customer directly. Store owners' profitability might decrease. As such, Bigger stores with higher revenue potential are crucial to improving efficiency and realizing greater returns for both stores' owners and agents.

Speaker 2

To this end, we have persistently pursued a large store strategy since 2022. By the end of June this year, we have effectively restructured over for some of the 500 stores Stores on our platform achieved an average efficiency improve of 80% Year over year in the first half of this year, certainly, the live store model fosters a new relationship between our store owners and agents That goes beyond a mere employee relationship evolving into a partnership or collaboration. Stock owners must treat agents as both employees under management and clients who require support, Empowerment and services. On our end, we need to stimulate creative thinking Amongst the owners in order to benefit from the new trend. With these changes, we hope not only to make timely adjustment, but also to become Our trendsetter, we have started by establishing our entire rankings infrastructure for stores and agents as well as send us for both stores and individuals.

Speaker 2

These are the first steps to enhance the management operational capabilities of the platform and store owners, looking to cultivate a robust agent talent pool. Our continuous efforts In Compass, simulators on various rules and the protocol based management, training and empowerment programs, Certification systems and the distribution and more rational payments distribution structure. Through these initiatives, we can enhance the efficiency of store owners committed to taking good care of the service providers The facility provides transformation from taking a job to entering a professional and engaging in fulfilling careers. To close, I'm both energized and awed by the tremendous core possibilities and growing time ahead And housing industry transformers from high growth to our focus on quality and experience, we will continue to solidify our core competencies. At the same time, we will have the courage to reform and break new ground, altogether creating new values While I'm checking historical mission and social responsibilities, we are in the foothills of the next mountain Our press and we look forward to the exciting road map ahead.

Speaker 2

Thank you, everyone. I want to invite our CFO, Mr. Xu Tao, to present the financial highlights for the Q2.

Speaker 3

Thank you, Stanley, and thank you, Erwan, for joining us. Before going into the details of our second quarter financial results, I would like to provide a brief update on the housing market over the first half of this year. The market trends for the first half of the year are in line with the prediction that we made at the beginning of this year. Overall transaction volume gradually normalized following by the post slide refund fueled by the pent up demand. Since the Q2, the lingering effects of the pandemic have become more pronounced with the pressure on household income And the employment expectations, sluggish export and declining FDI, causing challenges To the economy recovery, in the real estate market, average and the price expectation between buyers and sellers, Along with the policy loosening speculations have intensified the market wait and see attitude, leading to a deceleration in transaction cycles.

Speaker 3

Meanwhile, in the high tier cities, parts optimization targeting the unleash of the home upgrade demand have yet to materialize. Maintaining obstacles to the release of the reasonable demand under the various factors, The market underwent a noticeable quarter over quarter adjustments in transaction volume in Q2. Meanwhile, the home market continues to grapple with the debt risks of developers. Both supply and demand have remained weak Due to the constraints of the effective new home supply and ongoing consumer concerns about project delivery following a series of defaults by some top property developers. However, we also noticed that the leading indicators of the home demand have been relatively resilient.

Speaker 3

For instance, the number of the home chews made in Q2 remained above the historical average in recent years, which is indicative of the continued underlying strength in overall demand. In general, The overall market saw notable year over year growth in the first half of the year. We have always maintained a neutral market view, And our persistence is being fruit. We have continuously enhanced the support for the service providers and store owners, These matters, coupled with the rapid growth of our emerging business, have resulted in our outstanding performance and have a better position us To seize opportunities into market recovery amidst the fluctuations. In the first half of this year, Our GTV reached RMB1.75 trillion, up 43% year over year.

Speaker 3

During the Q2, our GTV amounted to RMB780.6 billion, reflecting a 22.1% year over year increase. First of all, our net revenue in Q2 increased by a faster rate at 41.4% year over year To reach RMB 19,500,000,000, beating both high end of our guidance under strict consensus. In addition, Net revenue from the new home sales services have responded quarter over quarter for the past 5 quarters. Our business, apart from the housing transaction services, which include home renovation and the furnishings and the rental services, We achieved significant on year growth, contributing to a revenue share of over 20%. For the first time, In Q2, our gross margin stood at 27.4 percent and the GAAP net income reached RMB1300 1,000,000.

Speaker 3

On a non GAAP basis, our net income reached RMB2364 1,000,000 compared with a net loss of RMB690 1,000,000 for the same period last year. By business segment, in Q2, this in home transaction GTV increased by 16% year over year As the market recovered to a certain extent from the lower base last year and through our continued enhancements in the operation efficiency, which further supported our performance. Nevertheless, on a quarter over quarter basis, the in home market experienced a considerable Adjustment in Q2 following the intensive release of pent up demand, resulting in 31.3% sequential decrease in our Disney Home GTV. In particular, due to the more pronounced market sentiment adjustment in the 4th tier cities, Tianjiang's sequential adjustment in its in home GTV was notably higher than that of the connected brands. With a relatively stable monetization rate in Q2, Net revenue from using home transaction services amounted to RMB6.4 billion, up 15.9% year over year and down 30.1 percent quarter over quarter.

Speaker 3

While the overall new home market remains subdued, The willingness of developers to adopt Axolone sales channel continue to increase, offering us a resilient target market. Building upon this foundation, our new home business maintained a robust operational momentum and a commensable sell through rate, Hosted by our ongoing refined operations, ecosystem optimization and our commissioning advanced model, Which is repaired by developers. In Q2, new home transaction GTV on our platform increased by 32.4% year over year and 6.2% quarter over quarter. Net revenue from new home Growth by 30.4% year over year and 3.5% quarter over quarter. Total RMB 8,700,000,000, of which commissions from SOE developers constitutes 46.8% and the project with the commissioning demands Contributes 53% of total commission collected, remaining at a high level.

Speaker 3

Our home renovation and the furniture business has taken off this year with breakthroughs in both skill and efficiency, reaping the benefits of the steadfast investment in our capability Over past few years as well as a successful integration with Chengdu, starting from February, monthly contracted sales Have consistently exceeded RMB1 1,000,000,000 for 5 consecutive months, and the total contracted sales for the 4th half of this year reached over RMB6 1,000,000,000. In Q2, total contracted sales stood at RMB3.4 billion, Reflecting a year over year increase of 170% and a sequential increase of 28.2%, Our pace of revenue recognition accelerated in Q2, but the seasonal factor from the Sprint Festival Subsided and our delivery capability improved. As such, we achieved net revenue of RMB2.6 billion, Net revenues from the 1st 6 months of this year exceeded RMB 4,000,000,000. In our leading cities, Such as Beijing, we have established positive operational cycles. In Beijing, our monthly contracted sales surpassed RMB200 1,000,000 in May June.

Speaker 3

For the safety level, net margin exceeding the industry ceiling, To verify the business model in Beijing provides a foundation for our rapid replication in additional cities, we will roll out this proven in new cities we enter, which will gradually make higher contributions to our total revenue as we respond. In Q2, our net revenue from emerging and optical services increased by 213.9% year over year and 36% quarter over quarter to reach RMB1.7 billion, primarily driven by the growth of our rental property management services and Financial Services. In terms of the profitability, contribution margin for its In Home transaction services expounded by 8.9 points year over year to 45.6% in Q2, driven by the in home revenue growth, The decline in fixed labor cost and the relatively stable variable cost ratio from previous years. On a sequential basis, despite the 30% quarter over quarter reduction in revenue scale, contribution margin for the in home construction services decreased by 3.4 points from Q1, remaining at over 45%. This signifies a sustained and robust Profitability in our core business.

Speaker 3

Contribution margin for the new home transaction services rose by 3.6 points year over year to reach 27.2 percent resulted from the revenue expansion and the relatively streamlined personnel cost, Making the highest point since our listing for 5 consecutive quarters. Our gross profit in Q2 Registered 97.3 percent year over year growth to RMB5.3 billion as we benefited from the improved contribution margin Of our major business segments as well as the decrease in store and other costs as a proportion of revenue, Our gross margin stood at 27.4% compared to 19.7% in the same period of last year. The Slide 3.9 points decline from Q1's high was mainly due to the change in our revenue mix with adjustment of existing home revenues. In Q2, our GAAP operating expenses amounted to RMB4.3 billion, Among which, sales and marketing expenses were RMB1649 1,000,000, increasing by 47.1% year over year And 27.5 percent quarter over quarter due to the uptick in the marketing expenses for the home renovation and furnishing services On our home transaction business, general and other administrative expenses were RMB 2,005 1,000,000, Down slightly from $2,250,000,000 in the same period of last year, while increasing by 29.9% from Q1, Primarily due to the lack of the better provision written back in Q2, the increase in the share based compensation and the growth of emerging business, While we have a job of rigorous provision method over past 2 years to fully provide for all foreseeable risks, We have encountered unforeseen incidents of continued debt crisis faced by the top property developers, With the growing number of developers filing for the liquidation or bankruptcy, we have further raised the expected loss ratio for developers With some being elevated to 100%, especially in Q2, we set aside approximately RMB64 1,000,000 Yuan adds a better provision for Country Garden.

Speaker 3

With the provision ratio exceeding the 85%, We hope the industry can emerge quickly from this predicament and achieve stable and healthy development. Research and development expenses decreased by 39% year over year to RMB475 1,000,000, Primarily due to a high comp reduction leading to a lower personnel cost under share based compensation. Sequentially, R and D expenses remained relatively stable with a slight increase of 4% from Q1. Our non GAAP operating expenses for Q2 amounted to RMB3.3 billion, down 4.6 percent year over year. In Q2, revenue from operations Amounted to RMB781 1,000,000, a significant improvement from the loss from operations of RMB1518 1,000,000 in the same period of last year.

Speaker 3

The operating margin increased to 5.5% in Q2 from negative 11% in the same period of 2022, Thanks to our gross margin dysfunction and greater operating leverage. Our non GAAP income from operations for Q2 reached RMB 2,148 1,000,000 compared with a non GAAP loss from operations of RMB690 1,000,000 in the same period of last year. Our non GAAP operating margin was 11% compared to 95% in the same period of 2022. Q2 net income was RMB1300 1,000,000 Compared with a net loss of RMB6866 1,000,000 in the same period of last year, non GAAP net income for Q2 reached RMB2364 1,000,000 versus a net loss of RMB690 1,000,000 in the same period of 2022. Our balance sheet remains robust.

Speaker 3

As of June 30, 2023, the combined balance of cash, Cash equivalents, restricted cash and short term investments amounted to RMB60.8 billion or US8.4 billion dollars We spent approximately $346,000,000 or RMB2.51 billion in the share repurchase in Q2. On top of that, our total cash and liquidity, which accrued customary deposit payable amounted to RMB79,400,000,000, up RMB 680,000,000 from Q1. Our net operating cash outflow was RMB196 1,000,000 in Q2. Excluding customs and deposit payable, the operating cash flow or the operating cash inflow was RMB1754 1,000,000. We remain stoned in our commitment to Greater's receivable management.

Speaker 3

In Q2, our cash collection from new home business Increased to RMB10.06 billion, surpassing the new home revenue for the 8th consecutive quarter. New Home DSO in Q2 was 52 days, making a new record low since we went public. Turning to our guidance for the Q3 of 2023. We expect the total revenue to be between RMB15 RMB0.5 billion and RMB16 1,000,000,000 in Q3, representing a decrease of approximately 9.1% to 11.9% from the same period of 2022. This forecast consists of the potential impact of the real estate related policies As the macroeconomic recovery status, it constitutes the current and the preliminary view on our business situation and the market condition, which are subject to change.

Speaker 3

We have always placed great emphasis on the shareholder returns, leverage our robust cash reserves And the prudent financial management, while enhancing shareholder value through the proactive shareholder return initiatives, We have maintained a strong share repurchase efforts. And from the program initiation in September 2022, We have concluded a year of buyback. Over this period, we cumulatively repurchased a share was around $605,000,000 representing approximately 57% of our free cash flow during 2022. The ATS bought stock totaled nearly $41,000,000 accounting for approximately 3.24 percent of the company's total share prior to launch of our 2022 repurchase program. These shares have already been fully canceled.

Speaker 3

This year alone, we have spent close to $414,000,000 in buybacks under the repurchase share amount for 2.12% of our total shares. Moreover, Zhejiang, Company Sports approved the extension of the exchange share repurchase program until August 31, 2024, With the repurchase authorization being increased from $1,000,000,000 to $2,000,000,000 At the same time, we are pleased to announce that the Board has approved a special cash dividend of dollars 0.057 per ordinary share or $0.171 per ADS to holders of ordinary shares And the holders of ADS also recorded September 15, 2023, respectively. The aggregate amount of the special dividend to be paid will be approximately US200 $1,000,000 which will be funded by surplus cash on the company's balance sheet. We hope to share the benefit of the development With like minded investors who accompanies company in the growth journey and the transient cycles. While disputing the dividends, We are also continuously expanding into the new business, seeking organic and sustainable growth.

Speaker 3

At this stage, the primary contradiction in our society is the contradiction between the unbalanced and the inadequate development And the people's ever growing needs for a better life, the Portfolio Meeting held in late July The important assessment of the new situation where supply demand dynamics of the real estate market have undergone major changes. The real estate market is going through a rapid transformation from a seller's market To a supply demand balance, against this backdrop, the home upgrade oriented demand is gaining Prominence. This trend is accompanied by the elimination of excess capacity, consumers' strong demand for the better living and the establishment of the long term mechanism within the real estate market. All of this will all contribute to a more stable environment and the sustained impetus for the industry development. Our financial strategy entails maintaining a robust The balance sheet and the healthy cash flow while practicing stringent risk management, we will persistently enhance efficient capital allocation, Concentrate on critical growth drivers, bolster frontline endeavor support continuous efficiency gain for our agent and store, Respond, our ASN reaching a healthy platform ecosystem, increased income for the service providers and solidify The fundamental capability of emerging business, including home renovations.

Speaker 3

Amidst the recovery of the real estate market and ongoing breakthroughs in our new business, we will make a reasonable investment in skill and marketing to further boost our business momentum. Furthermore, we will prudently explore transformation and upgrades in other areas related to better living. On the cost side, We will have a clear total cost level, manage the efficiency of the investments and ensure that money that Should be spent must be spent and the money that should be spent will not be spent as the money spent should demonstrate the clear efficiency and effectiveness, Thus, supporting the business operation effectively, we believe that in the vast market of the residential services, We will gain huge potential and certainty of growth. We will always uphold neutral market perspective. While formally believing that the Chinese economy will continue to adjust, consolidate, enrich and enhance the long path of the high quality growth, We still hold strong belief that the next China is China.

Speaker 3

This concludes our prepared remarks. Now We are open for the questions. Operator, please go ahead.

Operator

Yes. Thank you. At this time, we will pause momentarily to assemble the roster. And the first question comes from Alex Yao with JPMorgan.

Speaker 2

Can you guys talk about the property market volatility in the first of this year? And also whether the supply and demand structure has changed in the current home transaction market? And finally, how do you think about the market outlook after the recent positive policy statements? Thank you.

Speaker 3

Yes. Thank you, Alex. Overall, we believe it's in whole market will improve this year from the extreme Conditions in 2022 at the bottom of the cycle. The recovery trend will strengthen confidence in the market, both supply and demand side I have become more responsible to support relaxation. The market's recovery and the supportive policies I expect to ease the lingering effect of the 3 years pandemic.

Speaker 3

We believe the China economy cycle has a strong vitality, And we believe the property market will usher in a new period of the recovery and growth. The new home market faces the risk concluding the year with a year over year decline. Considering the current macroeconomic pressure, unemployment rate And the rest of the expectation, they still require further improvement and the impact of the continued debt crisis that are leading The private developer phase, the willingness of the developer to adopt external sales channel continue to increase Rather than fixate on the overall market scale, we place a greater emphasis on the sustainable I'll see and the stable growth of the brokerage channel sales market. This is our target as a market and where we see more opportunity to be benefit. In the first half of the year, we experienced a market surge and subsequent fall, the rapid increase in the Q1 elevated the market Since April, the market has retreated notably with the in home sales on our platform Continue to decline from April to June.

Speaker 3

New home sales also contracted on a sequential decline And it showed a year over year decline in June for over 20%. The reasons for this decrease are threefold: First, the market is normalizing. 2nd, the market's previous expectations were too high. During the normalization, The gap between the reality and the expectations for the dampened market confidence. 3rd, The market economy has been under pressure since the Q2 of this year.

Speaker 3

This has shown in the employment rate and the import export data, Which also caused the fluctuations in President's confidence. The 3 year pandemic has left a long lasting impact on the economy, And it will take time and effort to force these prolonged effects to further eliminate. As for the market, in the first half of the year, first, the market trends have severely divergent. We are seeing this even in different district within a single city. In recent 5 years, just take Beijing and Shanghai So example, the core area of Beijing and Shanghai has performed very differently than that in the outer suburbs With the housing price index of the former to reach 40% to 50% -points Higher than the later.

Speaker 3

2nd, in terms of the supply demand structure, the home upgrade demand is still the most essential 4, since the market, on supply side, the proportion of newly listed homes with age under 5 years And the age over 20 years has increased most significantly. The increasing supply of the high quality And relatively new homes in the existing home market provides more choices for buyers. From demand perspective, In the first half of the year, the proportion of the transaction involving the demographic and housing unit type of this home upgrade demand have further increased. The proportion of customers aged 35 to 44 have increased by 2% to 35% Compared with the year of 2022, as a proportion of the unit, about 90 square meters has increased by 3 percentage It's 237 compared with year of 2022. Weather from supplydemand perspective, The houses in key city area and the homes from upgrade oriented demand are still the primary market focus.

Speaker 3

3rd, the in home are playing a bigger role in satisfying the home upgrade demand, supporting the overall in home demand To be stable, whereas in the new home market, it still take time to de stress the cumulative risk related developers And the effective supply in whole areas is limited. We are in a market with a strong performance of the e stim home The demand for the new home continues to be diverted to the new home market. The comparative advantage of the Singping Home Remains significant and the Sing Home demand is also relatively stable. In June, our monthly Sing Home Tools Index Fuel only by 1.7% from April and even record it as a rebound in July. According to our research, In the Q2 of the number of the residents with home purchase plan even rose by 1% compared to the Q1.

Speaker 3

The steady demand side data supports our view that the market adjustments in the second quarter Short term normal corrections, not an implication point indicating Long term trend. For the second half of this year and going forward, we first want to emphasize that our market It's not suitable for linear extrapolation based on a single quarter fluctuation. It has an inherent cycle and the rooms for structure and the directional growth. In the future, we believe the active policies will bring better The party bureau meeting held on July 24 emphasized that the need to effectively prevent and resolve risks in the key areas, Particularly, while adopting the significant change in the supply demand dynamics of China real estate market, It is necessary to adjust and optimize real estate policies in a timely manner, make good use of Policy toolbox for city specific measures to better meet the regent and improvement oriented housing demands, Promoting the stable and healthy developments of the real estate market. With the implementation of the relevant supportive policies, we expect The existing home market to be bought in June and recovering in the second half, while the new home market will find the bought in Among the fluctuations in the Q3, since the Polyvary meeting, we have observed that in Beijing and Shanghai, the number of home tools, New customer demand and the transaction volume are the first to pick up.

Speaker 3

The potential rollout of the improvement Demand related policies is expected to activate more than 50% of the population in demand structure For the amplifying and activating the home replacement chain. At the same time, real estate It's not only a steel and concrete, but also a carrier of the economy, pipelines and the inspiring dreams. In the long run, royalty assets, service and efficiency needs to be comprehensively improved To better align with the customers' demand for the better living. Recently, the government authorities issued measures on promoting home furniture consumption, Focusing on smart homes, 1 stop home furniture solution, old home renovation, etcetera, The recommendation put forward measure to comprehensively promote the house furnishing consumption, fully release the potential Of the housing industry value chain and facilitate the overall improvement of people's quality of life, we believe that in the future,

Speaker 1

Operator.

Speaker 2

Thank you.

Speaker 1

Go ahead.

Operator

And the next question comes from Timothy Zhao with Goldman Sachs.

Speaker 4

Could management share your thoughts on how we should look at the longer term growth outlook for the core home transaction businesses including the new home and secondary home transactions As well as what is the room for the further efficiency enhancement in the core businesses? And what is your specific Strategic actions in this regard and any color that you can share on the progress year today will be helpful. Thank you.

Speaker 3

Yes. Thank you, Tim Si. Benefiting from the better empowerment and the retention of the service providers, effective cost reduction and the efficiency Investment measures during the market corrections, Baker achieved the rapid growth during the market recovery in the Q1 of this year. Our housing construction services have built on its foundation and continue to more deeply refine our platform operations And to drive breakthroughs of the Lianjia's business, this have led to the steady growth of our housing transaction services, While allowing Baker to better meet customer needs and elevate service providers' efficiency and income. As for our core business, we are implementing policies according to the distinctive Development status of different regions.

Speaker 3

In the cities where our city connected store are insufficient in scale, We aim to ramp up the connection with the high quality stores, while supporting stores' ability to recruit agents, Conduct suitable training and over management. The number of borrowers stalled in the first half of this year increased by almost 10% from the end of last year and number of agents increased by 17%. You'll see it where we reached a certain scale. We are dedicating our efforts to enhancing our efficiency and quality, which are mutually reinforcing and inseparable. On the storefront, we are promoting a Competitive mechanism based on store ranking, which has also been extended to our new home sales channel, We are also dedicated to promote our large store strategy and creating dedicated homepage for store owners And now leveraging digitalized operation analysis tools to enhance their efficiency in business management and to facilitate More intuitive interaction with our platform, our next step will be help store owners Elevate their business on funding and improve their management approach using online products and the dedicated operations support staff, Jared Bach, driving successful store and brokerage brands.

Speaker 3

Trucking 3 More, great new elements in our operation, the houses, customer and agents, We continue to refine our recent operation and promote collaboration and a more focused operation by agents, Ultimately, achieving enhanced efficiency. For instance, on the Home Listed side, in the first half of this year, Underponed by our systematic capabilities, we implement home listing operation mechanism of home listing maintenance score and store to home listing, project matching nationwide. This allowed agents To focus on specific community while improving home maintenance capability and the transaction efficiency, On New Home side, we're also implementing the focused project strategy to drive sales efficiency. In terms of home customer matching, we launched a product called Point TO Point as an inter agent channel For the flow of the home listing, improving the home customer matching efficiency and the home listing inventory liquidity. As a result, The 14 day sell through rate of our home listing through this tool improved from 6% to around 12%.

Speaker 3

As for agent customer management, we completed the comprehensive optimization of our online sales leads allocation For the existing home and new home transaction services, we should take into account both fairness and efficiency to support junior agents' growth. With respect to the ecosystem governance, to address the issue of the private transfer orders that every platform in the industry is facing, We achieved new breakthroughs in our business conduct governance. We empower our cloud achievement team By creating digital tool and promoting closed loop management awareness, identify risk and fix any issue forms, Through our integrated online offline governance system, service providers on our platform now engage in a proactive self review Instead of being passively supervised, store owners and agents now hold elevated trust in our platform And their sense of compliance has improved. For new homes, we promote developers With all sales channels to jointly abide by the Sunshine Promise, a series of the pleasures under transparent operations and Promoted Industry Wide Compliance. As of June, more than 5,000 cooperative real estate projects have been covered by these assumptions.

Speaker 3

Going forward, we will continue to focus on enhancing our service capability For store owners and homeowners, in the context of the increased cross district new home projects and the chain Transaction of existing homes. We hope to further improve our customer targeting capability to match customer with the respective New home projects are the enhancement of our understanding of the customer needs in a more systematic way, thereby Strengthening our collaboration network and improving matching efficiency. In the cities where our network coverage are already at a high level, We are further enhancing efficiency and quality of our ACM. We are pursuing the growth of our core and emerging business and the breakthroughs of our emerging business. Meanwhile, despite the possible volume decline in the new home market, developers I'll be more willing to adopt excellent sales channels.

Speaker 3

Instead of the total addressable market, we put more I emphasize all and benefit more from this sustainable, healthy and steady growth of our addressable market, That is the brokerage channel sales market. For our direct operation in Lianja business, First, we continued to leverage our large store model to take our agent income to next level. In the first half of this year, The average number of agents per Lianjia store reached 18, up 16% year over year. Lianjia's average agents' income to average social income Index also improved by 40% year over year. 2nd, we continue to pilot Innovative agent incentive mechanism.

Speaker 3

Our goal is to create a working environment that benefits professional agents and managers' long term development. 3rd, we will continue to enhance our service capability and increase investment in traffic acquisition to boost brand momentum, Invigorating the Linjia brand in the first half of this year, we have refocused and centralized

Operator

Thank you. And the next question comes from Harry Chen with Citigroup.

Speaker 3

Thanks, management, for the opportunity. How's your home renovation and furnishing service business progressing? Any updates on the development of your core capabilities? Could you share some key operating metrics and the unique economic model for the benchmark cities like Hangzhou and Beijing? Thank you, Henry.

Speaker 3

The progress of our home renovation and furniture business continues to exceed our expectations. In the Q2, our home renovation and furniture service business sustained its growth momentum. The contracted sales reached around RMB 3,400,000,000 The second quarter, making the first half contracted sales volume to reach more than RMB6 1,000,000,000. The year over year growth rate in the second quarter Continuing to reach over 100%. Most of the home renovation order volume increased by over 90% year over year, Contributing significantly to our e funding scale, as project completion and delivery accelerated, Our revenue for the Q2 surpassed RMB2.6 billion, making a 91% increase Year over year and 86% increase quarter over quarter.

Speaker 3

In cities, where we have the leadership, We have established a virtual cycle of the skill, quality and economy performance. Beijing and Hangzhou were the 1st cities we entered and are leading the way in establishing our virtuous cycle. Just take the next showcase. In terms of the scale, our contracted sales in Jitsi exceeded RMB600 1,000,000 In the Q2, with monthly contracted sales surpassing RMB200 1,000,000 for 2 consecutive months, With the quarter revenue to reach over RMB 500,000,000, we expect the Jinsai new contract sales to exceed RMB 2,000,000,000 in this year. For Hangzhou, the company sales volume for the Q2 also reached over RMB500 1,000,000, and we expect their Annual contract sales in this year to reach more than RMB 1,800,000,000.

Speaker 3

We can now simultaneously initiate and complete 1,000 home renovation units per month in Beijing. This is a significant breakthrough for the industry. In terms of the profitability, the quarterly operating profit in Beijing reached RMB50 1,000,000 As the monthly operating profit exceeded RMB10 1,000,000 for 5 consecutive months. Using Beijing and Hangzhou as guiding examples, we are replicating the model and experience from this well established city Across the entire country, Shanghai is expected to break through the milestone of RMB1 1,000,000,000 in annual contract sales And it's a country news, earnings revenue of RMB700 1,000,000 this year, which means It will reach the same scale as Beijing, trading 1 year ahead. We expect cities like Wuhan, Ningbo, Suzhou and so on to reach the same scale as Beijing and Hangzhou in our 3rd wave of expansion.

Speaker 3

As of middle of this year, After just 9 months of the integration of Wuhan, Shengdu and Beike, we achieved RMB240 1,000,000 in contract sales On RMB120 1,000,000 in revenue, each showing the growth rate exceeding 120% year over year, which is the Strong testament to the effectiveness of our laser focused sales strategy. Progressing to CapEx Development. So virtual cycle we have established at the city level As a result of our committed efforts in developing capability, combined with consistent The equation for the improvement over years. Number 1, for the customer acquisition, we continue to empower agents To become the community expert and home advisor, their effective and extensive customer acquisition and conversion has helped us This year, more than 45% of the Home renovation customers were referred by our core business. Simultaneously, home renovation business is contributing to the growth of the home transaction In Beijing, designers are involved in the environment During the initial stage of the home transaction and create the renovation design plan during the negotiation stage to facilitate The transaction completion.

Speaker 3

Our customer acquisition advantage frees us up from putting our main effort into acquiring to customer like our peer, Keith Kure do. Instead, we can focus more on enhancing our core capabilities, Income renovation and the furniture business, this enabled us to concentrate on the sense of The operation and overcome growth barriers. Number 2, for the management of the service provider, we have invested our resources In service providers, fundamentally redefine how they can earn the income and how they participate in the industry. This is achieved by the positive and systematic order dispatching timely settlement, Providing the incentive and the respect for the high quality service providers, both financial and culturally, this shift As a transformed industry past practice of the bad money drives out of good money into the good quality wins. Number 3, for the delivery capabilities, we invested in technology and research, focusing on 2 things.

Speaker 3

First, we enhanced our reliance on the system and the rules for the progress management, not just on people. So we can use an entry line system that covers design, construction, materials and supply chain. Moreover, we installed AI driven technology into improved customer acquisition and efficiency, Which empower Baeko go beyond the traditional boundary of the project management, enable us to strategically and efficiently manage timeline, government and service online, this ensure a high quality breakthrough in scale. Number 4, for our product capability, we invested in product capabilities. Our products are based on the deep user insights Covering the reach out KU offers to meet specific user demands.

Speaker 3

As we keep developing our capabilities, We are confident that we can continuously improve our business towards a virtuous cycle of quality,

Operator

Thank you. Our next question comes from Randoz Rong with Bank of America Securities.

Speaker 1

Thank you. Thank you for taking my question. So can management elaborate more on the recent organization upgrade and structural change? So what are the changes that have taken place And what are the thoughts behind this upgrade? Thank you.

Speaker 2

Okay. Thank you, Miranda. The purpose of our organization's structured adjustment is to establish a new formation to achieve Our strategic goals, the strategies and business concepts requires new organizational structure to undertake Focusing on joyful living, fulfill career services and aspirations of the call, We upgraded our strategy to 1 Body 3 Wins. Our corresponding organizational adjustments is also the upgrade of our management philosophy And mechanism, the new organization structure is centered on customers and placing the frontline at the center of our value creation. We have established 4 business lines.

Speaker 2

There are home transaction services, home renovation and furnishings, rental property management services and Beiho Jia, NII functioning lines comprising finance, R and D, strategy, quality assurance, human resources, Users, compliance, public affairs and collaboration, together these are designed to provide job of living for Our business lines will work to take care of our customers, Inspiring joy for living for customers in each city and fulfilling careers for different types of service providers. The function lines will leverage their professional capabilities to provide good services to whom they define the company's internal customers And how different is to achieve the goals or the admirable sources of living. So these actions, We aspire to get a ride of many of our great and big company diseases I will turn to entrepreneurship in how we view ourselves, our customers and internal partners. The adjustment of our organizational structure It will facilitate unifying ideas and goals, catalyze grasp the essence of our industry throughout the cycles I'll return to the natural that houses are for living and in service of people and everyone demands

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. Ting Li for closing comments.

Speaker 1

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

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation and may now disconnect your lines.

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Key Takeaways

  • Q2 2023 revenue rose 41.4% YoY to RMB 19.5 billion, driving H1 GTV up 43% YoY to RMB 1.75 trillion and non-GAAP net income of RMB 2.36 billion versus a loss last year.
  • Emerging businesses now contribute over 20% of revenue, with home renovation & furnishing contracts reaching RMB 6 billion in H1 and rental units under management in Tier 3 cities growing to 120,000.
  • Market normalization drove a 31.3% QoQ drop in existing home GTV in Q2 amid lingering pandemic effects, developer debt risks and a cautious buyer sentiment.
  • The company restructured to a “1 Body 3 Wins” model with four lines—housing transactions, renovations, rentals and Beihou Jia—to focus on “joyful living” for customers and fulfilling careers for service providers.
  • KE extended its share buyback authorization to US$2 billion through August 2024 and announced a US$200 million special dividend, reinforcing its commitment to shareholder returns.
AI Generated. May Contain Errors.
Earnings Conference Call
KE Q2 2023
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