Q3 2022 Ke Holdings Inc Earnings Call
Speaker 1: Hello ladies and gentlemen. Thank you for standing by for K.E. Holdings Inc.'s third quarter 2022 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. Siting Li, IR Director of the company. Please go ahead, Siting.
Thank you operator. Good evening and good morning everyone. Welcome to KE Holdings or BECA's third quarter 2022 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website investors.ke.com. On today's call we have Mr. Stanley Pong our Co-founder, Chairman and Chief Executive Officer and Mr. Tao Hsu our Executive Director and Chief Financial Officer. Mr. Pong will provide an overview of our strategies in business development and Mr. Hsu will provide additional details on the company's financial results.
Before we continue, I refer you to our Safe Harbor Statement in our earnings press release which applies to this call as we will make forward-looking statements.
Please also note that Bakers earnings press release and this conference call include discussions of unmodited GAAP financial information as well as unmodited non-GAAP financial measures. Please refer to the company's press release which contains a reconciliation of the unmodited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. With that, I will now turn the call over to our Chairman and CEO , Mr. Stanley Pong. Please go ahead, Stanley. Thank you, Soutine. Hello, everyone. Thank you for joining Bakers' Quarter 2022 for this conference call.
Against the many uncertainties in the real estate market, we achieved a series of breakthroughs in the third quarter. We have supported our stores and agency networks to consistently outperform the market and achieve steady efficiency and profitability improvements in each business line on our platform.
This was thanks to the initiatives we implemented beginning last year to enhance efficiencies. I believe, ultimately, these achievements stay from the enterprising spirit of the organization, from the perseverance of each one of us on the platform in the face of external challenges.
November 12 marked the 21st anniversary of our organization's funding. To celebrate this momentous occasion, we organized our home linker event.
With the news online about over 7,000 home leakers.
who have stayed with us for more than 10 years.
spreading in more than 80 cities across China.
home linkers and employees who have been with our organization share the same experience and collective memories and have learned the same as dolagers.
Moreover, they believe in the same values and make similar choices.
share the beginnings of the organization.
We are not only practitioners but also...
disseminators of our spirits.
We carry the same mission and responsibilities to influence more people.
their convictions during down times and keeping them grounded in the up cycle while always driving for groups, virtue and a positive attitude.
positivity.
Moving on our progress in the third quarter of 2022, in our one body.
existing and new home transaction services.
We have promoted many advantages in our one-body business thanks to our years of efforts and investments in the initiatives to enhance efficiency.
Now, a warm body.
has entered the development stage where deepens of operations are vital for incremental improvement.
These strategic measures may look small to outsiders.
But only by finding every core areas of efficiency and working on it every day can we continue making our business better.
the store and agent come on.
our platform has been stabilizing or even growing in some cities.
As of the end of the third quarter, the number of kinetic stores and active stores on our platform reached over 41,339,700, both about 3% over quarter over quarter. The number of agents and active agents on our platform reached over 41,339,700,
surpassed 400,000 and 317,000 respectively.
with quarter over quarter decreased narrow to 3% and 2% respectively. The number of active stores grew quarter over quarter in nearly 30 cities, including Nanjing, Changsha, and Hefei. And the number of active agents increased quarter over quarter in 40 cities, including Shenzhen.
The competition structural stores and agents on our platform have been improving. We now have a higher percentage of agents with long track records and higher performance results. The proportion of agents with over 3 years of industry variance rose by about 10 percentage points in the second quarter compared with the first quarter.
along with the overall improvement in professional qualifications.
per store and per agent productivity also increased. In the third quarter, the average store commission income of the real franchise stores and kinetic stores on how platform grew by 25% year over year and setting 3% quarter over quarter. Average commission income.
per agent rose by 22, 25% year over year, and 9%, quarter over quarter. Thank you for listening and attention.
Improvement in our new home receivables collection also further ensures the certainty of income for store owners and agents.
Our agents are increasing identifying with their profession.
This year, we conducted two nationwide market surveys participated by a total of over
80,000 real estate agents on our platform.
Survey results show that despite a decline in confidence due to major market corruptions, agents have developed a greater pride in their profession.
supported by the growing acceptance of their profession by family and society, along with its elevated social status.
internal store agent network and industry development.
and the industry development.
Efficiency and quality needed to be improved.
The productivity of a single agent has not improved much over the years. And the overall income level of an agent is low and their churn rate is high. In the next stage, the industry will shift from the pursuit of skill to high quality development with an accelerated pace.
focusing on efficiency and quality.
This will undoubtedly force us to grow more and better abilities from inside.
Our existing home transaction services continue to significantly outperform the market.
According to data from the Baker Research Institute, nationwide GTC of existing home sales clients
by about 7% year-over-year in the third quarter, while GTV of existing home transactions on BigHertz platform was RMB 449 billion up 19% year-over-year, of which existing home sales CTV rose by more than 20% year-over-year.
The stress was partly due to the release of pent-up demand in the third quarter in Beijing and Shanghai after the pandemic flares up in the second quarter. In the meantime, our operational and management initiatives have been paying off.
giving the industry's service providers a strong determination to work with us.
Our existing home services, including existing home sales and rental, are becoming increasingly important.
In terms of both business growth and risk control.
We have made efforts on various fronts to accelerate the growth of this business.
For instance, we have been closely watching the proportions of new and existing homes in different cities, strategic goals, and driving the development of resisting home services. For instance, we have been closely watching the proportions of new and existing homes
We also allocated more to-be personnel to support the existing home business.
for the filing system development and ecosystem governance.
Meanwhile, in many cities,
where new home sales previously formulated property transactions. Local brands and store owners have become keen to make organizational and personnel adjustments to shift to existing home business.
Turning to new home transaction sources, according to data from the National Bureau of Status Team.
In the third quarter, the nationwide ETV of a new home residential home
sales was down 21% year over year and 7%
quarter over quarter. The GTV or CRIC's top 100 real estate companies fell by 33% year over year and 0.2% quarter over quarter.
Although the year-over-year decline in the new home market narrowed in the third quarter, there was no obvious sequential improvement. The new home market is still in a tough way when it's done by a range of factors, including seized mortgage payments on unfinished projects.
pandemic, with resurgences and a few...
with resurgencies and fewer developer promotions.
In the third quarter, GTZ on your home cells on our platform was RMB 261.5 billion.
down 36% year over year and up 17% quarter over quarter. While the market remains under pressure, we have constantly improved the health of our business operations across the board, as well as gained further market recognition with our efficient sell-through capabilities and our efforts.
to build a healthier industry ecosystem.
On the consumer side,
We mobilized our resources to collect and provide construction progress updated.
to customers. Our city-based operations and photographer teams collect accurate comprehensive project updates on construction programs from multiple site locations monthly for ongoing cooperation projects and quarterly for other unfinished projects.
Updates are provided to customers and agents on our apps.
This project also kept us fully informed on the latest construction progress of different developers. As of November 15 we have covered
32,442 housing projects in this initiative.
Operationally, we continue to strengthen our Commission in Advance model. In September , Commission in Advance accounted for 34% of our nationwide new home sales commission revenue, 44% for private developers in cities excluding Beijing and Shanghai.
and 32% for state and centrally owned developers.
On top of the commission in the Advanced Model, we promoted our strategy of focusing on selected high quality projects.
and key new home projects.
On the service side, we collaborate with more high quality developers and projects. During the quarter, the proportion of new home sales from state and centrally owned developers expanded to 42% from 37% in the second quarter to really accelerate.
sell through in the current market. If I could lead generation from brokerage channels.
and promotional conversion from developers must join forces.
We are proud to stand out from other brokerage channels with our exceptional existing home transaction service capabilities and add many new home customers leveraging our existing home customer base. In addition, our continuous undertaking to improve the new home industry ecosystem have helped to reduce the ingrained...
problems of good industry players being driven out by sub-bar practitioners.
This has further...
It honors the respect and support of high quality developers for us. In the future, I look forward to providing an overall review of the effort we have made to improve the health of the new home ecosystem.
Next, moving to our two main businesses.
Our full-service home renovation and furnishing business is progressing as planned. In the third quarter, the industry starts to recover as pandemic research and resurgence in Beijing and Shanghai subsided. According to data from the China Building Decoration Association, the revenue of leading home renovation and furnishing companies in the third quarter is $2.5 billion.
decreased by 4% year over year and decreased by 13% quarter over quarter. Our home renovation and furnishing business continue to outperform the market, rising more than 40% year over year and 34% quarter over quarter, generating revenue or close to RMB 1.85 billion.
contracted sales in the third quarter reached close to RMB2 billing, an increase of more than 60% year-over-year. Among this, the number of our home renovation contract volumes increased by more than 50% year-over-year, with average order value up by more than 10% year-over-year.
The percentage of total contracted value attributable to call business traffic reference increased from 22-25% in June to 43% in the third quarter.
We have replicated the technological capabilities accumulated in our core business, such as AI assistant, Xiao Bei, into our home renovation and furnishing business. As of October 31, more than 9,500 service providers, including home renovation and furnishing designers, engineers, and engineers, have been
Four men, as well as agents from our core business, have participated in the Hia-bei training and the testing.
Our home furnishing, new retail sources.
accounted for 20% of the total contract sales in the third quarter, up from 16% in the second quarter. The ratio of home renovation orders that come with need for customized finishing increase to one out of six from one out of nine in the second quarter.
In the third quarter, Beijing's Beijing-Bei Wuxiang-do reached quarterly break-even and mostly... There's still a lot of rapport for Beijing."
contracted sales of over RMB 100 million in June , in July , and August , becoming the largest.
full-service home renovation brand in Beijing. This is a significant breakthrough and achievement and the current headwind.
The underlying capabilities we accumulated in the past have propelled the Beijing business into a positive cycle. We did this by first establishing from the ground up large scale home renovation
delivery management capabilities. Second, our skill and more complete supply chain created a virtual cycle that has won additional suppliers and enables customers to select.
from our great choices of better quality products. Third, approving competencies in delivery management and business operation have become better recognized among service providers. Agents start to actively recommend our home renovation services to customers and accompany them on visits.
Whereas designers, workers and full men are proud to join us as they feel confident in their professional development with the increase belonging to the platform.
Only by attracting and assembling high quality service providers in the industry can we provide consumers with a superior service experience.
With Beijing as an example, we aim to continue to integrate and manifest our capabilities in more cities, bringing better living services to more consumers.
Next, move into our home rental services.
which continue to expand in scale and improve in efficiency in the third quarter. In terms of scale, as of the end of the third quarter, the number of contracted rental units manager of our rental service doubled quarter over quarter to over...
85,000 among them.
the number of units under the decentralized leasing management.
Carefree rent reached over 15,000 units, an increase of nearly 17% quarter over quarter. The carefree rent services is currently available in certain cities.
To improve our efficiency, we continue to develop and interactively optimize our sign-up and occupation model, as well as refine our operational capabilities.
In September , both our occupancy rate and average sales through period improved compared to the second quarter. It is particularly worth mentioning that this July we were selected as part of the first group of affordable rental housing operation service enterprises in Chengdu, China.
and we were the only private enterprise among the...
the fourth letter.
Thanks to the opportunity, we were able to become more deeply involved in the improvement and operation of local affordable rental homes. As of November 21st, we have provided high quality leasing operation services, including leasing brokerage to more than 1,000 rental homeowners and tenants in Chengdu, China.
In the future, we will also strive to participate in the planning and operation of more affordable rental housing.
and contribute to the development of a housing system that ensures supply through multiple sources, provides housing support through multiple channels and encourages both housing purchase and renting.
In conclusion, our business performance this quarter demonstrates great success.
and resilience of our organization.
Internally, this is due to the people we have and the organization culture we have formed.
We have an unshakable existence on technology for good quality service and utmost operational efficiency.
which has won us the affirmation of customers and service providers.
Externally, it comes from the solid economic foundation of our nation, from the desire of each small family for joyful living, which together have mounted to the tremendous demand in China's living sector.
They are helping a serious...
of favorable policies unveiled recently to support future release of rigid and upgrade housing demands.
help high quality developers restore liquidity and boost market confidence. We will also do our best to make our network or store and agents the warm connect of homes to bring better quality and more diversified housing and related services to customers and play our part to promote stable and healthy development of the real estate market.
as well as to better satisfy the housing needs of all people.
Thank you. Next, I would like to turn the call over to our CFO , Paul, to review our third quarter financials.
Thank you Stanley and thank you everyone for joining us today. Before discussion, more detail about the third quarter of 2022 financial results.
I'd like to provide a brief update on the recent housing market.
in the third quarter of this year.
Policymakers maintain relatively its credit conditions.
and the local government continue to introduce city-specific measures to better satisfy demand for housing and home upgrades.
Overall, however, the frequency and intensity of supportive policy throughout Q3 weakened compared to Q2.
And we also saw some strong relaxation reversed in some several key cities.
Meanwhile, a number of factors disrupt China housing market recovery in Q3.
This included headways that ravaged a vast suite of countries.
COVID-19,
and the slowdown in data reppers, sales promotions, and the fact that some buyers see the mortgage payment on finishing the new home project.
The existing home market maintained a moderate recovery, with PTV ticking up slightly on a year-over-year basis.
The new home market also saw a decrease in GTV contraction, but still remains soft.
Despite the macro headwinds, our operating efficiency and profitability improved significantly in Q3. The profitability of our new home transaction services and the continuous growth margin both reached new heights since our IPO in 2020.
whereas our DSO and the non-cap operating expenses
Feel free to record those things I feel.
This result did not come about overnight.
The other result of our rapid and resolute implementation of a series of cost management and efficiency-enhancing measures launched a year ago in the face of market adjustment.
They also embody our encouraging against setbacks.
Our momentum teams community and involvement in the front line operations.
and our decisive will to never give up.
This achievement for the multiverse to respect laws of market.
return to the i sense of the operation.
seeking improvement from the refined measurement, and continue to implement our series of efficiency.
risk control and cost management measures.
Against this backdrop, let's turn to our financial details for Q3.
On next run-news, will RMB 17.6 billion during the quarter?
representing a narrowed year-over-year decline of 2.8%, and a 28% increase compared with Q2 2022.
This quote-unquote revenue improvement was primarily due to the increased revenue from its in-home transactions.
as pent-up demand in the megacities of Beijing and Shanghai translated into the higher sales volume at the beginning of Q3 after COVID battered Q2.
Meanwhile, other factors, also how drives the total net revenue.
This included more new home run news recognized in Q3 following a jump in subscriptions in Maine and the trip.
Our commission in advance model that drove faster new home subscriptions.
to cells conversion, as well as our stable magnetization ability.
In particular, on net revenue from existing home construction services.
increased by 16.6% to RMB 7.2 billion in Q3, compared to RMB 6.1 billion in the same period of 2021.
primarily due to an 18.7% increase in GTV of these in-home transactions to RMB449 billion Q3 from RMB378.2 billion in the same period of 2021.
of next run news from new home transaction services
decreased by 31.3% to RMB 7.8 billion Q3.
from RMB 11.3 feeding in the same period of 2021.
primarily due to the decrease of GTV of new home transactions of 36.2% to RMB 261.5 billion in Q3, from RMB 400 10.1 billion in the same period of 2021.
On next revenue from home renovation and furniture, we'll earn the 1.8 billion Q3.
compared to RMB 6 million in the same period of 2021, primarily because of the company completed the acquisition of Shengdu Home Renovation Cost Limited, and it began to consolidate the financial results during Q2 2022.
and the organic growth of TTV for the home renovation and furnishing business.
or revenue from emerging and other services.
increased by 45.8% to RMB800 and 1 million in Q3, from RMB500 to 50 million in the same period of 2021.
primarily attributable to the increase of net revenue from the rental property management services, which was partially offset by the decrease of net revenue from financial services.
Cost of revenues decreased by 16.3% to RMB 12.8 billion Q3.
from RMB 15.3 building in the same period of 2021.
Gross profit increased by 72.8% to RMB 4.8 billion in Q3 from RMB 2.8 billion in the same period of 2021.
Gross Martin was 27% in Q3 compared to 15.2% in the same period of 2021.
The increase in gross margins was primarily due to a shift of revenue mix towards the looking home transaction services.
with a higher contribution margin than some of other remnant streams.
A higher contribution margin for existing home transaction services led by the increase in net revenue from existing home transaction services and the decrease of the fixed compensation costs for the entire agent.
swirl. rooms.
a higher contribution margin for the new home transaction services as a result of an increased number of protests with higher market.
under a relatively lower percentage of fixed compensation costs of net revenue from new home transaction services.
D, a relatively lower percentage of cost related to the stock and other costs of net render in Q3.
compared to the same period of 2021.
Total operating expenses decreased by 29.9% to RMB3.5 billion Q3.
from RMB 5.1 building in the same period of 2021.
general and administrative expenses.
decreased by 26.4% to RMB 1,777 million in Q3, following RMB 2,400 under trial meaning in the same period of 2021.
mainly due to the decrease of the provision for the credit losses, along with the decrease of the counter-superbalance.
personnel costs and overhead along with decreased high cost.
as well as the decrease of the conference and the traveling expenses.
which was partially offset by an increase of the share-based compensation in Q3 compared to the same period of 2021.
1,000 marketing expenses for RMB 1258 million in Q3.
compared to RMB 1200 and 2 million in the same period of 2021.
relative to the increase in the sales and marketing expenses for the home renovation and furnishing services. a
As of the natural result of Shengdu, we will consolidate since Q2 2022.
which was partially offside by the decrease of the brand advertising and the promotional marketing expenses and the personnel cost for housing transaction services.
Research on the development expenses decreased by 51.2%.
Show RMB500 and the 9 million in Q3.
found RMB 1,043 million in the same period of 2021.
mainly due to the decrease of personnel cost and share-based compensation as a result of the decreased high cost in research and development personnel in Q3 compared to the same period of 2021. Let us continue our discussion in the next statue.
Income from operations was RMB$1.2 billion in Q3, compared to loss from operations of RMB$2.3 billion in the same period of 2021.
Operating market was 6.9% in Q3 compared to negative 12.7% in the same period of 2021.
primarily due to 1. a relatively higher growth profit margin, 2. the decrease in total operating expenses along with the relatively flat net revenue, primarily due to the personnel severance and optimize the resource utilization in Q3, compared to the same period of 2021.
that's coding long type items.
Our adjusted income from operations was RMB2.1 billion Q3.
compared to adjust the loss from operation of RMB1.4 in the same period of 2021.
adjusted operating market was 12% in Q3, compared to the negative 7.9% in the same period of 2021.
adjusted A-FDA for the RMB 2.3 billion Q3 compared to the native RMB 550 million in the same period of 2021.
Next income was RMB 700.
16 million in Q3 compared to net loss of RMB, 1766 million in the same period of 2021.
Thank you for your attention.
adjusted net income of RMB 1888 million Q3 compared to adjusted net loss of RMB 888 million Q3 in the same period of 2021.
Net income attributable to KE holding ING or donor shareholders was RMB 723 million in Q3. Compared to net loss, attributable to KE holding ING or donor shareholders of RMB 1765 million in the same period of 2021.
Adjusted net income is suitable to key holding inks, alternate shareholders worth RMB 1,895 decisions.
compared to adjusted net loss attributable to key holding ink, ordinary shareholders of RMB 887 milli in the same period of 2021.
Diluted NAG Incon, PoE-DS, attributable to KE holding ING's ordinary shareholders, was RMB 0.6 x 3.
compared to diluted net loss per ADAS attributable to key holding YINs or the natural holders of RMB1.5 in the same period of 2021.
Adjusted diluted net income for ADS, attributable to pay holding inks of all the shareholders was RMB 1.57 Q3.
compared to adjusted diluted-night loss for ADI attributable to K holding YINs, alternate shoulder of RMB 0.75 in the same period of 2021.
All in all, our possibilities strengthen substantially, and we fully demonstrate our strong execution and operational capabilities.
Among these developments, I'd like to address the following financial highlights.
I'd like to address the following financial highlights. First.
The profitability and the financial health of our new home business further improved.
as we cooperate with a greater number of projects with higher margins and optimize our fixed cost.
The contribution margin of the new home transaction services increased to a new high of 24.9% in Q3 since our IPO.
up 1.4% from Q2.
Meanwhile, our effective risk control strategy helped improve our financial situation.
Cash collection from our new home business, total RMB, 9.27 billion Q3.
and that amount surpassed new home revenue for five consecutive quarters.
As such, new home DSO shortened by 30 days from Q2 to 78 days in Q3.
Apart from the fast collection of the new account receivables.
We also scope to collect the receivables that will previously recognize the better provisions.
enable us to write back RMB 100, 95 minutes in beta provision in Q3.
to write back RMB 195 minutes in beta provision in Q3. un Dakota352
The better provision did not have an active impact on our P&L during Q3.
This reflects the confidence principle of adopting the most prudent accounting treatment.
while highlighting the indispensable value of our new home transaction services.
you
Posturing better, sells good for the developers.
and promoting healthy property market circulation.
Second, as we continue to carry out all-around integration between Bei Ke and Shen Du,
our home renovation and furniture services.
renovation and furniture services achieve the robust growth.
and start to contribute more revenue to the company in Q3.
The business generates the revenue of RMB 1.8 billion.
up over 40% year over year and 34% from Q2.
on an Apple to Apple basis.
For Beijing-Bei-Wu, Q3 revenue from home renovation and furnishing services rose over 90% year-over-year.
while the gross margin increased by 8.3% points from the same period of 2021.
On that basis, Beijing achieves a city-level operating breakeven for the culture.
Beijing's advancement in building up this model and improvement in financial performance provides a feasible path for us to further explore a larger scale across the country.
Third, everything in common.
In Q3, our ongoing optimization of the operating expenses shows the results. It feels 30% year-over-year to RMD 3.5 billion under the GAAP financial measures.
driving the recovery of our possibility.
On the long gap, our total operating expenses decreased by 35.6% to RMB 2.7 billion, including a bidi provision written back of RMB country 95 million.
Fourth, we maintain a strong cache position and operating cache flow in Q3.
at the end of September .
The balance of our cash-like items was RMB77.2 billion or USD10.9 billion.
Among which, the combined balance of our cash, cash equivalent, with street cash and short investment amounted to RMB 57.5 billion, offered by RMB 7.5 billion from Q2.
The balance of our long-term cash-life items, mainly included in the long-term investment.
Amount to RMB 19.7 billion.
Our net operating cash inflow was RMB2 billion in Q3.
remaining positive for the fourth quarter in a row.
This outcome demonstrates our strong ability to generate cash, and in our view, this makes us well positioned to navigate the market fluctuations and the future challenges.
Peace.
As we previously disclosed.
We established a share repurchase program under which companies may purchase up to USD 1 billion of our Class E ordinary shares over a 12-month period.
This launch of the program on September 1st.
We have spent a total amount of around USD 155 million to purchase approximately 11.75 million ADS into open market as of November 30.
Despite the market fluctuations, we continue with the repressive progress on the scoring of our mentioned team's confidence into companies' long-term development prospects and our efficient capital allocation.
Turning to the guidance for the fourth quarter of 2022.
We expect the total net revenue to be between RMB 14.5 billion and RMB 15 billion in Q4, representing a decrease of approximately 15.7% to 18.5% from the same period of 2021.
This forecast consists of the potential impact of the recent rules, the related policy and measures.
and the COVID-19 resurgence and the containment measures in such regions, which remains uncertain.
Let us constitute the current and preliminary review on our business situation and market conditions which are subject to change.
Love but knowledge.
In the face of market challenges, we respond quickly and actively with exceptional resilience and execution capabilities.
as well as fully prove the effectiveness of our operating leverage.
Our abundant cash reserves and healthy cash flow also serve as a safety cushion against external uncertainties. Financial security and operational efficiency are capabilities we have forged in confronting numerous difficulties and challenges.
which have enabled our fundamental to remain intact and strengthen our sustainable operation amidst adverse case.
Our matching chain has always led by example into the front-line.
We respect every effort and the achievements of our service providers.
And through it, always a proud commitment and honesty.
All of us at Bikku.
cool. I'm making an O-out effort.
with heart and soul. I will never leave anything to tell this.
Step backs have translated into courage, and the dangers ahead in sparrows push forward.
As we stand the path of time, not a single step along our journey will be easy.
but we will never stop. Keep going, we will keep getting better.
That concludes our prepared remarks. We would like to now open the call to your questions. Please go ahead.
Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced.
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If you are on a speakerphone, please pick up the handset to ask your question.
For the benefit of all participants on today's call, please limit yourself to one question. And if you have additional questions, you can re-enter the queue. If you are going to ask the question in Chinese, please follow with the English translation.
The first question comes from Stephen Tsai with Morgan Stanley . Please go ahead.
This is a group Baptist University when the other principals came to visit the facility I know one of them is an intern at the Thank you.
Thank you for taking my questions. My question is on market outlook. Could you share with us your view on the first quarter outlook for each of the new home and existing home markets and what are the underlying assumptions behind your Q4 revenue guidance? Also, I know it's a bit too early.
but could you also share with us your thoughts on the market recovery path next year if we look through the short-term and pandemic impact in the quarter? I'm messaging this because on the one hand we have seen several supporting policy in the past few weeks, but on the other hand some of the core cities of our existing home business also have seen some slowdown in sales recovery, while existing home supply seems increasing fast, but prices are also turning down.
So just wondering how we should think about recovery path next year. Thank you. Thank you, Steven. Jie Xitao, let me talk about the quarterly review first from the macro perspective.
The growth in the market in the third quarter was affected by multiple factors, including Euro hot summer across country. The pandemic flared up in some high-tier cities.
and the new home mortgage payment suspension.
slowdown in the rapid sales promotions, as well as household concerns about the geopolitical tension, economic downturn and uncertainty for the income expectations.
developers sales promotions as well as household concerns about the geopolitical tension, economic downturn and uncertainty for the income expectations. At the same time, the
The frequency and magnitude of supportive policy slowdown in Q3 from both the central and local government levels.
In the second quarter, the central and local government introduced close to 100 measures and policies to support market recovery.
But in this Q3, there's only some days. And we also saw some strong relaxation reversing in some several key cities.
The reduction of the positive factors and the increase of the in-habitat factors both contribute to the recovery of the flow down in the housing market in Q3.
in terms of the in-home market.
despite the macro headwinds in the quarter, the recovery of the thin-hole market quickened.
The GTV for China is in the home market increased around 6.6% year-over-year and 8.1% cause-of-corture.
The GTV in July recorded a year of your growth for the first time in past 12 months.
Specifically, the new home market hit high in dry and moderate month-over-month afterwards.
This trend is consistent with the monthly trend in the third quarter from 2018 to 2021.
City-wise.
The fourth curiosity is benefit from the pent-up demand. After pandemic, restrictions were lifted.
resulting in a significant GTV growth quarter of a quarter.
while the performance in the second and the third series.
the second third-year cities was basically flat versus the second quarter.
Among them, like the city at the G9 and Suzhou, which have more supportive policies.
and Zhengzhou, which benefit from the demand shift from the new homes. So study improvement in the single market in such culture.
while cities such as Chengdu were more affected by the pandemic at the end of Q3.
in terms of the new home market.
affected by multiple macrophages.
The new home market recovery trend in May and June did not extend to the third quarter.
Following the mortgage payment suspension incident in July , our leading indicator, the number of new home subscriptions pounded.
Down the run 42% week over week and 26% month over month and continue to drop in August and September .
According to the data from the National Bureau of Statistics,
So the quarter, new residential housing cell filled by 21.3% year over year and 7.1% quarter over quarter.
CRRC's data on top 100 caregivers showed a 33% year-over-year drop in the period and slight downward trend month-over-month.
This was according to Baker Research Institute.
wise according to Baker Research Institute in the first nine months of the year.
New Homes GTV was down merely 2% year-over-year for the first-tier cities, but dropped 46% and 41% for second-tier and third-tier cities, respectively.
As of September , regarding the pricing for the 50k
Cities using home price has fallen for 13 consecutive months and is still showing a downward trend.
It further fill 1% in September from August .
taking cumulative decline to 9%.
Isn't home prices in Beijing and Shanghai hit new highs in Q3 and began to adjust slightly in October , while in most other cities, the price declined more notably.
Cities with most significant home price adjustment are mostly cities that saw large price increases in the past, like Shenzhen and Dongguan. In summary, there were many unexpected factors in the market during Q3. It will require additional observations to tell how the market will perform.
Regarding Q4 outlook,
for Q4 outlook since the first quarter.
variable policy have been introduced continuously.
on the among side.
policies, including lowering the mortgage rate.
tax refunding, and relaxed forced home recognition to ease down payment for the home upgrade demand have all played a role in promoting market recovery.
Torch flyers the liquidity crisis device for Subscribe.
Several ministries from the central government jointly introduced tools to support the credit debt financing of the private developers, including the famous 16 measures from the central bank.
The path to credit restoration for developers is getting clear, and it has played a role in the restoration of market confidence.
Nevertheless, the ongoing COVID outbreak and the corresponding control measures in many cities still bring great pressure on the market recovery and have a dilutive effect on supportive measures.
For the Singapore market, at present, among our top 32 cities, over 95 of the stores in Beijing, Zhengzhou, Chongqing, and Xizhazhou are affected and are able to operate normally due to COVID-19 and related containment measures.
More than 60% of our stores in Guangzhou are affected.
As the pandemic situation in Chengdu, Tianjin, Xi'an and Sudo is also in path of finding.
During the previous severe fire sub in Shanghai, Shenyang, Zhengzhou and other cities, the transaction volume was close to zero for about 4 to 8 weeks.
Therefore, we prudently assume that roughly 25% of our in-home transaction uniform culture will be affected by the pandemic.
However, unlike the disk...
correctionary consumption, housing demands are largely rigid.
Based on our experience, the demand will be bounced back and be replenished to a certain extent after the epidemic resurgence is over.
New home market is more notably driven by the developers' active promotion, easing policies, and national day holidays, and is expected to see a narrow year-over-year decline in Q4.
In October , BACR new home subscription data rose sharply by nearly 35% compared with September .
The subscription data usually leads to the online contract signing by about a month.
as the recovery of the leading indicator supports overall recovery of the new home market in Q4.
Despite the private developers manager still experiences that default.
Relentless efforts are being made in tight relief for the industry in the post-corture.
Regarding the common view for the year of 2023,
I would like to say the market trend will be affected.
by multiple factors.
but it is unlike for the market to weaken further.
Start the room for the real estate.
for the real policies to further relax.
that by the principle of the housing is for living, not for speculation.
Maintaining the stable development of the real estate market and supporting the release of the housing demand have become the consensus among the various entities.
Judging from the timing of the end April , September , and November , when Central Government released eating measures,
the current market downturn may reach the point of triggering more policy relaxation.
Considering the housing price, fast yield, falling, and transaction volume is still at the top.
Where is I2C increasing policy support next year?
especially from the local garment.
Whether it is in the form of purchase fund support or more importantly, further is the purchase qualification.
This will lay the foundation for the demand to retain and stabilize the market.
For other microfactors that have relatively large impact on the market recovery, you've seen that.
We would like to say number one, the global economy and the political landscape does not experience significant turbulence.
Number two, there is a moderate economy growth domestically, and the pandemic has been effectively controlled with its impact on economy gradually easing.
Number three, the urban employment rate is back on track, as well as the pace of urbanization.
Number 4
Number four, the residency income expectation.
and that the consumer confidence are moderately restored.
Lastly, on the policy front, the implementation of the property tax will not be rushed in the short run.
Under all of this assumption above, we expect the performance of the Yixing home and the new home market as follows for the year of 2023.
Strong certainties in recovery of the ethnic home market.
The existing home market has undergone deep adjustments in the year of 2021 and shows a trend of quarter-over-quarter recovery so far in 2022.
home market has undergone deep adjustment in the year of 2021 and show a trend of quarter-over-quarter recovery so far in 2021. In the second half of 2021,
Most cities must be able to return to the monthly transectial average over the past five years.
We expect the existing home market to continue to recover and continue benefit from the spillover demand from the new home market in the year of 2023.
According to the forecast from Baker Research Institute, nationwide GTV for its new home cells is expected to stage a mild recovery.
rising around 5% year over year next year. Compare
with 2022.
Regarding new homes, it might take longer for the new home market to see a mild recovery.
The recovery of the new home market next year will depend more on the restoration of the consumer confidence in real city market and the strength of the supportive policies.
Recovery of the new home market next year will depend more on the restoration of consumer confidence in real estate markets and the strength of supportive policies. According to Baker Research Institute.
The support of the more relaxed policy, developers, especially those state and centrally owned, will increase their sales through effort on the supply side next year.
bringing a marginal improvement in transaction volume. However, the consumer confidence and the housing price, which were more deeply wounded by COVID under the delayed new home project.
bringing a marginal improvement in transaction volume. However, the consumer confidence and the housing price, which were more deeply wounded by COVID and the delayed new home project, it will take longer to repeat.
to recover. The decline in some customers' confidence in the second half of this year is expected to extend to the fourth half of next year and begin to repair in the second half of 2023. As such, we expect the GTV of the new home market to be largely flatlined year over year into year of 2023. Thank you.
The next question comes from Timothy Zhao with Goldman Sachs. Please go ahead. tunnel?
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Thank you, Manjun, for taking my question. I have two questions here. First, could you Manjun share some outlook on how our Lian Jia store and store network expansion plan into next year, and what is the open efficiency and income level of the store and agents at this moment? In the third quarter, we achieved very strong probability.
and considering that some of the prior developers recently also default on bonds or delayed interest payment, are we expecting more risk related to the current COBOLs? Thank you.
Thank you, Kim-Sie. Regarding your first question, stone age numbers are stabilizing and even start to grow in some cities.
We see stabilizing, stall and age narrow scale.
Since the second quarter, the number of active store and agents have started to stabilize. And in the third quarter, the quarter-over-quarter decrease in active store and agent narrowed to 3% and 2% respectively.
amounts in nearly 30 cities including Nanjing, Changsha and Hefei. The number of active stock grow quarter over quarter and the number of active agents increase quarter over quarter in 40 cities including Shenzhen.
There is no significant network function needed going forward in Xorai.
A large number of practitioners left the industry.
following the recent round of market corrections.
under way belief. Many of them might not retain even when the market recovers.
Therefore, looking ahead, we do not expect rapid growth in the number of stores and agents industry-wide, in short, to medium term. And the number of stores and agents on our platform will also remain relatively stable over coming quarters. Thanks so much.
So study improvement in stock and agent productivity facilitates organic business growth.
We believe increasing per stop and per acre income is the key to the organic growth.
The industry has shifted away from the frenzy of the Pew skills function towards the pursuit of the refined high quality services.
Only in such environment can service providers who take care of customers to stand out from the pack and to see the improvement in their living conditions. In 2021, the average income of B&J agents nationwide was still far below the average local salary.
77% and 63% of average and median local salary respectively.
and 63% of average and median local salary, respectively.El dicha
While maintaining a relatively stable scale of the store and agent on our platform, we hope to support each high quality store and agent to grow randomly the profit.
thereby realizing the high quality and sustainable growth for the overall business on our platform.
The productivity also improvement.
the productivity improvement has delivered results. Overall speaking, we implement a series of strategies, including reforming loss-making stores.
the productivity improvement has delivered results. Overall speaking, we implement a series of strategies, including reforming loss-making stores, not in the large stores.
facilitating the business shift from the new homes to existing homes, and focusing on the key new home projects. We insisted on taking care of agents and help agents and store owners transcend the cycle.
Although it takes time for our efforts to pay off, we have observed the clear coverage in stock and agent productivity on our platform.
In the sub-quarter, while GTV on Baker dropped by 11% and our revenue fell by 3% year-over-year, the unit stock mission revenue of our front-rest and connected stock on Baker platform grew by 25% and 26% respectively year-over-year and 14% and 12% respectively quarter-over-quarter.
Meanwhile, Commission revenue per agent of ConnectStore rose by 25% year-over-year and 9% quarter-over-quarter.
Of course, there are structural regions.
that partially expand increase, but overall store and agent income on bigger platform has been improving. Just take Zhengzhou as a showcase.
due to market corrections, our revenue in Chengzhou decreased by 43% in the fourth three quarters and 23% year-over-year in the quarter.
However, our operating profit margin in the city rose significantly from last year's average of 60%.
to 24% in the sub-quarter.
Our breaking profit grew by 69% for the fourth three quarters and was 14 times in the third quarter compared with the same period of last year.
While we improve the profitability in Zhengzhou as a whole, the connect store in Zhengzhou have also achieved.
significant improvement in their operational and financial performance. In this quote...
their unit stock emission revenue grew by 57% year-over-year and 14% quarter-over-quarter. Looking for the future in the year of 2023, assuming market enters a period of steady recovery, we hope to have more agent stock to reach above the bright line.
Regarding your second question, first I need to answer this again. The biggest by the way is minimal.
mainly for three reasons. Number one, Aspica continue to increase the cooperation with the state and centrally owned developers.
They are accounting for an increasingly higher proportion of our new home sales.
In subculture, the proportion of the new home cells from state and central developers further is pumped by 5%, quote unquote, to 42%. Number two, the new coverage on the data crisis created a so-called halo effect, giving the impression that the majority of the private developers are in a data crisis.
but in the real world. The significant number of the local private developer remains crisis free.
Contrary to the common perception, this is a more yet strong device.
with low leverage are our important co-op partners.
Meanwhile, BICOT does not subject to the concentration risk.
We currently serve more than 1000 private developers, of which only 6.
who each count for more than 1% of the total cells contribution.
The robust housing of our local private developers and our low business customer concentration empower Bakers to maintain active control of our risk exposure.
We continue to increase the coverage of the Commissioning Advanced Model, particularly among the private enterprise.
The percentage of the revenue from the Commission in the Box model to the total private developer, new home revenue. The total revenue from the Commission in the Box model to the total private developer, new home revenue.
In cities, I schooled Beijing and Shanghai, already exceeded 32% in 4.75 and reached 44% in September .
As such, a further deterioration in the operating conditions of a single or even multiple private developers will not have a material impact on our counter-silver connections.
And number three, we are equipped with an industry-leading risk control strategy and a strong button power. We have never slackened in our new home risk control measures. And the new home receiver for collection is called KPI in this year.
This year, we continue to strictly manage our DSO with an emphasis on the detection and prevention of risk in advance, revenue safety, and the settlement of the historical symbols
There are some examples of up-form risk detection and prevention. We continue to iterate of the reference risk assessment system to conduct up-form risk detection and classification.
We also strictly managed the cooperation with developers in accordance with different risk levels.
Contrary with the high risk developers are completely prohibited and only with advanced commission payments and the settlement of the historical receivables can such cooperation be resumed. findings.
Moreover, safeguard our newly generated revenues, comprehensively expand the scale of the Commission-in-Defense payment and the percentage of the cooperation with the State and Century-owned developers.
In addition, we also resolve to the legal remedy as much as possible against the high-risk developers with delinquent accounts to ensure receivable preservation.
Conduct corporate-to-corporate cooperation with the low-risk developers to reach the settlement agreement on receivables in a rare to expedite the settlement of historical receivables.
As a result of the serious initiatives, in Q3, our new home sales cash inflow reached 9.27 billion, almost 10% higher quarter over quarter.
While the book value of our new home receiver decreased to 6.15 billion, the receiver correction cycle shortened by 30 days to 78 days in Q3.
in the fourth record of this year.
Our cumulative new home transaction revenue reached RMB 20.4 billion.
But our cumulative cash collection reached RMB 26.4 billion.
Our counting treatment against the beta provision has always been
Put it with the maximum provision.
For almost all of the developers who had previously generated default risk, the maximum amount receivable was booked as a better provision.
Meanwhile, we are in an effective and indispensable channel for developers to generate sales and resume liquidity.
We continue to receive the questions from the developers.
which will previously recognize the BIDAT provision. Therefore, in Q1 and Q3 of this year, we were able to write back provision for the BIDAT in amount of RMB 150 million and RMB 195 million respectively.
While our cumulative beta provision amounted to almost RMB 2 billion, covering 32% of the new home concerts available.
We think this is a sufficient beta provision and there is very little chance for a large amount of one-time beta provision in the future. Given to our highly decentralized business and the implementation of the strategic risk control, we believe our new home receivable will continue to become more secure and our data from the new home source will not be lost.
the carrier rate, maturely and if other. Thank you. The next question comes from Li Peng Zhao with CICC.
rate, maturely and further. Thank you. The next question comes from Li Peng Zhao with CICC. Please go ahead.
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So since the consolidation of Chengdu in second quarter, the company has achieved many progresses in terms of home renovation and furnishing infrastructure capabilities and also the enhanced cooperation with transaction business line. Looking ahead, what's your development strategy of this business and how will you balance the growth and investment of this sector? Thank you.
Okay, I'm standing. Thanks for your question. The home renovation of furniture industry is relatively capital intensive and has many international opportunities. We have our standing to study industry that requires high standardization and transformation through technology. Our standing, first, we must not rush. It took Baker and Langea 20 years of development to get to where we are now and we are now.
It's the same for home renovation and furnishing. We need to look at the growth with the time horizon of three years for the business. And its gradual start does not mean that we will not reach greater heights in the future.
Second, to achieve long-term growth, we should cultivate needed capabilities and resolve the major outstanding issues in the industry.
We have observed the following areas in the industry where challenges are needed. One, there is no online services with great home renovation and furniture experience provided in China.
Two, in terms of production of localized home renovation and furnishing products tailored for the Chinese market, the industry is still relatively weak.
Three, the home renovation and the furniture and services are not standardized. Four, professional skills of service providers need to be improved. Five, we need to identify possible areas of innovation through structural changes in technology, materials, process and methods. First, these are industry problems and opportunities.
We need to leverage our storage network to traffic and provide more and better products.
At the same time, we need to upgrade our capability to capture these opportunities and realize long-term goods.
Therefore, we need to stay fast and target investment in areas that will enable us to provide more products and iterate on capabilities for long-term benefits instead of making investment to stimulate short-term growth and expand scale without bringing our capabilities.
That is why we are not going to advise heavily, but rather invest in service training. For example, our Huanqiao Academy spent months developing courses for home renovation service providers, home renovation managers throughout the country only to take full-time training for three to four days, during which time we will be missing out on...
in the industry inadequate. Going forward, we will engage in more refined development and operations to provide targeted products for different user groups, such as products for old neighborhoods and on upscale residential communities.
If we do not invest in these areas, it means we have stopped in our tracks without struggling for long-term growth. These investments are necessary as they match our vision and expectation for the future.
Of course, during our advancement, we require our business to manifest its capability in growing from zero to one and fostering a virtual cycle of quality, efficiency and skill.
So in summary, there are ample opportunities in the industry as customers have needs and we want to meet this demand. As such, we will calculate our capabilities and harness our resources rationally. In my view, it does not make sense to make an investment in this industry for male financial gains.
or short-term revenue growth. All investments need to drive better development over a long time frame. That's my answer to a question. Thank you.
We are now approaching the end of the conference call.
I would now like to turn the call over to your speaker host today, Ms. Siting Li, for closing remarks. MS.
Thank you once again for joining us today. If you have any further questions, please feel free to contact the Bay Coast Industrial 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.
Thank you. The conference has ended. You may now disconnect your line.
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Hello ladies and gentlemen.
Thank you for standing by for K.E. Holdings, Inc.'s third quarter 2022 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. Siting Li, IR Director of the company. Please go ahead, Siting. Thank you, operator.
Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.'s third quarter 2022 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. Sating Li, IR Director of the company. Please go ahead, Sating. Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings or BECA's third quarter 2022 earnings conference call.