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spk02: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings Incorporated's first quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. Today's conference is being recorded. I will now turn the call over to your host, Mr. Matthew Zhao, IR Director of the company. Please go ahead, Matthew.
spk07: Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings Inc. Obake's first quarter 2021 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, www.investors.ke.com. On today's call, we have Mr. Stanley Yongdongpeng, our co-founder and chief executive officer, and Mr. Tao Xu, our chief financial officer. Mr. Peng will provide an overview of our statistics and business developments, and Mr. Xu will provide additional details on the company's financial results. Before we continue, I refer you to our Steve Harper statement in our earnings price release, which applies to this call, as we will make forward-looking statements. Please also know that because earnings price release and this conference call include discussions of an audit gap financial information as well as an audit non-gap financial measures. Please refer to the company's press release, which contains a reconciliation of the audit non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in人民비. With that, I will now turn the call over to our CEO, Mr. Stanley Peng. Please go ahead, Stanley.
spk01: Thank you, Master. Hello, everyone. and thank you for joining us today on our first quarter 2021 early conference call. We are very grateful to have achieved operational and financial results in the first quarter that considerably exceeded expectations. Thanks to the tailwinds from China's robust economic growth following the COVID-19 pandemic and adherence of the national policy, housing for living, not for speculation. as well as our unwavering focus on the long-term goal of delivering an excellent consumer experience through quality service. Our total GTV grew rapidly to 1.07 trillion RMB, up 224.2% year over year. Meanwhile, the self-reinforcing virtual cycle of efficiency and scalability driven by quality service was further enhanced on our platform. We continue promoting industry digitalization by further building online infrastructure. In the first quarter, our housing dictionary contained data for over 244 million homes in China. Average MAUs, including our platforms, apps, and the retail mini programs, reached four million homes. $48.5 million in the first quarter, up 78% year-over-year. The expansion of our network scale also continues at a robust pace while we remain focused on the quality of our network. By the end of the first quarter, the total number of Canadian stores reached 48,700, up 25.4% year-over-year. seamlessly and win-win collaboration among stores and brands continue to prevail on our platform. In the first quarter, 76% of transactions on our platform were completed through cross-store collaborations and the transactions completed through cross-brand collaborations remains steady at 36% on our platform, while connected stores accounted for 83% of existing home listings. In addition, we continuously supported our connected stores and brands in recruiting, cultivating, and retaining agents in the first quarter, which led to 41.8% year-over-year growth of the number of agents on our platform, reaching a total of 500 and 28,000. With that overview, I would now like to provide you with some color on our existing home transaction services business. Total GTV of existing home transactions in China grew 133% year-over-year in the first quarter. The substantial gain was impact due to the low base in 2020 caused by the severe impact of the pandemic. as well as the impact of some structural transaction growth at the regional level. On our platform, GTV of existing home transactions reached 673.4 billion RMB in the first quarter, increasing 244.2%, and Unistore GTV of existing home transactions achieved 174.7% year-over-year expansion. continuously improve service quality and efficiency of Canadian stores were the primary drivers of these robust gains. In the fourth quarter, we initiated an agent specialization strategy, which encourages agents to focus on either existing home sales, new home sales, or home rentals, rather than their traditional mixed functions in the industry. added by the cooperative mindset we forced among agents, along with clearly defined roles and performance-based commission allocation mechanisms. This strategy helps agents sharpen their focus, cultivate stronger professional service capabilities, promote efficient customer conversion across different offerings, and ultimately improve store efficiency and consumer experience. The agent specialization strategy has proven very effective in enhancing consumer endurance and store efficiency. Taking the pilot city of Hangzhou as an example, over 50,000 agents were assigned to different roles in the first quarter. Unit store GTV was 11% higher in the store where agent specialization was implemented. compared to stores that have not divided agents for functions. By the end of the first quarter, we had implemented this mechanism in 20 cities, covering 17,700 and 800 stores. Given the encouraging early results, we plan to adopt this strategy in batches in at least 30 cities this year. In order to create value for our consumers one step further and improve the real estate transaction process, we began opening offline contract service centers in our major cities. Our goal is to further guarantee transaction security, streamline the signing process, and enhance the efficiency of multi-parties. The real estate contract and signing process tends to be very complicated and often requires comprehensive knowledge across financial, legal, and tax fields. The lack of professional service offerings that fit these needs left consumers opposed to transaction risk. Our contract service center addresses exactly this pain point as they become the go-to location for contractors customers regarding all contract related services. The process is completed with a professional contract manager to ensure compliance and full risk disclosure, which provides a safe, efficient, and convenient contract endurance for our customers. By the end of the first quarter, we have opened 74 contract signing service centers in 21 cities. switching gears to our new home transaction services. In the fourth quarter, GTV for new home transaction increased 96% year-over-year in China, which was attributable to the low base last year, as well as developers drawn incentive to accelerate sales through. GTV for our new home transaction services was 343%. 1.4 billion RMB, up 194.9% year-over-year, driven by the 220% GTV growth of kinetic stores and other channels as we continue to enhance the efficiency and professional training to our kinetic agents. on par with our stellar financial performance. We also made a substantial stride in new home transaction in digitalization content, enriched an ecosystem governance. This aim to empower service providers such as developers and continue to enhance the service quality and maximize value for the customer. As we communicated during our first quarter earning call, we are dedicated to build online content for new home transactions to improve the consumer experience, online penetration, and facilitate this segment's digital transformation. As of March 31, we enriched comprehensive and multi-dimensional information for more than 10,000 new home sales projects on our platform, covering 34 cities and offerings consumers with more online information such as 3D property book, through data processing. Together with platform and AI generated online content, such as evaluation, assessment, reports, and AI housing layout plans, we were able to better satisfy the consumer's needs for new home online information. We also optimized our new home sales traffic and lease acquisition strategy, thanks to all these initiatives. We generated on average a 10% increase in new home customer leads in those 34 cities in the first quarter and significantly enhanced the online experience for customers. Moreover, we launched a new home business conduct improvement plan to advocate for a transparent and healthy new home sales environment based on governance and a better collaboration mechanism. in the new home transaction services. Our goal is to facilitate a fair, safe, efficient, and orderly ecosystem for the new home transaction services that addresses the improper priorities that have existed for a long time, such as vicious competition for customers, customer information leakage, and forced rebates. By promoting governance mechanisms in the industry, including rules and protocols as well as the capability to implement them, we aim to protect agents' rights and offer a sense of security and certainty to them. Eventually, this would substantially protect the legitimization interests of developers and improve agents' efficiency and income. enhance the customer experience, and create a virtual cycle that enhances the overall operating efficiency of the new home industry. In the first quarter, we implemented a verification system at the agent level and put in place city-level supervision teams. We have also signed agreements with 91% of developers on our platform on five don'ts. making a firm commitment to the developers and the overall industry for new home for new homes another important initiatives is the new home sales empowerment plan by cultivating dedicated agents with the expertise on new home transaction services as well as online and offline full and spectrum customer acquisition capabilities. The plan caters to consumers' different needs when purchasing new home projects compared with existing homes. At the same time, the portfolio of new home sales channels we offer to developers is further enriched, better meeting their needs for more focused and efficient sales channels. Lastly, our emerging sources. We have made steady progress in home renovation services and financial services. We completed 451 home renovation units in Beijing in the first quarter while progressively iterating the infrastructure including multiple self-developed systems. Among them, our self-developed BayWall beam system version 1 was launched in the first quarter. As part of the industry infrastructure, the BayWall beam system successfully digitalized home renovation and decoration design. For designers, the beam system enables automatic drawing output, accurate real-time quotation, and the generation of digital build of materials. as well as accurate VR design efforts supported by the VR capability available on our platform. This not only solves the industry-wide problem of visualizing and translating the abstract design from the designer's mind, but also lays out the foundation for the final construction feasibility with higher enhanced data accuracy. For customers, it's gradually reinforcing the notion that on our platform, what you see is what you get, and empower them to take control of renovation costs in real time. The service reliability is greatly enhanced. We believe we have established the industry-leading position in the infrastructure we provide for home renovation and decoration, including the system, products, and applications for both consumers and service providers. In terms of financial services, recognizing 60% of sellers in the existing home transactions have a demand for property redemption, we promoted the Anxinbao products to meet owners' redemption needs more efficiently. And at average, 26% decrease in cost. At the end of the first quarter, this product had entered seven cities, improving the overall transaction experience for homeowners in existing home transactions. In summary, 2021 is off to a strong start. We financial, our financial and operational performance has spotlighted our core strengths and we continue to gain traction with our AC network in new and existing home markets. The national policy of house are not for living, not for speculation, that underpins the foundation for a steady and healthy real estate market provides added support to our mission to transform the housing transaction and service industry in China. Going forward, we will continue to involve our business and invest in initiatives close to our core while creating a new and better normal for the industry, building trust and increasing value for everyone along the way. With that, I would like to turn the call over to our CFO Xu Tao for a closer review of our financial of our first quarter financials. Thank you.
spk05: Thank you, Stanley. Thank you, Ivan, for joining us. I would like to provide a brief overview for our first quarter of 2021 financial results. We are pleased to deliver another strong quarter of financial results marked by high revenue growth and a strong profitability. Our net revenue increased by 190.7% year-over-year to RMB 20.7 billion in Q1, exceeding both high ends of our guidance and the street consensus. The rapid growth of net revenue was driven by solid GDP growth of 224.2% year-over-year to RMB 1.07 trillion. The high growth rate in the first quarter of 2021 was primarily attributed to a lower base unicity period of last year on the entire 2019. However, although they experienced the impact of Chinese New Year in Q1, our net revenue in Q1 still surpassed the revenue in both Q2 and Q3 of last year and only declined single-digit on a sequential basis, demonstrating the strong momentum of top-line growth. In particular, our net revenue from existing home transaction services increased by 200 and 2.1% a year to RMB 10.2 billion in Q1. Managed due to a 244.2% year-over-year increase in GTV of existing home transactions to RMB 673.4 billion Q1. On net revenue from new home transaction services, increased by 187.6% year-over-year to RMB 9.9 billion Q1. Managed due to a 194.9% year-over-year increase in GTV of new home transactions to RMB 343.4 billion Q1. Our net revenue from emerging and other services increased by 96.2% EUR to RMB 0.6 billion Q1. The increase was primarily due to an increase in GTV of financial services around housing, transportation services, as well as increased the number of home decoration units completed through Comfort Supply Hall, Bay Ward. Cost of revenue increased by 140% EUR to RMB 15.9 billion Q1. Growth profit increased by 860.4% year-over-year to RMB 4.8 billion Q1. Growth margin increased to 23.3% from 7% in the same period of 2020. The increase in growth margin may be attributable to a low base in the first quarter of 2020 under the impact of COVID-19 outbreak. Operating expenses for RMB 3.8 billion Q1. compared to RMB 2.1 billion in the same period of 2020. General and administrative expenses for RMB 2.1 billion, compared to RMB 1.1 billion in the same period of 2020, mainly due to the increase in high top as well as share based composition expenses. Sales and marketing expenses for RMB 1.1 billion, compared to RMB 577 million in the same period of 2020. Many due to increase the online-offline advertisements and the branding campaigns. Research and development expenses for RMB 638 million Q1. Compared to RMB 451 million in the same period of 2020, many due to an increase of high cost in experienced RMB personnel, as well as increased share based competition expenses. Income from operations for R&D 1 billion in Q1 compared to loss of operation R&D 1.6 billion in the same period of 2020. Operating margin was 4.9% in Q1 compared to negative 22.9% in the same period of 2020, primarily due to the increase of net revenue and impact of COVID-19 operating in last Q1. Including non-GAAP items, Our adjusted income from operation was RMB 1.6 billion in Q1, compared to adjusted loss from operation of RMB 1.5 billion in the same period of 2020. Adjusted operating margin was 7.6% in Q1, compared to negative 28.8% in the same period of 2020. Adopted EBITDA was RMB 2.0 billion in Q1 compared to negative RMB 1.2 billion in the same period of 2020. Net income was RMB 1.1 billion in Q1 compared to net loss of RMB 1.2 billion in the same period of 2020. Accruing non-GAAP items Our adjusted net income was RMB 1.5 billion in Q1, compared to adjusted net loss of RMB 1.1 billion in the same period of 2020. Net income attributable to Kerr-Holding Inc. ordinary shareholders was RMB 1.1 billion in Q1, compared to net loss attributable to Kerr-Holding Inc. ordinary shareholders of RMB 1.9 billion in the same period of 2020. Adjusted net income attributable to Kerr-Holding Inc. was RMB 1.5 billion in Q1, compared to adjusted net loss, attributable to per-holding income of RMB 1.1 billion in the same period of 2020. Diluted net income per gap, attributable to per-holding income of ordinary shareholders was RMB 0.88 in Q1, compared to negative 3.92 in the same period of 2020. Adjusted diluted net income per ADIs attributable to crowdfunding into ordinary shareholders was RMB 1.25 in Q1, compared to negative RMB 3.64 in the same period of 2020. As of March 31, 2021, the combined balance of our cash, cash equivalents, restricted cash, and short-term investments amount to RMB 62 billion, or US dollar 9.5 billion. Looking forward to the second quarter of 2021, we expect our net revenue to be between RMB 22.5 billion and RMB 23.5 billion, representing an increase of approximately 11.7% to 16.7% from the same quarter of 2020. The directly low year-over-year growth rate of our revenue guidance mainly due to the higher base in the same period of last year, which results from meaningful portion of transaction shift from Q1 to Q2 out of the COVID-19 outbreak. This business outlook reflects Congress's current and preliminary view of the business situation and market conditions, which is subject to change. Meanwhile, since our business operations have been negatively impacted by COVID-19 outbreak in Q1 last year and the meaningful portion of the transaction has been shifted to Q2 of last year. We suggest investors to look at and compare financial performance as a whole for the first half of 2021 versus the first half of 2020 to better reflect our business progress. Last but not least, we noticed a certain during the first quarter to control overheated housing price, which may bring negative impact to the regional real estate market in the short term. Nevertheless, we believe that a stable real estate market is beneficial for the sustainable development of the vehicle and the whole industry. Since the rising and upgrading amount of customers remains the mainstream in the housing concept market, we believe our industry-leading service will continue to attract more customers and allow us to mitigate the shortened fluctuations in cities. In conclusion, with a long-term outlook and a market-neutral view, we are confident in our growth trajectory. Our commitment in consistently enhancing our efforts in bringing value to consumers and empowering the service provider will continue to support the real life of our future. That concludes our prepared remarks. We will now open the call to questions. Operator, please go ahead.
spk02: As a reminder, to ask a question, you will need to press car 1 on your telephone. To withdraw your question, press the pound or hash key. please stand by while we compile the Q&A roster. 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're going to ask a question in Chinese, please follow with English translation. Your first question comes from the line of Elsie Chen from Goldman Sachs. Please ask your question.
spk03: Stanley, Matthew, good morning. Thank you for accepting my question and congratulations to the company for its strong performance this quarter. I have three questions. The first question is about the first quarter, the first improvement of our chain and third-party stores' efficiency. I wonder if you can share some of the main driving forces behind the improvement of efficiency. such as technology or the drive of managing efficiency, etc. The second question is to ask the management team how they view the state's anti-bundling supervision of platform-based enterprises, and whether it has an impact on the company's business. The third question is, as Tao Ge mentioned, how we view some trend-based developments in red-light real estate, and the main direction of some regulation policies in each city, the impact on the company, and some of the future policies and business expectations. Thank you, management, for taking my questions, and congrats on the strong quarter again. I have three questions. First is about efficiency at Lianjia and 3P stores. Can we share a bit more color into the GDP per stock growth, as well as the main drivers of the growth of the quarter? And then second is on the antitrust regulations in China. How does management think about the regulatory environment and the impacts to our company, if any? Third is about the macro and housing industry. where we've seen some tightening policies in a couple of Tier 1 cities, and what would be the impact from those cities, and how should we think about future trends? Thank you.
spk05: Thank you, LC. Regarding our store efficiency, for the first quarter of 2021, the average TV per store officially we decreased two percent. Our proprietary brand of Lihejia, Yellow Bear, this increased 182 percent and the Kotal of Kotor increased two percent. Our Connect Store increased Yellow Bear 193 percent, whereas Kotal of Kotor increased five percent. The year-over-year increase is mainly due to negative impact of COVID-19. Because last year, due to the COVID-19 outbreak, we shut down our business for one and a half months to secure the safety of our agents and clients. During that period, our VR2 was not only effective but developed very well. So lots of meaningful potential transactions For the quarter-over-quarter decrease, this is all into the 1990s, because normally, every Q4 is a strong quarter. Every Q1 is a relatively weak quarter, all into the Chinese New Year holiday. But if you look at this Q1 versus Q1, it was last Q4. The number for this quarter is very meaningful, because even though we have the impact for the Chinese New Year, but the effect of quality, efficiency, and scalability quarter, and the peak season of the first quarter did not show much impact. And the Q1, we still delivered a robust result, and the number exceeds last Q2 and Q3. Looking back in 2020, GDP per store for our private brand of VHR is $164 million. To a year, it's $48 million. And out of tonight's store, that's $36 million. By the end of 2020, there were more than 31% of stores passed the $50 million bright line. Looking forward, this number increased to 36.7% in this quarter. That means more than 17,000 stores in Bitcoin platform already passed the $50 million bright line. We anticipate by 2025, more than 90% of all stores on Bitcoin can pass the $50 million bright line. According to our IPO model and set 2019 as basis, and we are very confident that our particular brand of D&J from 2019 to 2024, the paper every year will be reached 11% to 12%. And the connect store efficiency will reach 15% to 16% per year. In the long run, we would like to say that ASIN will continue to reveal its network effect. the new home cell species development, increased efficiency given for the scientific store management, and the quality service bring customer satisfaction. All of these will further enhance store efficiency. Regarding your questions for recent antitrust regulation, it comes from Baker. Baker consistently operates within the bounds of the laws, regulations, through the whole GP mechanism. Baker insists and are committed to promote the healthy environment of the industry, devoted in solving the authentic property listing. This problem caused by the housing, supply, and demand balance. And Baker is striving to be an outstanding company in full compliance with the rules and the regulations. Fundamentally, our understanding of the anti-trust governance is to regulate and promote healthy and sustainable industry development Facilitate industry integration towards being more platform-based, digitalized and automated. And to prevent the disorderly functions through capital investment that damage the orderly and the denied computational environments. Regulations are in place to promote the health development for the industry and encourage development to non-public sectors in the economy. Through this round of frequent communication with government authorities as a corporate citizen, we are even more determined to take social responsibility as a top priority. At the same time, the government also gained a better understanding of a bigger space model and the contribution we have made to help the industry grow and the integration over the past 20 years. Baker sincerely welcomes the supervision, compliance, and suggestion from customers and the public so that we can fix the problem and integrate ourselves and try to give back to the society. At the same time, we are also very grateful that the regulatory authority for their understanding and guidance on our business and the recognition of what we have brought to the entire industry. Regarding your third question for the macro economy and some policy change, for our understanding, the Central Economy Conference in this year addressed the real estate market, the people's livelihood, the welfare. That is, we always mention housing for living, not for speculation. And this is the key policy to promote a steady and healthy development of this market. The goal for this policy is to protect health development of the market and not to punish the president. Based on the judgment in this year, some cities have been introduced rapidly mild measures. These measures have effectively prevented the market from overheating in some cities like Shenzhen, and avoided severe measures and greater fluctuation down the road, and forced the market with stable growth, which From a macro perspective, what governments want is stability. It's not freezing. In other words, the market cannot too hot and cannot too cold. And the moderate growth market is beneficial to the China economy, especially post-pandemic period. A market with reasonable volatility is the best market to prevent drastic hits and troughs that sometimes people who forward future transactions and that this is very conducive for the operation of the company that has a long-term and market-neutral outlook, such as we do. Because at Baker, we want to align with government's demands, which is steady transaction volume for the long run, instead of benefiting only during the peak seasons. From a macro perspective, obviously, we see an over-regulated policy to curb speculative demand in the market. with the goal of squeezing out. But the mainstream demand will still exist in the market, such as the rigid housing demand and the people's willingness to upgrade demand will be gradually released. All of this demand will be gradually released in the remaining months of the year, and the world will work on to fulfill it. Although some cities need to be cooled down, but the remaining construction in most of other cities will be still secured. So from this perspective, we do not believe nationwide transition volume will be significantly affected. One case of references is including the GTV in other K-1 cities like Beijing, Shanghai, Guangzhou, and Shenzhen. So our GTV in March compared with January still increased by 55.5% in March. As the national platform allows us to mitigate the cyclical fluctuation in few cities, confident to deliver the best results for the rest of the year. The 19 years history of Baker and Lianjia has proven that a neutral market with a balanced supply and demand provides the best foundation for our long-term development. And our calls of development from 2017 to 2020 also demonstrate Baker is a firm supporter and the beneficiary of the national policy of House for Living, Not for Specifications. Thank you very much.
spk02: Thank you. Your next question comes from the line of Thomas Chung from Jeffrey. Please ask your question.
spk00: 早上好,謝謝管理層介紹我的提問。 我的這個問題是關於我們對下半年的展望的。 管理層可以分享一下我們對今年下半年從這個GTV Thanks management for taking my questions and congratulations on a very solid set of results. My question is more about the second half outlook as well as the trend for different segments. Can management comment about how the trend will look like for the GTV revenue and the profitability together on a bi-segment basis? How should we think about the trend for the existing home, new home, as well as the emerging services outlook as we come to the second half? Thank you.
spk05: Okay, thank you, Thomas. And regarding the first question, for our second half outlook, because Bitcoin has delivered the better than its present financial performance in the past three quarters, it continues to have the IPO. So looking forward, we have the confidence to continue to deliver strong growth for the rest of the year. Just now we gave the Our guidance for Q2 revenue is $22.5 billion to $23.5 billion. The year-over-year ratio has an 11% to 16% increase. So in 2021, the fundamental purpose price going up too fast and the regression now. So I just as I just answered the question to IOC, we still thought the second half of our market will be stable and healthy all into the right amount and the people's willingness to change to continue to improve the living conditions. So we do not believe the nationwide transition volume will be in effect. So we are very confident to deliver the robust results for the rest of the year. This is our answer to the first question. The second is regarding the question for our take rate and our commission rate. So I think this question will iterate from time to time during the year of course. The level of commission rate actually reflects the service quality. transaction efficiency and number of service expansion will offer. Today, China's residential market, both for the new home and the new home, is a market with full competition and a balanced supply and demand. The platform cannot and does not have the capability to actively control it, namely raising the commission rate without being justified by the service quality, transaction efficiency, and the number of service guarantees offered is not sustainable. Especially for the new home sales market, it's a difficult to be market. Developers are more at the dominant position. Just a number of costs. In our past four years, owing to Baker's strong efficiency and excellent service quality, our new home commission rate most definitely increased from 2.55 to 2.66, 2.71, and 2.74. And in the first quarter, our commission rate for the new home is 2.89. maker that don't have any intention to increase our initial rate. Instead, we will focus on to pioneer with the developers to jointly and continuously promote by the customer experience. And so, for example, we are doing the, we're together, we're partners for the open new home buying process on this product agreement. In the past three years, our proprietary brands of Li & Jia's commission rate gradually grows from 2.3 to 2.4, and the Canadian store gradually grows from 1.89 to 2.07. In the future, we still see a change in commission rate while continuing to rely on the progression of the service quality, efficiency, and the service we offer to clients. This is regarding your second question. Regarding your last question for our emergencies, our financial services, and for our decoration, let me talk about the renovation and decoration first. In 2020, for the renovation and decoration, the total country standing is 2,500, and we And in this Q1, even there is some impact for the Chess New Year holiday, but we still complete the project with 551 units. And we recently foresee post-contract signing that the number of unit decoration complete in 2021 will be doubled to Paris 2020. The very important thing is we believe the key success factor for decoration construction business are customer acquisition efficiency, control over key talents, and control over delivery process, and the service quality. And this market in China is big. It's around 3.6 trillion in 2020. And with low market concentration and growth rate in the next five years, we estimate it will be 5% cheaper. which leads to a huge amount of opportunities. So, we have our inherent beneficiary. We are doing this. First, we have the significant advantage in customer acquisition. The industry customer acquisition channel was very fragmented. Since FACO has leveraged up the advantage from the existing home transactions, and we anticipate the 6% class of existing home transactions are strongly related. This is strongly related to security demands. In addition, we have a powerful gene on the online-offline integrated capabilities. And the Baker have a powerful offline management and empowering gene and have a rich office experience. So we recently foresee our system is rooted in the business demand that continues to increase. uh to to to improve effectively assist the management operation and the new command the business roadmap to assist realize overall control quality of the workers in the progress and for our financial business the growth of financial service gtv in q1 received our expectation this mainly due to our sustainable growth of our new home transaction services and our stable financial service penetration rate And regarding the marketization rate of financial services, this was mainly due to the fact that the Q1 market is very volatile, and the major cities have undergone various regulation adjustments, and the consumer's tax liability, as well as other friction costs have been increased. we sought nature of financial services to assist with the in-home transactions and help consumers to complete the transaction. So we have strategically launched and expanded the scope of free financial services in some cities, especially the current type of services. So it's actually reflected we pass over some benefits to our transaction business by providing some reliable financial service free of charge to our customers, and we are not very hurry to realize that part of profit from those services soon. And this is also in line with natural policy of house for living and not for speculation. We will continue to support them, the neutral market view, and do things good for consumers. Okay, hope this clarifies. Thank you, Thomas.
spk01: Thank you. I would like to add something about this new business. First of all, we see that many of the Chinese markets belong to residential areas. They are all relatively large. But many times we see that the experience is relatively poor. At the same time, there are no particularly large players. The process is also particularly complicated. So we did the chain and then the shell. We should have shared it last time. First do it vertically, then do it horizontally. Such a complex industry must be understood. So do it vertically is to lay out the standards. There are no very strong standards in such an industry. So we first do it vertically and then horizontally. What we see today in the new track is also a similar principle. Like decoration is also a very big industry. The core is that there are no standards. Let's look at it ourselves. There are only three standards in such an industry. The first standard is the standard of people. because there are service providers in this industry. So what is a good service provider? It needs to redefine the standards of people. The second one is about the standards of the entire process of service. That is, how to disassemble and connect each link. This is the standard of this process. The third one is about the system and data standards in this process. Because in this industry, the degree of digitalization is not very high. But because there is no underlying system, There is no standardization of the process, so it is difficult to implement the data. Therefore, we enter the new track based on this idea. It is based on our previous methodology. First, we do it vertically, and then we do it horizontally to break through this gap. So I just shared that we are in the new track today. In the data, BIM, and many of these underlying systems, and on the rules and standards, to do a certain kind of relay. But I think maybe I would like to emphasize that the new track is a big opportunity, but we also need to have a stronger foundation and a longer vision to be able to deeply change such an industry. So we usually make a weekly look at the changes of the new track every three years. So I think this is a general idea of the new track. Thank you.
spk07: Hi, Thomas. This is Stanley. Let me add on in terms of our philosophies to develop the new business in the future. So firstly, when we look at the new business, we always look at the big potentials or big market size in those kind of areas. We notice around the residential topics, there always be some of the big market potentials, such as renovation or decoration. And when we notice those kind of industries, they always have some of the common pain points such as overall user experience extremely low and there's you know the overall players in the market are quite fragmented as well as the overall service procedures are quite complicated. So based on our past 19 years of experience from the Lianjia's practice to Baker, we believe the transforming of the industrial internet will definitely goes to the routine. Firstly, doing deeply, then doing horizontally. So WebID is the only way to do that, right? Especially when we're doing deeply, it means we will dig deep into that industry and understand the standard. and build up a new standard for the services. So in the past 90 years, we actually get a couple of the takes. Firstly, it's what we used to call the three standards, right? So firstly, it's about the service provider standard. What kind of services could be called the good services and how we define that. So that will be the first thing is we can further empower to the service providers in the industry such as decoration and the renovation. And secondly, it's a standard for the overall service procedures, right? Especially, for example, like the renovation business during the whole construction part and how we can provide the SOP as well as define of the new standard for the overall services is what we continue to work on. And the third part, it was a standard for the, you know, the standard for the data and as well as the system right so we notice uh the industry such as all the markets such as decoration there's no systematic data has been online and has been digitalized. So that is why in the past period, we really focused on how we can build up the standard, how we build up the protocols, as I hope you mentioned during my prepared remarks. For example, we also build up the BEAM system as well as other initiatives in order to further increase of the standard as well as the protocols understanding for this part of business. So in summary, when we look at the new business, as I mentioned, we always have the full commitment as well as the endeavor to further transform of that power business. So we strongly encourage the investors to look at our efforts for the new business at least on the three-year basis, right? And that will give us more confidence to continue and prepare more efforts to further transforming of the new business in the future. Thank you.
spk00: Thank you.
spk02: Your next question comes from the line of Philippine Zhao from CICC. Please ask your question.
spk04: Hi, Stanley, Tao Ge, Matthew. 早上好。 我这边有两个high-level一点的问题。 那第一个问题呢是关于我们的新 房业务。 那市场普遍认为呢, 新房业务相对于存量房业务起量的话, 它的这个门槛要更低一点。 那么在新房市场向渠道驱动的这个转型过程中呢, 也会有一些新的玩家进来。 In this case, what is our core competitiveness? In the first quarter of this year, we are also pushing the management decision of the 12-person manager branch. From our own point of view, there are some capabilities in the new room that need to focus on training and polishing. The second question is about some transactions in our mass room. Compared to some of the existing competitors, for example, the sales team of the property industry, our backup platform has a very clear advantage in the human resource matching, but in the latter part, we have no idea how to reduce the number of customers and so on. In the long term, does the ACN network have the hope to expand some I have two questions here. First one is related to the new home transaction. Some believe the entry barrier of new home transaction business is relatively lower compared to existing home transactions. There are more players in the market recently. what is Baker's core competitive advantage in new home transaction and what's your strategy to protect and gain more market share? And second question related to existing home transactions. So compared with property service companies, Baker has strong efficiency in matching buyers in the listed homes. However, those property service companies have their advantage of being localized payers. and tight relationship with property owners. In the long run, whether our ACM plans to involve more players around the industry value chain, for example, those property service companies. Thank you.
spk05: Okay, thank you. Regarding your first question, for the new home sales and our core competency, one big question, as we mentioned, you are a ER host. Right after Baker's death here, we knew there would be more capital and players entering into this industry, and that there is nothing old. And we truly welcome more players entering into this area, and it will help us to keep humbling more. Continuously re-evaluating the polish of our strategy and iterating ourselves. And from Baker, we do hope to cooperate with everyone to make this industry a better environment for agents, and increase agent efficiency, and improve the customer experience for the housing transactions. So far, we do realize there is some strange things, like unfair competition and capital-based disorderly functions, such as setting low commission rates, higher rebate, or so-called unrealistic banking valuation promise. This is a definitely false proposition, and which is made of the deep understanding of how to do business for the new home transactions. And in the past and last year, with mega internet company entering into this industry with high profile term, which ended up with acquisition as a disapproved rationale. So the core competence of the new home business, only two things. The first is caring about agents. Guarantee the agent basic interest and the timely payment. FYI, in this Q1, we paid $4.3 billion in advance to secure the agent interest and make sure that people will get money in time. The second is about customers. improving the customer experience in your home buying process and promoting the three days cooling down period, etc. This is what we have continuously doing. Although we are not perfect at this moment, but we are already on the way of doing so. Where there is a will, there is a way. So, currently FAPE, we are currently focused on the online information building and should become even more closer with the developers to build an orderly and better sales office. helping to connect brands and stores outside the ECM to further promote the customer first. And to call the service to be infinitely close to be a gap is what we're new to stress and that we need to focus on. Okay, regarding the second question, I would like to say your question is for some skipping orders. So this is nothing new. There's always the so-called skipping order issue in this market in the past 20 years, which we treated this as a kind of normal legal loss to our business. We call this model as a parasitic model. we have always believed that as long as we insist on providing quality service and do things good for the china consumers consumers will vote with their feet which have been also verified by our past 19 years of histories and for those who want to take advantage from skipping orders whether they're property management companies or other brokerage companies may be ultimately punished by the market. We believe that as the trans-market enters into the year of balance between supply and demand, consumers' demand for the college service will rise further, and the consumer will increasingly choose a better college service provider like Bayco. The business volume through the skip order will also decrease, which will now generate a skipping net impact towards the future. Both some population count actually They do have some local community advantage. It is difficult to provide consumer with the most comprehensive source of listing. Most owners will not change house in the same complex. This is the common practice from our observation. And the property management companies cannot provide enough listing and the source within. At the same time, the real estate developers do not have the ability to cultivate the most professional and efficient service provider. industry. Therefore, from this model perspective, it is difficult for the property management companies to generate the ability for real estate brokerage service on a large scale. These property companies prevent the brokerage company from serving the owner and damage the owner's rights and interests. According to the Civil Code, the owner has their own rights to vote and of the property management companies. In the long run, we believe the development of property management in China benefits the country and the people. Excellent property management companies have always been the object of our study. We believe as long as the property management companies that aim to provide consumers with good service, high quality, will not choose vicious competition by taking or cutting orders from their consumers, We also welcome the more actively established contact with the leading problematic companies and explore opportunities to build our partnership in the residential solutions. Thank you.
spk02: Your next question comes from the line of Binbing Ding from JP Morgan. Please ask your question.
spk06: Good morning, Manager Chen. Thank you for accepting my question. I have two quick questions. Recently, we noticed that Andrew Kerr's manager also made some comments on Weibo about the entire industry, including the case of Becker. The first question is about a follow-up on anti-monopoly. I know that from the perspective of market share, we may be What processes or aspects do you think can be exposed to the risk of this platform? The second small question is about competition. I understand that we have two different business models with ng-cores. We are more of a trading ng-core that provides sales services. From a competitive point of view, Andrew Kerr's listing, including some recent changes in the competitive environment, will it make us more aggressive in a certain way? I'll translate myself quickly. I have two questions. So we noticed that recently the management of Andrew Kerr made some comments on Weibo regarding the industry as well as Faker. So my first question is a follow-up on antitrust. I know from market share perspective, we are not, you know, apparently not an obvious dominant position in the market. But in what aspects or processes are exposed to the highest potential antitrust risk in your view? Second question is related to competition. So from a competitive angle, will the changes in recent competitive dynamic, including the listing of Antico, bring any changes or make you become more aggressive in terms of certain operational strategies? Thank you.
spk05: Okay, thank you, Binbin. Regarding your second question for the antitrust, I believe I have already given a very clear answer, and the collaboration will answer the question from IOC, from Goldman. So regarding your first question, whether, let's say, IGCO used to be a leading online information company in China, real estate, verticals. It has been exploring and accumulating online user traffic and used to establish some competitive advantage in this area. just like Yee House, Kim Mo Ho Farm, and Fang Chou Farm. That is one of the fellow industry participants, and we have a respect. Normally, Wei Jun comments other peers' performance directly, but I'd like to take this chance to share our view on how to be a capable company when doing housing construction in China. Maintaining and providing authentic listing is not an option. It is the foundation for all real estate transactions. Eliminating inauthentic and fake listings marks the beginning of the successful NA business model, just as I want to mention the point one. The point two is when selecting new home projects to work with, people should adhere to a comprehensive and strict risk management system with three key requirements. Scale of the project, reasonable commission rate to incentivize agents, and a solid payment callback capability, as well as the positive cash flow of the business operation. Otherwise, the business model is not sustainable. The third comprehensive risk assessment system can test and experience the offline operations force. healthy accounts to share the receivable turnover days, and deep pockets to provide commission in advance to secure the agent's interest. The dribbling monitors and prevents rebate and customer intercepting behaviors. This is a long way to go. The competition through the shortening behavior such as an excessive commission sharing and lower price will bring high uncertainty to its model in the long run. This is a definite the false proposition and then they go for deep understanding of the market. So we just come to one thing for Anjika is we noticed the cash position might be a bottleneck for Anjika to grow his new home business. But doing new home business requires strong cash position or the deep pocket. According to Anjika's prospectus as of February 28, 2021. The balance of NGCO's cash, cash equivalent, and short investment total amounted to RMB 1.63 billion. While in the same period, Baker just paid commission in advance of RMB 4.3 billion to agents to secure their interest, which covers $116,000 and $130,000 payments and covers 5,018 projects. From an Apple to Apple basis, Our cash, cash equivalents and short-term investments amounted to only 49.1 billion by the end of Q1, which comes 30 times of our income. Regarding recent noises from Yao Jingbo on social media, we were reluctant to comment on him. When he goes low, we go high. Don't waste time on this guy. Or later, let's move to the next question.
spk02: We are now approaching the end of the conference call. I will now turn the call over to your speaker host today, Mr. Matthew Zhao, for closing remarks.
spk07: Thank you, operator. Thank you once again for joining us today. If you have any further questions, please feel free to contact Baker's Investigation Teams through the contact information provided on our website. This concludes today's call, and we're looking forward to speaking with you again next quarter. Thank you, and goodbye.
spk02: This is today's conference call. Thank you for participating.
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