KE Holdings Inc

Ladies and gentlemen, thank you for standing by for KE Holdings Inc's second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Today's conference call 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.

Good evening and good morning, everyone. Welcome to KE Holdings Inc. or Baker's second quarter 2021 earnings conference call. The company's financial and operating results were published in the press release earlier today, and we are posted on the company's IR website, www.investors.ke.com. On today's call, we have Mr. Stanley Yongdongpeng, our co-founder, chairman, and the chief executive officer, and Mr. Tao Xu, our executive director and the chief financial officer. Mr. Peng will provide an overview of our strategies 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 press release, which applies to this call, as we will make forward-looking statements. Please also know that Baker's earnings press release and this conference call include discussions of an audit gap financial information. as well as an audit non-GAAP 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 R&B. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, sir.

Thank you, Master. Hello, everyone. Thank you for joining us for our conference call today regarding our performance in the second quarter of 2021. This is our first earning call since the passing of our visionary founder and the permanent chairman, Emeritus Mr. Zuo, who was also referred to as Lao Zuo throughout the industry. And that has been the most significant event that took place in the second quarter for Baker. We mourn his loss not only because he has been a founder who set the mission for our company, but also because he has such an inspirational leader and trailblazer who asked us to explore the future and create value for the housing industry. Lao Tzu has been an invaluable asset to Beike and Lianjia, but his contribution and influence exceeded way beyond our organization. With a clear focus on promoting industry progression, he took decisive actions as an industry practitioner, and he was a true leader who had urged us to reckon more meaningful questions like how we can change the industry and how we create a value for cost consumers and the society. Laozhuo has inspired us to self-improve, improve, be visionary, enact positive changes, infuse value in everything we do, and always do the right things despite the difficulty. In memory of Laozhuo, we will continue to make dedicated efforts to fulfill our mission to providing admirable service, joyful living. We are deeply grateful for and motivated by the condolences and support we received following Lao Tzu's passing. We also appreciated Lao Tzu's family for their trust to the management by granting the irrevocable POA of the voting rights of their Class B ordinary shares to the company by Hui Partnership, to which Ms. Yi Gangshan and myself serve as initial partners. Lao Zhou's family, together with executive directors and co-med members, have also agreed to a one-year voluntary share lock-up of their holding. After Lao Zhou's passing, We fully understand our goal, and we will rise to face the challenger, and we will continue to create value for our consumers, service providers, employees, and shareholders. Turning to our business operations, let's first take a look at the micro policy and market environment. In the past quarter, regulatory authorities their views and opinions in various areas, such as antitrust and data security, and issued a series of policies and guidance opinions in multiple industries. During this period, we have been honored to have multiple opportunities to communicate directly with the relevant government authorities and have gained their recognition and respect for our efforts to improve the industry throughout the interactions. At the same time, we have taken the opportunity to look internally and engage in self-reflection and introspection. As a result, we have further solidified our ongoing belief that our business model would not be feasible without the benefits from being in such a great country and in this great era. As we move forward, we will continue to reflect our thoughts on the two key questions, namely how we can change the industry and how we can take more social responsibilities. Regarding the housing industry, recently many cities and regions have introduced various cooling measures such as loan quotas, price caps, purchase restrictions, and mortgage interest rate hikes, all in an effort to help stabilize housing price, land price, and market expectations. As these measures have begun to effectively chill the rapid expansion of the housing market in various cities, the path of existing home sales growth in many cities started to slow down since May, singularly the beginning of a market correction cycle and a more stabilized growth period for the company. The rapid development of China's economies over the past 30 years spurred fast growth in new and existing home sales as well as demand for home renovation services with overlapping and interconnected waves of the growth among segments in a time with more balanced housing demand and supply and more stabilized market expectation for property price. We expect three major structural trends and opportunities, including the industry's focus on shifts from houses to customers and from transactions to services, and demand from consumer has moved from home purchases to high quality living. In the housing industry, relative inefficiencies continue to persist. with overall low user satisfaction and lingering problems such as lack of standardization, digitalization, and internet penetration. In light of this, we do not expect short-term market corrections to affect the continued long-term firm demand for housing consumers' aspiration for more joyful living conditions. Our journey over the past 20 years tell us that market corrections create opportunities for quality upgrade, strategic thinking, and further development to improve competitive advantages in the future. In 2008, we introduced comprehensive scientific management for our organization. In 2011, we spray-headed authentic listing. In 2014, we initiated our nationwide expansion. And in 2017, we launched the platform strategy. Whenever the industry goes through a transformation phase, we ask ourselves if the industry would be the same with or without Baker and make decisions from a long-term perspective. Clearly, the industry will not be where it is today without these market corrections and the advancement that follow. During this industry inflection, we are again looking in what, like what we have been doing over the past 20 years to seek strengths and explore opportunities to withstand market fluctuations. and create lasting future value. We will prove to the market that we are building a capable, sustainable, and socially responsible enterprise that upholds an uplifting culture, and we aim to create value for consumers and our industry despite the relative market volatility. We believe we can generate more and more values in the housing domain. We hope our long-term commercial values that are built around home will continue to bring one-stop shop quality housing services for the 300 million plus families in China. Next, let's look at our business progress in the second quarter and the first half of 2021. The number of stores on our platform increased to 52,868 in the second quarter, representing 25% year-over-year growth. Approximately 30% of new stores opened were from our current Canadian store owners. The number of stores with a trailing 12-month GTV over RMB 50 million exceded $19,500, accounting for 37% of the total stores and an increase of 10% quarter over quarter. In the first half of 2021, the two-year of GTV per store, both stores and third-party Canadian stores were 20.3% and 15.1% respectively. As we shifted our focus in the second quarter to talent retention of the peak recruiting season in the first quarter, we grew the number of agents by 20% year-over-year to 548,000. The agent attrition rate in Canadian stores on the platform dropped to 8.1% in the first half of 2021. from 9.6% in the first half of 2018. The enhanced store management and agent retention, we helped 45% of Canadian stores to fulfill more than 37 store assistant positions. In the first half of 2021, we implemented agent support initiatives for agents on our platform, which helped improve agent satisfaction and retention. In the second quarter, according to our survey, the number of agents that feel safe to work on the platform with others and the compliance to platform rules increased by 12% compared with that at the end of 2020. Average MAUs, including our MAU on platform apps and WeChat mini programs, reached $52.1 million in the second quarter, up 33.5% from which same period last year, as we continue to improve our brand recognition. Turning to our existing home transaction sources, according to Baker Research Institute, nationwide GTV of existing home transaction market in the first half of 2021 increased by 41% year-over-year, and decreased by 8% compared to second half of 2020. In comparison, GTV of existing home transaction on Bakers platform rose to RMB 1.33 trillion in the first half of 2021, representing 17.1% growth year-over-year, while GTV of existing home transactions for Canary stores increased by 89.6% year-over-year. reflecting our resilience during the early stage of the market downturn. In a fast-growing market, agents tend to focus on closing deals. A market downturn, however, provides a better environment for us to refine management and enhance quality and efficiency. At the end of June 2021, we opened 287 contract service centers in certain major cities in China so that more customers can enjoy enhanced endurance and transaction security during the signing process. We continue to promote our agent specialization strategy. As of June 30, 2021, our agent specialization strategy has covered over 61% of stores in 21 of the 30 core cities we operate in. In the second quarter, transactions completed collaboratively by specialized agents on our platform accounted for 40.4% of total transactions in the stores that implemented this strategy, a 7.7% increase from the first quarter, which indicated more frequent collaborations among our agents. Most notably, in Chengdu, 21.7% of transactions were completed collaboratively among specialized agents. And store efficiency increased an average of 17% by the end of the second quarter, comparing with stores not implementing specialization strategy. We also continue to develop new products to empower the agent to our platform. For example, We are testing a new application named Base Impact , which we piloted in Shanghai in the second quarter. Base Impact is a digital interactive tool to have agents interact with customers, presenting structured and visualized information at a glance on a large pay screen when they are communicating face-to-face. Base Impact significantly promoted standardized agent operations and enhanced offline information and services, prolonging overall customer interaction time by 29% and accelerating the process of building mutual trust between agent and customers. With these benefits, at the end of the second quarter, over 30% of agents have adopted based in PEN as their main offline service tool in Shanghai. With respect to new home transactions, according to the National Bureau of Statistics, GTV of new home transaction market in the first half of 2021 increased 39% year-over-year and was down 13% compared to the second half of 2020. In this context, GTV of new home transaction services reached RMB 841.7 billion in the first half of 2021, up 77% year-over-year, and the GTV of connected stores increased by 85.4% year-over-year. During the past quarter, we continue to enrich online content for new homes. By the end of June, we have enriched online content for all new home projects on our platform with a minimum of 100 description fields completed for each new home listings. As part of commitment to providing authentic and comprehensive housing information, We also added a model describing our favorable factors of new home projects, facilitating more informed purchasing decisions. We are also making steady progress with our new home business conduct improvement plan. We also endeavor to offer five-door commitment to developers, including no-customer journey hijacking, no customers matching, no bribery, no collection of consumer funds, no fax in adversary. As of June 13, 97.4% of our partners, developers, entered into Five Dome's commitment agreement with us. Moving to our emerging services. In early June, we were surreal to announce the acquisition of Shengdu Home Renovation. We first tapped into the home renovation industry in 2019 through the launch of our home renovation brand, Feiwo. As we continue to deepen our understanding of this industry, we have developed an even stronger belief in the vast growth potential of China's home renovation market. The home renovation industry is of a considerable size approximately RMB 7 trillion in total. However, there is scarcity of high quality services providers and the lack of industry standardization and scientific management. As a result, it is difficult for the industry participants to effectively scale and earn profits, and they have to fight for survival in the industry. incapable of meeting consumers' increasing high demand for quality. As housing transactions shift from new homes to existing homes, the industry customer base also changes from new home buyers to existing home buyers and residents in existing homes, adding more complexity and costs for conventional renovation companies to acquire customers. Despite the industry backdrop, Shengdu is one of the very few high-quality companies in this industry. Founded in 2002 and headquartered in Hangzhou, Shengdu has a long operating track record and a large customer base in eastern China. along with an experienced management team and a significant industry know-how. In addition, as one of the earlier practitioners of the full service module in the home renovation industry in China, Shengdu excels not only in marketing and products, but also in supply chain management and execution, with strong management and robust internal control. Chengdu promotes the core value of taking good care of customers, which strongly resonates with ours. As the existing home market becomes more active, consumers demand for high-quality products and services increase. and technologically empowerment growth, we believe that the industry is now at a critical turning point by seamlessly integrating the rich experience of Chengdu's team in the industry with our customer acquisition capabilities, self-developed standardized data infrastructure, and our belief and the credit to promote development through vertical penetration and the horizontal expansion. We are looking forward to making a difference for consumers and the service providers in home renovation industry. At the same time, our in-house home renovation service BayWall Home Renovations, which is being polished as a minimum variable and the products as MVP maintain maintain robust growth in Beijing. They were completed 834 home renovations in the second quarter, an increase of more than 10-fold year-over-year. R&D is also a top priority, and we continue to make key investment to upgrade our technology to further streamline our process and enhance digitalization For example, in the second quarter, we launched Home SaaS system version 1 that provides support through file modules, sales, BIM design, delivery, supply chain, and the middle office management, further enhancing the end-to-end standardization and digitalization of our home renovation services. In summary, Baker is firmly upholding and supporting China's policy and local regulations opinion. Housing is for living, not for speculation. We are also cooperating with regulatory authorities in dismantling false listing and discouraging speculative purchase, which helps stabilize land price housing price and market expectations and promotes the steady and healthy development of housing market, according to Baker Research Institute, which credit tighten and control measures such as price caps in various regions. Overall home sales, I expect to slow down further in the second half of 2021. over 20 years operating history has proven that a market with balanced supply and demand provides the best foundation for our company's long-term development. With our mission of promoting admirable service, joyful living, and our founding principle to pursue a better industry structure, we will take on more social responsibilities. We will empower agents and host our friends friendly environment for communities and we are committed to having younger generation with affordable living through rental and other innovation solutions. We strive to fulfill more social responsibilities with a long-term goal to have industry progress, thereby creating long-term value for the broader communities without noting We are approaching the first anniversary of Baker's US IPO. I still remember the letter I wrote to the entire Baker family on the listing day last year. I mentioned in the letter that all institutions have their own ups and downs. The calmer an institution behaves during glorious moments, the stronger and more capable it will become. when weathering difficult times. Looking back, the capital markets have been volatile in the past year and went through waves of fluctuation. As a witness of all these ups and downs, we are more firmly believing in the power of our mission, admirable services, joyful living. We will continue to always look inward to search for new areas of improvements, create values for society as our outputs, and stay strong and optimistic all the time. Thank you all very much. With that, I would like to turn the call over to our CFO, Xu Tao, for a closer review of second quarter financials. Thank you.