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spk06: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.' 's first quarter 2022 earnings conference call. At this time, all participants are in 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.
spk01: Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings, Inc., our biggest first quarter 2022 earnings conference call. The company's financial and operating results were published in the press release earlier today and posted on the company's IR website, investors.ke.com. For today's call, we have Mr. Stanley Peng, our Chairman and Chief Executive Officer, and Mr. Tao Xu, our Executive Director and Chief Financial Officer. Mr. Peng will provide an overview of our strategies and business developments, and Mr. Xu will provide additional details on our financial results. Before we continue, I refer you to our safe harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also note that Baker's earnings press release and this conference call include discussions of audit gap financial information as well as all these non-GAAP financial matters. Please refer to our press release, which contains a reconciliation of all these non-GAAP matters to comparable GAAP matters. Lastly, unless otherwise stated, all figures mentioned during this conference call are in the MEB. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley.
spk02: Thank you, Master. Hello, everyone. Thank you for joining Baker's first quarter 2022 earnings conference call. Looking back on the first quarter, we were confronted with tremendous challenges, mostly arising from short-term uncertainties. But these uncertainties have not shaken out belief in a slight list. We are now more convinced than ever of the positive long-term market outlook, the prospect of achieving our goal and the path to get there. We believe Take care of customers and helping service providers. Take care of customers is at the center of everything we do. We are resolved to choose the difficult years, right times, when facing multiple options. The market, what that is, what that is, have made our beliefs more real, more certain, have inspired us to reflect on ourselves, and more importantly, give us the tentative to survive during the cold winter. Meanwhile, we must stay optimistic. In the long term, our target addressable market in using a new home themselves will continue to grow steadily, and the broad living sector will occur in great opportunities. Streaming upstream, only the brave will succeed. In the recent round of massive industry corrections, we have an united and actively embrace changes. Only the fittest will survive. And with impending capabilities, accelerated speed, and a strong mindset, our confidence is strong, knowing that we have all it takes to win when the market recovers. This year, as the market finds its bottom and attempts to recovery, our one-body housing transaction services needs to overcome the mounting difficulties in a short run, and a focus on resolving problems for customers and service providers, as well as improving efficiency. Our two wings, home renovation and furnishing, and home rental services, need to take root and make its primary theme integration and rapid development. This is especially true Now that we have completed our Shenzhou acquisition, we are pleased that we have already realized strong synergies delivering initial results after we announced our One Body to Win strategy at the end of last year. The powerful growth of our home renovation and furnishing services and home rental services against weak market trends further strengthen our belief that we are headed in the right direction by executing our strategy. Let's move to the details of our progress with our housing transaction services in the first quarter of 2022. Our housing transaction services is still undergoing a challenging time. During the first quarter, the new home market remained sluggish due to the strain of private developers' debt crisis. the lagging impacts from government's buyout policies and low consumer confidence. Meanwhile, the signs of bottoming out on recovery in the existing home market were interrupted by the Omicron outbreaks across various regions toward the end of the first quarter. Faced with the turbulence of this external environment, we must review the market, take quick action, and stay focused, not focused on our business and organizational planning. Experience tells us that our sound strategy exists. We concentrate on the most fundamental issues, improving the efficiency of our agents, making their services more professional and their retention rate higher, improving customer experience by protecting them against risks and uncertainties, and accelerating receivable collections, leveraging our data strengths to optimize our services to developers and enhancing their understanding of end users. By streamlining our operations and reducing discretionary investments, we aim to boost our efficiency and profitability. The massive market correction has impacted everyone in the industry, but also changed the overly competitive landscape. As the battlefield becomes less crowded, we are left standing with a war chest to return to our original aspirations. We will take the time and the patience to further refine customer experience and service providers' capabilities. and build upon our strengths to achieve sustainable development. At the end of the first quarter, the number of vehicles connected stores were over 45,700, down 10% quarter over quarter. The number of actual stores were alone 33,000, declining 5% quarter over quarter. As the market continued to find its bottom, we added a few new stores on our platform and strengthened existing source wide mergers. The number of industry practitioners continued to fall rapidly. At the end of the first quarter, the number of agents on our platform was 427,000 and the number of active agents was 381,000. Both decreased by approximately 6% quarter-over-quarter. The number of actual stores and agents dropped 30% and 24% respectively from the respective peak level in mid-2021, which is in line with our expectations. The COVID-19 resurgence in the second quarter may result in further decline of the number of stores and agents on our platform. In addition, to Lianjia, we will continue to optimize low-productivity and loss-making stores, and steady-fastly execute our big-store model. This will also weigh on the number of Lianjia stores and agents, but at the same time drive a notable increase in per-agent productivity, serving to reduce the agent's churn rate. In the first quarter, total MAUs of Baker's app plus mini program reached approximately 39.7 million, up 6% quarter-over-quarter. We expected online traffic to grow as the market recovers. Regarding existing home transaction sources, according to Baker Research Institute, nationwide DTV of existing home sales dropped 52% year-over-year in the first quarter, and the GTV of existing home transactions on biggest platform for the RMB 374.1 billion, down 55% year-over-year, over which existing home sales declined 46%, outperforming the overall market. Existing home transaction volumes in some key cities were starting to bottom out in the first quarter, but the market rebound was interrupted by COVID-19 resurging in mid-March. Confronted with a series of external uncertainties, we are adhering to the principle of efficiency first in our existing home business. First, we will reduce the size of managing units of our stores and agents through more refined and grid-based management. We aim to optimize efficiency and better manage key operating metrics, such as collaboration indicators. Second, we will enhance our capabilities in existing home sales with a focus on critical nodes in a transaction, including the home listings, customer leads, and home tools. We will leverage our big data and technical capabilities to find the best listing. that we call Baker's Pig, and do our utmost in the listing maintenance, home assuring, and sales flow of these listings. We will also reconstruct our business leads distribution to improve home buyers' coverage and sales conversion. From the technical point of view, the broad VR application during the pandemic boosted our efficiency. After the lockdown in Shanghai since mid-March due to the COVID-19 resurgence, the weekly online leads generated in VR streams and VR home tools increased by more than 70% and 130%. Behind these achievements were the immersive virtual home tools experience made possible by our VR technology, which transcends the limits of time and expense. It supported real-time interaction between customers and agents, with sales consultants on a shared screen throughout the tour, providing a more intuitive and rich experience compared with photos, texts, or videos. VR is an efficient substitute for part of offline operations and is an ability our peers do not have. This year, Linjia will spearhead productivity and quality enhancement. First, we will be efficiency-oriented and improve agents' head productivity. In addition, we will optimize discontinued low-performing stores. Senior management must personally walk into each store and engage in stores-level operations. For customers, we will emphasize our Anxin Services commitments and fulfillments. Our efficiency-oriented strategy choices do not mean that we are diluting our beliefs. Transactions in Shanghai have been suspended for more than two months due to the pandemic. Faced with many choices at this difficult time, we did not waver and instituted on guaranteeing the full base pay and welfare for agents in Shanghai, putting admirable sources, caring for agents, into action. We will brace ourselves through the low return period to reduce aging turnover, which will bring high returns in the future. We believe this is the right choice and what we consider an essential investment. Most importantly, we will uphold, as always, our business philosophy of community-friendly and devote more in community outreach and engagement to do what is within our capabilities for those in need. During the COVID-19 outbreaks since March, our agents have served the community and become a key team among community's volunteers. Beginning on April 23, volunteers from Beijing Lianjiang alone provided pandemic prevention and control services 26,500 times. More than 3,000 agents in Shanghai volunteer to combat COVID-19 on the front lines of 1,854 communities during the lockdown. In cities such as Suzhou, agents from Canadian brands and Lianjia actively participated in voluntary services more than 1,900 times. helping community pandemic prevention, testing, net necessities delivery, and other services. These volunteers reflect our strong bonds with the community. We believe that community services will infinitely fuel our future as more frequent touchpoints allow our stores and agents to truly integrate into the communities. More importantly, this is how we turn our belief of taking care of customers into more practical actions. Turning to new home transaction sources, according to National Bureau of Statistics, in the first quarter, the overall market GTV of new residential home sales was down 26% year-over-year, making the second largest single-quarter decline since 1999. Meanwhile, the GTV of CRRC's top 100 real estate developers fell by 47.6% year-over-year. Against this backdrop, the GTV of new home sales on Baker's platform was around $1,192.7 billion, decreasing by 44% year-over-year. The new home market continues to decline with no signs of recovery in the first quarter, a trend delivering from that of the existing home market. The ongoing debt crisis that developers face has made home buyers increasingly risk-averse and slow sales leads to the future deterioration of developers' liquidity conditions. On the other hand, Then auction prices fell, and the percentage of state-owned developers increased consistently. In the current period of market correction, we will strike a balance between scale, expansion, and risk management. First, we motivated agents to focus on low-risk projects and reduce high-risk projects collaborations in the short term. at advancing the Commission-in-Advance model to ensure the collection of receivables and accelerate sales through our high-quality projects, all together boosting our pictures business cycle. In addition, we refine our cooperative collaboration with state-owned developers and high-quality developers. to explore good increasing incremental sales opportunities. As we boost sales standardization and scientific and refined management capabilities with our partners, we endeavor to jointly build a healthy ecosystem. On top of that, leveraging our advantage with our unique comprehensive residential housing data, we are extending our rich to the front end of the industry value chain to develop more services and products to help developers efficiently enhance their customer-rich research, project assessment, and sales conversion. Next, moving to our progress and plans for our Two Wins business. Based by the market head of WINS, Our home renovation and furnishing services achieved remarkable growth in the first quarter. We also completed the acquisition of Chengdu at the end of April. The synergies created between Chengdu and Baikou are clearly reflected in the significant improvement in traffic sharing and in supply chain delivery and operational management. propelled by these improvements on a pro-forma basis. Assuming Chengdu was fully consolidated, home renovation and furnishing revenue in the first quarter would show a 54% increase year-over-year to RMB 860 million. Contracted sales would have increased by 63% year-over-year, driving by an 8% increase in average contract price, in addition to 50% growth in the number of contracts, which reached close to 6,500 in the first quarter in stock contract trust. The total output value of the home decoration and renovation industry declined by 25% to 30% year-over-year in the first quarter, according to China Building Decoration Association. This year, our overall strategy remains focused on building a one-stop solution for home furnishing, as we continue to leverage traffic directed from housing transaction services, innovate new retail models, and build a better place for home furnishing sales. Our core business transaction services provide strong support for home renovation and furnishing services. In the first quarter, the referral customers from our core business contribute roughly 23% of home renovation and furnishing contracted sales. Almost all will add incrementally to our top line. We expect this ratio to reach over 30% in the second half of the year. In Shanghai and Beijing, such referrals accounted for a remarkable 77% and 75% of all its contracted sales, respectively. Our progress in major cities has been especially exciting. Contracted sales in Shanghai Wuhan, Chengdu, and Beijing increased by approximately 550%, 219%, 100%, and 130% year-over-year, respectively. In the fourth quarter, Chengdu's more comprehensive supply chain and massive SKUs under management also further boosted. Our products deliver diversity and scale, assisting us in achieving higher customer satisfaction and average contract price. In the future, we will be leveraging our home SaaS system as a supply chain management tool to expand the scale of bulk procurement and further reduce procurement costs while ensuring supply. with respect to project delivery, re-enhancing the quality and the craftsmanship of our products. And at the same time, we shorten the construction and delivery cycle by utilizing our online home SaaS system in conjunction with offline management. Through ultra-systematic and scientific project management, Baywood's delivery cycle has reached an industry-leading level of making eight days in the first quarter. We aim to shorten our overall delivery cycle from 130 days at the beginning of the year to 120 days at the end of the year. Meanwhile, we strive to consistently enhance customer satisfaction through construction about our services, smart construction sites, customer NPS management and compensation measures. Moreover, our home furnishing revenue is consistently growing. In the short term, we will continue to deliver, to drive back-end sales of customized furniture, appliances, and other categories with high gross margins through our home renovation services. In the first quarter, thanks to our rich SKOs and improved sales, tie-ins, Shendu and Bayworth's average contract price increased by 7% and 21% year-over-year, respectively. Home furnishing accounted for 10% of total contracted sales in the first quarter and made up 30% of contracted sales in Hangzhou flagship stores. With the full integration of Shendong, our home furnishing and renovation sources have entered a more rapid development phase. We target its monthly contracted sales to exceed RMB 1 billion and the monthly contracted sales in Beijing, Shanghai, and Hangzhou to surpass 100 million each sometime in the second half of the year. During the first quarter, Our development approach to Baker home rental sources becomes increasingly clear. Our light rental property management sources, carefree rent, achieved groundbreaking progress with over 5,000 units acquired in the first quarter. During the first quarter, our units under management have expanded from three cities to eight cities and by 37% quarter-over-quarter increase to reach nearly 17,000. By the end of this year, we aim to have more than 50,000 units under management in our carefree rental model. We believe that our carefree rental model can transfer the disbursed rental properties in the market into high-quality, reliable, professional manager and institutionalized long-term rental properties. Meanwhile, with respect to centralized apartments, our first use apartments project that we participated in using a light custodial operations approach Big new apartment launched in Shanghai, Xuhui District in the first quarter. The project has a total of 2,978 apartment units, a monthly rental as low as RMB 2,700, and its occupancy rate has reached 98% today. In March, we launched our twilight services guarantee program to protect the rights and interests of both tenants and homeowners. The system provides loss compensation, covers the most concerning issues, such as commission, rent, and property and personal safety, throughout the allowing quality and the wiring on the worry-free rental services to be truly accomplished. In the first quarter, Trillite commenced operations in Chengdu and Shanghai, followed by developments in more cities. Finally, I would like to thank all investors for their support. Zico was successfully listed on the main board of Hong Kong Stock Exchange by way of introduction. on May 11th. This represented the song of hope for our journey forward and empowered us for our next destination. The substantial uncertainty we face right now reflects the challenges our business has always faced from Linjiang to Beikou. All our efforts have been centered on reducing the uncertainty of our business and providing value to the industry with sureness. The phone against the uncertainty of information with authentic listing. Against the uncertainty in cooperation through our agent cooperation network. And against the uncertainty in customer choice through the optimization of our products. We reduced uncertainty in service providers' capabilities through training, certification, and examination, and combated the uncertainty in service through steady, fast commitment to service qualities. Our organization has our spirit. It grows more united when the challenges are greater and, at the same time, more confident about the future. Therefore, The recent market changes, unprecedented though they may be, do not change who we are as an organization and even serve to strengthen our faith to accelerate in our safe direction. There is no doubt that we are being tested this year on multiple fronts. Our housing transaction services must break the many challenges in its operations, while our two wings must build solid underlying capabilities and collaborate. Decisive actions are a must for our whole organization to streamline costs and yet leaner while maintaining our vitality. Fear, not a strong path, I don't claim. on all sides. We uphold our belief that as we overcome these obstacles, we will emerge stronger with new capabilities and low structural costs. The steps we are taking today will solidify our concentrated foundation, empower our development for the next decade, and sustain value creation for our customers, service providers, and shareholders. With that, I would like to turn the call over to our CFO, Xu Tao, for a close review of our first quarter financials. Thank you.
spk03: Thank you, Stanley. Thank you, everyone, for joining us. Before we discuss more detail about our first quarter of 2022 financial results, I would like to provide a brief update of our recent housing market. During the first quarter, more and more cities have eased curbs for the home purchase to support the ailing property market. After a variety of policies, with unprecedented frequency and the intensity pushed through the sector into a deep chill in the second half of 2021, those measures to boost demand include the subsidies, small down payments, reduction in mortgage rates, and the relax on the rules for the home purchase. The easing stocks have brought some signs of recovery. According to Faker Research Institute, the decline of PTV on existing home sales narrowed to 60% according to Q1, compared to 21% and 32% in 2021, Q4, and Q3, respectively. While the new home construction remains soft, many developers are still facing liquidity challenges The fourth quarter also saw the resurgence of COVID-19 variants in many cities in China, including Manchin infection in Shanghai, which went into a city-wide lockdown. With varied mobility restrictions and other local level control measures in place, our operations in those areas have been adversely affected. under which our local stores have been closed temporarily and the transaction has been disrupted. However, as we experienced in the fourth half of 2020, Consumers increasingly demand higher standard of living conditions. After the outbreak of COVID-19, the demand has become even stronger. Therefore, we believe that the pent-up demand will be released in the subsequent period with the reopening of the economy in the foreseeable future. At the end of April, China's top leaders signal more loosening in a bid to lift the economy. The Politburo meeting is prized support of the reform of the local property policies and optimizing the developers' pre-sale funding regulations. We believe those supportive policies will revive the housing market sentiment and the buying demand, and the home sales should be gradually rebounded. To summarize, Although the market recovery was still fragmented and temporarily disrupted by COVID-19 in Q1, which muted our transaction volume, we were able to utilize the opportunity to further optimize our execution and lay the groundwork to be better positioned for the market recovery. Turning to our financial details in Q1, our net revenue decreased by 39.4% to RMB 12.5 billion in Q1 from RMB 28.7 billion in the same period of 2021, in line with the high end of our guidance and the exceeding strict consensus. The decrease was primarily attributable to the decline in total GDP of 45.2% to RMB 586 million in Q1, from RMB 1,069.6 billion in the same period of 2021. due to the continuing downtrend of the GTV of the market for the existing home transactions and new home transactions since the second half of 2021, the emergence of COVID-19 in 30 regions and the corresponding restrictive measures in Q1, and the relatively high base of the same period of last year. In particular, our net revenue from existing home transactions services was RMB 6.2 billion in Q1. compared to RMB 10.2 billion in the same period of 2021, primarily due to a 34.5% decrease in GTV of existing home transactions to RMB 374.1 billion in Q1, from RMB 673.4 billion in the same period of 2021. Of net revenue from the new home transaction services, decreased by 40.5% to RMB 5.9 billion in Q1 from RMB 9.9 billion in the same period of 2021. Primarily due to a 43.9% decrease in GTV of new home transactions of the RMB 192.7 billion in Q1 from RMB 343.4 billion in the same period of 2021. which was partially offset by a moderate increase of the commission rate of the new home transactions. Our net revenue from the emerging and other services, or RMB 0.5 billion in Q1, compared to RMB 0.6 billion in the same period of 2021. primarily attributable to the decrease of net revenue from financial services, which was partially offset by the increase of net revenue of home renovation services. Cost of revenues decreased by 35% to RMB 10.3 billion in Q1. from RMB 15.9 billion in the same period of 2021. Gross profit was RMB 2.2 billion in Q1 compared to RMB 4.8 billion the same period of 2021. Gross margin was 17.7% in Q1 compared to 23.3% in the same period of 2021. The decrease in gross margin was mainly due to, one, a lower contribution margin of its in-home transaction resulted from a relatively high percentage of fixed compensation costs for the entire agents, and two, a relatively higher percentage of costs related to the store of net revenue as a result of the decrease of net revenue in Q1 compared to the same period of 2021. Operating expenses decreased by 17.5% to RMB 3.1 billion in Q1 from RMB 3.8 billion in the same period of 2021. General administrative expenses were RMB 1,522 million in Q1 compared to RMB 2,108 million in the same period of 2021. mainly due to the decrease of provision of credit losses and personnel costs. Sales and marketing expenses for RMB 861 million in Q1 compared to RMB 1,057 million in the same period of 2021, mainly due to the decrease of brand advertising and promotional market activities. Research and development expenses for RMB 749 million in Q1 compared to RMB 638 million in the same period of 2021, mainly due to the increased personnel cost. Loss from operations was RMB 918 million in Q1, compared to income from operations of RMB 1,013 million in the same period of 2021. Operating margin was negative 7.3% in Q1. compared to 4.9% in the same period of 2021, primarily due to, one, a relatively lower gross profit margin, and two, an increase of the percentage of total operating expenses of net revenue as a result of the decrease of net revenue in Q1 compared to the same period of 2021. Excluding non-GAFA items, Our adjusted loss from operations was RMB 450 million in Q1, compared to adjusted income from operations of RMB 1,564 million in the same period of 2021. Adjusted operating margin was 93.6% in Q1, compared to 7.6% in the same period of 2021. Adjusted EBITDA was RMB 341 million in Q1 compared to RMB 2,050 million in the same period of 2021. Net loss was RMB 620 million in Q1. compared to net income of RMB 1,059 million in the same period of 2021. Excluding non-GAFA items, adjusted net income was RMB 28 million in Q1, compared to RMB 1,502 million in the same period of 2021. Net loss attributable to KE Holding Inc.' 's ordinary shareholders was RMB 680 million in Q1, compared to net income attributable to KE Holding Inc., all the shareholders of RMB $1,069 million in the same period of 2021. Adjusted net loss attributable to KE Holding Inc. was RMB $29 million in Q1 compared to RMB $1,502 million in the same period of 2021. For the fourth quarter of 2022, Diluted net loss per ADS attributed to KE Holding Inc's ordinary shareholder was RMB 0.52 compared to diluted net income per ADS attributable to KE Holding Inc ordinary shareholders of RMB 0.88 in the same period of 2021. Adjusted diluted net income per ADS attributable to KE Holding Inc auto shareholders with RMB 0.02 compared to RMB 1.25 in the same period of 2021. Next, I will talk about the recent update regarding our capital market and operation initiatives, as well as our near-term focus on corporate financials. Firstly, Baker's successful door primarily listed on the main board of the Stock Exchange of Hong Kong by way of introduction on May 11th. So don't put them on like a victim release team. which has been adopted by many other U.S.-listed Chinese firms, requires a higher threshold and stricter procedures. It also lowers to maintain our primary listing status on Hong Kong Exchange, even under the most extreme cases. If our company deletes from the New York Stock Exchange two years later, meanwhile, unlike a crypto IPO, we didn't issue new shares or raise additional capital by way of introduction. enabling us to avoid dilution to our shareholders' interest. The homecoming listing is a solution for homeowners with the full responsibility to tackle the internal uncertainties and risks, and to protect the best interests of our shareholders. Secondly, for one of our two wings business, home renovation and furnishing services, We successfully completed the acquisition of Shendu in late April. The combination will further leverage respective advantages from both sides, which will allow us to replicate our model more rapidly at a scale to empower the industry. Shendu will be consulting into our financial stimulus since May of this year, with Shendu gaining transactions from bigger, strong resources and support. Revenues of our home renovation and furnishing services are expected to grow more rapidly in the future. Thirdly, we recently carried out personnel restructuring in early May, with a focus on middle and back offices. We executed similar initiatives for our financial services business back in Q3 of 2021, in order to be more focused on the development of our core business. incurring approximately RMB $250 million in severance provision for that period. This time, we made the really difficult choice. Due to the uncertainties associated with the recovery of the new home market and the re-emergence of the COVID-19 outbreaks in certain cities, and based on our prediction, on the middle-term market dynamics. It was a big change that we made in a preemptive manner, and we expect around 430 million segments provision may be incurred in Q2. By doing this one-off adjustment, we believe our personnel structure will be further optimized, and we will be able to better carry on our business during the tough market. Fourthly, we believe our strong cash generation capability and sufficient liquidity will ensure the company can navigate through the market cycles and cooperate to fall out from the COVID-19 outbreaks and its uncertain impact from the rapidly slow recovery of the housing market. as of March 31, 2022. Our cash, cash equivalents, restricted cash, and short-term investments were RMB 50.2 billion, or USD 7.9 billion. The balance of our long-term cash items, mainly including long-term investments, amounted to RMB 18.9 billion, or USD 3 billion. In addition, we also announced today that we propose to establish a share purchase program under which we may repurchase up to US dollar 1 billion of our EDS over a 12-month period, subject to obtaining a general mandate from our shareholders at a general meeting to be condemned as copy. The move underscores our confidence in the fundamentals and the long-term growth of our business, Turning to the guidance for the second quarter of 2022, considering the housing transaction market is still at the early stage of recovery, and the potential negative impact of the COVID-19 containment measures in certain regions, as well as the higher base effect of the same period, 2021, we expect overall market GDP of its in-home sales to fall over 60% year-over-year in Q2. and overall market GDP of new home transactions to decrease over 50% year-over-year in Q2, according to Baker Research Institute. Based on all of the above considerations, looking forward to Q2 2022, we expect the total net revenues to be between RMB 10 billion and RMB 10.5 billion, representing a decrease of approximately 56.6% to 58.6% from the same period of 2021. This forecast can see the potential impact of the recent growth in related policies and measures. The emergence of COVID-19 in certain regions and corresponding restrictive measures, which remain uncertain and may continue to adversely affect our business. The company's current and preliminary view on the business situation and market conditions, all of which are subject to change. Today, I'd like to reiterate our consistent beliefs. While we focus on weathering the short-term turbulence, we are devoting more effort to developing and investing in our long-term capabilities. even if it might take time to achieve financial returns on this investment. In fact, the longer it takes and the more difficult it is, the more excited we become. Although China's housing market has undergone deep adjustment last year and is facing uncertainty from the COVID-19 outbreaks in the first half of this year, we believe that China will eventually win the battle against COVID. In the long run, we also believe with the establishment of a long-term housing market mechanism, the ongoing urbanization trend, the change in family structure, the resource mobility among the city clusters, as well as government emphasis on the improvement of the people's living condition. There is a tremendous potential for us to explore, transform, and upgrade in the serving sector of better living. Starting with the vertical penetration, to strategize the industry practice and protocols, followed by horizontal expansion to integrate the entire industry, helping our proven path to success. It may not be a shortcut, but it is a path that's rooted in our culture of doing the right things over the quick-succeed type of things. We lay full faith in it as we ignite our one-body, children's strategy and believe we will bring long-term benefits to the industry and our customers. All in all, we fully embrace the challenges and changes, and the cooperation with the determination and the responsibilities. We will always be self-motivated, driven by our long-pursued goal to create an indispensable value for the industries. To that end, we will never stop. That concludes our prepared remarks. We would like now to open the call for questions. Operator, please go ahead.
spk06: Thank you. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. 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 English translation. Our first question is from Stephen Tsai with Morgan Stanley. Your line is now open.
spk05: Thank you for accepting my question. Can you please share with us the current situation of the current industry and Beige platform in the second quarter? In addition, in recent years, not only the real estate industry, but even the macroeconomic employment and consumer confidence have been affected by the epidemic. So I want to know how we should look at the recovery time of this industry and the curve of this recovery after the subsequent gradual release of the management team. Thank you, Manager, for taking my questions. My question is about industry outlook. Could management share with us your view on the current market conditions and the sales trend on your platform for both existing homes and new homes in the quarter to date? Also, the pandemic has brought impact to not only just the property transition market, but also impacting the overall employment and the consumption sentiment. In that context, how should we think about the timing and the trajectory of post-lockdown recovery? At the first quarter earnings call, you mentioned that you were expecting the new home market to decline 5% to 10% and existing home market to decline over 10% a year in the full year of 2020. Just wondering if there is any changes to that expectation. Thank you.
spk03: Thank you, Steven. Let me address your question. Since the beginning of this year, positive policy signals have been released continuously from the top-down. Especially for the mortgage rate, it has fallen for the last nine consecutive months. In April, the nation-wide first second-high mortgage rate reached its lowest level since 2019. LPR and first-home purchase mortgage rates cut lower to around 4.25%. Mortgage origination cycle length has also dropped from 73 days at its peak to 29 days in April, making it the farthest mortgage approval cycle since 2009. These measures continue to be implemented at the city level. From our observation, at least more than 30 tier 2 cities, including Zhengzhou, Suzhou, Changsha, Wuhan, etc., have released easing policies. And the policies have been leveling up. The easing steps include relaxing the purchase restrictions, reducing the down payment ratio and issuing home purchase subsidies. These easing policies have played a positive role in promoting market transactions, but the effect is relatively limited. I'd like to take a general draw as a showcase. The next measures to stabilize the market were introduced on March 1st. This means the restrictive policies imposed in the past two years all at once. This demonstrates the government's significant determination to boost the market. As a result, S&H market transaction volume rebounded unnotably. Nevertheless, in April, due to the continuous liquidity crisis faced by the developers and the impact of the pandemic, the existing and the new home sales market both began to weaken. Looking more broadly, while the easing policies were implemented as I just added, the market remained sluggish for the following reasons. For example, the retreated such as Shenzhen, Beijing, and Shanghai. And more importantly, the series of market crush measures in 2021 brought about unprecedented results, with only one thing lost, that is confidence. The continuous debt crisis faced by developers has made home buyers increasingly risk-averse. The severity and the momentum of the economy downturn have also negatively affected the homebuyers' situation with respect to the future income as well as their risk at times. The evolving pandemic situation and the respective normalized control measures further aggravated homebuyers' feeling of uncertainty and made this transaction more difficult. Specifically, the existing home sales market began to pick up after Chinese New Year, and the market built out in the first quarter. But the further subsequent recovery was interrupted by the pandemic. According to Baker Research Institute, in the first quarter, the GDP of the existing home sales market in China filled by 50% year-over-year and 60% quarter-over-quarter. The price trend shows divergence at the city level, rising steadily in first-tier cities and fluctuating in the second-tier cities and third-tier cities. Vehicles and existing homes concerning GDP fell by 44.5% in Q1. Our existing homes are slowly rebounding in February and March, with month-over-month growth rates in March reached 45%, and the sales returned to the level of July 2021. The COVID outbreak in many places since middle March interrupted the pace of housing market recoveries as well. Regarding the new home sales market trend, it's diverging from that of the existing home market. Its growth momentum continues to be lackluster, and anticipate a slow fall to the materialized post-spring festival. In the first quarter, the GTV of Colway's top 100 real estate companies fell by 47.6% over the year. According to data from the National Bureau of Statistics, the GTV of residential home sales across the country was down 36% over the year. making the second largest single-quarter decline since 1999. The year-over-year decline in low-tier cities has been significantly larger than that in the high-tier cities. Among the same trends, the GTV of the new home sales on Baker platform decreased by 44% year-over-year. Looking ahead, there are still many uncertainties in the short term with respect to the new home market due to the following reasons. First is the persistency of cash crunch of private developers. And second is it will take more time for the EC policy to take effect. And secondly, we saw that the consumers are more concerned about whether these cash scrap developers can deliver houses and the quality of these newly built houses. And number four is the evolving pandemic, along with the respective potential measures. However, in the long run, we still remain quite confident because the essential demand for quality living remains very strong. We believe that the existing highways are transient and that as the policy takes effect and the pandemic is closed, the market is rebounding to recover and the transaction will return to the normal. Regarding your second question, actually, the research Pandemic in many cities since the first quarter this year will make a significant impact on the company's performance in the first half of this year. At the same time, we will continue to monitor the evolving situation of the pandemic to excite the impact to our three years' performance. Since March, the COVID outbreak resurgent in most ancient out of 30 top tier cities and hated the pandemic continued measure were put forward. Roughly 6% of in-skin home cells were impacted by the pandemic in Q1 and at least 25% of in-skin home cells are expected to be affected in the future. As such, the pace of market recovery is delayed In Shanghai and its neighboring cities in Yangtze River Delta, the transactions during about half of one month in Q1 were factored, and the transactions during at least 2.5 months are expected to be factored in Q2. In April, 100% of stores in Shanghai were closed. According to our consecutive estimates, transactions in Shanghai will come nearly to a sense deal throughout Q2. In Beijing, at least 30% of transactions are expected to be in-kind by the pandemic in Q2. More than 60% of stores are temporarily closed. And more than 60% of stores are temporarily closed in May. We've seen areas where we operate approximately 140 communities are under the pandemic lockdowns or restrictions. 50% of our new home sales projects are suspended for the on-site tours. However, we'd like to reiterate the housing demand, the rental demand, which will only be delayed rather than disappeared. That's the way we expect the booming market right after the post-pandemic. based on our experience in early 2020, as well as more recently. Transactions suspended during the lockdown will be completed after the pandemic subsides. Looking into this pent-up demand during the pandemic period will help us grow rapidly when the pandemic is over, which means that with the longer time horizon, the pandemic's impact on our business is relatively small. I'd like to take Shenzhen as a showcase, which went on the lockdown beginning on March 13th. In the two weeks that followed, Bakers Weekly's in-home sales in Shenzhen experienced a sequential decline of 65%. However, during the two weeks after the lockdown ended in April, Our weekly volume increased subsequently by 400%. It was also 75% higher than the two weeks pre-lockdown, making up for almost all transition losses incurred during the lockdown season. The degree of demand that will be released post-pandemic will also depend on the extent of the local easing policies in various cities. This is a fact, as well as the homebuyer's income situation and other factors. Thank you, Steve.
spk06: Our next question comes from Timothy Zhao with Goldman Sachs. Your line is now open.
spk04: Okay. Thank you, Mr. Xu. Thank you, Stanley, for giving me a chance to ask you a question. I would like to ask you about your business. Could you please tell us about the ratio between the private and state-owned real estate companies? If we look at the future, the market share of state-owned real estate companies may be at a higher trend. What impact will our business have? Or what changes will we make? In addition, in the private sector, we see that the reduction in the exchange rate of receivables has a more positive impact on G&A. How do we view this part of the exchange rate of receivables? Thank you, management, and congrats on the very solid results. My question is regarding the new home transaction business. Could management provide any breakdown between SOEs versus private developers in terms of GTV and any difference in terms of commission rate? And what is the impact of SOEs concentration rate increase on your business and how is our business model going to change along with that? And also on account receivables, also related to the new home business, does emergency further need to book provisions as we see the decrease in the credit loss provision actually has a positive impact on the G&A cost in the first quarter? Thank you.
spk03: Thank you, Tim C. Let me address your question. Regarding Thor's question, the state and the central government's own diverse concentration ratio has been increasing. This is actual. From the land auction perspective, in the first quarter, state and central government-owned developers bought 71% of all auctioned land. And in terms of the sales, according to Baker Research Institute, of the top 100 developers in Q1, city-owned developers accounted for 28%, representing an increase of 2% and 5% year-over-year. Of the top 10 developers' sales, state-owned developers accounted for 37%, representing an increase of 7% year-over-year. On the Baker platform, the percentage of the state and central government-owned developers has increased as well. The state and central-owned developers' GTV as a percentage of Baker new home sales has increased to more than 25% in Q1. from nearly around 20% in the early of 2020, representing a 1.3% quarter-to-quarter increase and about a 3% year-over-year increase. From the impact on the Baker due to the increased concentration of state and central-owned developers, we want to emphasize that regardless whether the developer is state-owned or private, There are only two factors that could impact Baker. The first is the relative emission rate and the second is the battery risk. These two factors largely offset one another. The trend of increasing brokerage service penetration rate will remain unchanged. I want to emphasize on this in the long run. Regardless of whether a developer is state-owned or private, that face the same pain points in customer acquisition and have the same strong dependency on the sales channels. As such, a continuous increase in the brokerage service penetration rate is asserted and will not change. Based on Beka's actual data, brokerage service penetration rate of the state-owned and the private developer are also at the same level of the on the drive every year. The key factors determine both brokerage service penetration rate and the commission rate is the degree of the new home project and unused separation. As the cities continue to expand, new land will become increasingly distant from the city center, which will further increase the separation between the new home projects and unused As a result, whether the developer is state-owned or private, their lack of concentration and connection to the end-user will continue to grow. Self-build, the sales channel, has become a paradox under the new investor norm of the so-called Black Iron Age of the real estate. Broking services is still a necessity. Baker was the one. When it becomes collaboration with the sales channel, we are the brand of choice. This is the goodwill and recognition from more than 100 million families in China. We can truly help developers to effectively connect and use it and increase the sales suite, which gives us an unrivaled competitive advantage under the new industry norm. For the commission rate, state-owned developers' commission rate indeed is relatively lower, same with their bidirectional. Therefore, the impact of a higher concentrate of the state-owned developer on our profit margin is neutral. State-owned developers' average commission rate is 20% lower than that of private developers. only to state-owned developers the projects that are being closer to the city center, resulting in a low degree of separation between that project and the user. At the same time, the financing cost for state-owned developers is relatively low. Hence, their requirements for the setting through are not as urgent. However, from an operating profit point of view, but the risks of the country's silver from state-owned developers are quite low. The increase of state-owned developers will help to lower our back-end ratio, partially offsetting the impact of the reduced commission rate on the operating profit. Generally speaking, the impact of the higher percentage of state-owned developers on our profit margin is relatively neutral. Regarding your second question, For Baker, we, as always, we perform very prudent accounting treatment and also book the proper provision for all ages receivables and timely refrag in the letter of record. So in the past quarters, we almost booked all of the sufficient provision for all of the potential risks from developers who have negative public opinion or who have some financial crisis. One more thing we need to mention is on May 12th, Sunac announced that the interest on four of its U.S. dollar denominated senior loans was passed in. Based on the principle of the prudency in accounting, we may make a better provision on Sunac's receivables with the highest provision ratio. At the end of Q1, the balance of accounts receivables and other receivables of Sunac was RMB 1.2 billion, of which 790 million was fully covered by collateral. For the remaining 450 million without collateral, we increase the beta provision from the 20% in Q1 to 85% in Q2. As a consequence of this, the impact of the sooner beta provision adjustment or P&L in Q2 could be R&B 260 million. Thank you, Kimzi.
spk06: Our next question comes from Liping Zhao with CICC. Your line is now open.
spk00: Thank management for taking my question. I think Chengdu started to consolidate in April this year earlier than previous expectations. Could you please share the integration process and is there any updates on this year's revenue contribution considering the tightened COVID control in certain cities in the second quarter? Thanks.
spk02: Yeah, this is Stanley.
spk01: Let me quickly address your question. I actually have been mentioned a couple of the metrics as well as updates during my prepared remarks, and later I'll give you more details. Stanley.
spk02: I want to just give you more details in terms of the fundamental thinkings. And we truly believe all those kind of operational results is based on those kind of business philosophies as well as the thinkings behind that. We truly believe between our one-body housing transaction business and the two-winds and new business, there are a lot of synergies between that.
spk01: especially the resources sharing. For example, in the housing transaction business, we actually have a very strong potential to continue to provide a bigger potential customer referral into the housing declaration as well as other services.
spk02: The second point is that for such an industry, the process is relatively long, and it also involves a lot of role-playing systems. uh, uh,
spk01: Secondly, in the past two decades' experience from the Lianjia to the Baker era, where actually has been accumulated a series of the methodologies, especially if you look at the nature for the home decoration and the furnishing business, there are a couple of the features such as the overall procedures are extremely prolonged. The participating rules are very complicated as well as the customer's decision-making procedures are very heavy, right? So all of those kinds of features, we truly believe our experience and the methodology accumulated from the hosting transaction business, we can replicate those kinds of experience into the new business. And meanwhile, we also accumulate a bunch of the know-how in terms of the systematic management data management, as well as the service commitment. And we do believe by all those kinds of empowerment, we can provide the different kinds of services into the housing decoration business in the future.
spk02: Yes, the third one, I think maybe these areas, including home, housing, and our ordinary housing, these businesses, the housing and housing businesses, in fact, can particularly encourage us, because they are particularly related to our mission. And meanwhile, we truly believe our new business also is an era and a field which can inspire us. We always ask the question by ourselves, if not us, who
spk01: will be changed of the industry, right? So we do believe, as I mentioned in the second part, all those kind of expertise as well as the inspiration could help us to continue bringing a better role in the housing, the home decoration as well as the home rental new business part. 对,所以我想可能刚才分享的数据,第一,我希望大家可能更加去更平衡地去看这些数字吧,
spk02: On the one hand, it does have a strong co-efficient, but I think we don't want it to be a completely slow state in the future. Because this process, I especially believe that it will have a very good development in the long term. In the short term, I think it's okay to guarantee a certain quality and efficiency and a balance on the scale. Even if it's very fast every year, in fact, I think it's very dangerous. So from this perspective, I'm not worried at all about long-term development. We have some small goals for this year. For example, if we can break 100 million per month, right? I've already researched the high point of the entire China in the family industry. So we also expect such a small goal. But what we are more concerned about is the projects we do, including the customers' purchases, including the system we are now passing through.
spk01: So we strongly recommend you, when you look at all those kind of data, similar like what we're sharing internally, is we want to make a balance between the speed of the growth as well as the quality of the growth. So we as an organization always focus on the long-termism, right? So, for example, for the home decoration business, we want to make a balance amount of the quality efficiency as well as the scalability. So we look at the data such as, for example, like one per month, the overall contract revenue could surpass 1 billion RMB. So we do believe by all those kind of efforts in the foreseeable future, we can reach to all those kind of goals. So in summary, in the long term, from myself as well as the team, we are not worried about the growth for the business. But beyond that, we are more looking at the customer satisfaction. We all look at how we can use the online SaaS tools as well as other technical ways to continue to bring the difference into the industry.
spk02: Okay. Thank you.
spk01: That's my answer. Thank you for your question. Back to you, operator.
spk06: 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.
spk01: Thank you, operator. Thank you once again for joining us today. If you have further questions, please feel free to contact Baker's Investor Relations team through the contact information provided on our website. This concludes today's call, and we look forward to speaking with you again next quarter. Thank you, and goodbye.
spk06: This concludes today's conference call. Thank you for participating. You may now disconnect.
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