KE Holdings Inc

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.

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.

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.