KE Holdings Inc

Thank you for standing by for K.E. Holdings, Inc.' 's third quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I would now like to turn the call over to your host, Ms. Siting Lee, IR Director of the company. Please go ahead, Siting.

Thank you, Operator. Good evening and good morning, everyone. Welcome to KE Holdings or BECA's third quarter 2022 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website, investors.ke.com. On today's call, we have Mr. Stanley Peng, our co-founder, chairman, and chief executive officer, and Mr. Cao Xu, our executive director and chief financial officer. Mr. Pohn 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 Safe Harbor Statement in our earnings press release, which applies to this call, as we will make forward-looking statements. Please also note that Bayco's earnings press release and this conference call include discussions of unmodulated GAAP financial information, as well as unmodulated non-GAAP financial measures. please refer to the company's press release, which contains a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures. Lastly, unless otherwise stated, all figures mentioned during this conference call are in RMB. With that, I will now turn the call over to our Chairman and CEO, Mr. Stanley Peng. Please go ahead, Stanley.

Thank you, Suti. Hello, everyone. Thank you for joining PICC third quarter 2022 audience conference call. Against the many uncertainties in the real estate market, we achieved a series of breakthroughs in the third quarter. We have supported our stores and agents network to consistently outperform the market and achieve steady efficiency and profitability improvements in each business line on our platform. This was thanks to the initiatives we implemented beginning last year to enhance efficiencies. I believe Ultimately, these achievements stem from the enterprising spirit of the organization, from the perseverance of each one of us on the platform in the face of external challenges. November 12 marked the 21st anniversary of our organization's founding. To celebrate this momentous occasion, we organized a home linker event witnessed online by over 7,000 home linkers who have stayed with us for more than 10 years, spreading in more than 80 cities across China. Home linkers and employees who have been with our organization share the same experience and collective memories and have learned the same methodologies. Moreover, they believe in the same values and make similar choices that shape the resilience of the organization. We are not only practitioners but also disseminators of our spirits. We carry the same mission and responsibilities to influence more people, cementing their convictions during down times and keeping them grounded in the up cycle while always striving for growth, virtue, and positivity. Moving on our progress, in the third quarter of 2022, in our one body, our existing and new home transaction services, we have prominent advantages in our one body business thanks to our years of efforts and investments in the initiatives to enhance efficiency. Now, a one body has entered the development stage where deepened operations are vital for incremental improvements. These strategic measures may look small to outsiders, but only by finding every core areas of inefficiency and working on it every day can we continue making our business better. The store and agent count on our platform has been stabilizing or even growing in some cities. As of the end of the third quarter, the number of connected stores and active stores on our platform reached over 41,339,700, both about 3% lower quarter over quarter. The number of active agents on our platform surpassed 400,000 and 317,000 respectively, with quarter-over-quarter decrease narrowed to 3% and 2% respectively. The number of active stores grew quarter-over-quarter in nearly 30 cities, including Nanjing, Changsha, and Hefei, and the number of active agents increased quarter-over-quarter in 40 cities, including Shenzhen. The composition structure of stores and agents on our platform has been improving. We now have a higher percentage of agents with long track records and higher performance results. The proportion of agents with over three years of industry endurance rose by about 10 percentage points in the second quarter compared with the first quarter. Along with the overall improvement in professional qualifications, per-store and per-agent productivity also increased. In the third quarter, the average store commission income of the real franchise stores and Canadian stores on our platform grew by 25% year-over-year and 30% quarter-over-quarter. Average commission income per-agent rose by 22-25% year-over-year and 9% quarter-over-quarter. The continued Improvement in our new home receivables collection also further ensure the certainty of income for store owners and agents. Our agents are increasingly identifying with their profession. This year, we conducted two nationwide market surveys participated by a total of over 80,000 real estate agents on our platform. Survey results show that Despite a decline in confidence due to major market corruptions, agents have developed a greater pride in their profession, supported by the growing acceptance of their profession by family and society, along with its elevated social status. In terms of the store agent network and the industry development, efficiency and quality need to be improved. The productivity of a single agent has not improved much over the years, and the overall income level of agents is low, and their churn rate is high. In the next stage, the industry will shift from the pursuit of scale to high-quality development with an accelerated pace, focusing on efficiency and quality. This will undoubtedly force us to grow more and better abilities from inside. Our existing home transaction services continue to significantly outperform the market. According to data from the Baker Research Institute, nationwide GTV of existing home sales climbed by about 7% year-over-year in the third quarter, while GTV of existing home transaction on Baker's platform was RMB 400, and 49 billion up 19% year-over-year, of which existing home sales GTV rose by more than 20% year-over-year. The stress was partly due to the release of pent-up demand in the third quarter in Beijing and Shanghai after the pandemic flares up in the second quarter. In the meantime, our operational and management initiatives have been paying off giving the industry's service providers a strong determination to work with us. Our existing home services, including existing home sales and rental, are becoming increasingly important in terms of both business growth and risk control. We have made efforts on various fronts to accelerate the growth of this business. For instance, We have been closely watching the proportions of new and existing homes in different cities' strategic goals and driving the development of our existing home services. We also allocated more to B personnel to support the existing home business, fortifying system development and ecosystem governance. Meanwhile, in many cities where new home sales previously dominated property transactions. Local brands and store owners have become keen to make organizational and personnel adjustments to shift to existing home business. Turning to new home transaction services, according to data from National Bureau of Statistics, in the third quarter, the nationwide DTV of new home residential home sales was down 21% year-over-year and 7% quarter-over-quarter. The GTV of CRIC's top 100 real estate companies fell by 33% year-over-year and 0.2% quarter-over-quarter. Although the year-over-year decline in the new home market narrowed in the third quarter, there was no obvious sequential improvement. The new home market is still in a tough down by a range of factors, including ceased mortgage payments on unfinished projects, pandemic resurgences, and fewer developer promotions. In the third quarter, GTV on new home sales on our platform was RMB 261.5 billion, down 36% year-over-year, and up 17%. percent quarter-over-quarter. While the market remains under pressure, we have constantly improved the health of our business operations across the board, as well as gained further market recognition with our efficient sell-through capabilities and our effort to build a healthier industry ecosystem. On the consumer side, we mobilized our resources to collect and provide construction progress updates to customers. Our city-based operations and photographer teams collect accurate, comprehensive project updates on construction progress from multiple site locations monthly for ongoing cooperation projects and quarterly for other unfinished projects. Updates are provided to customers and agents on our apps. This practice also kept us fully informed on the latest construction programs of different developers. As of November 15, we have covered 32,442 housing projects in this initiative. Operationally, we continue to strengthen our commission in advance model. In September, commission in advance accounted for 34% of our nationwide new home sales commission revenue, 44% for private developers in cities excluding Beijing and Shanghai, and 32% for state and centrally owned developers. On top of the commission in the advanced model, we promoted our strategy of focusing on selected high-quality projects and key new home projects. On the service side, we collaborate with more high-quality developers and projects. During the quarter, the proportion of new home sales from state and centrally-owned developers expanded to 42% from 37% in the second quarter to really accelerate sales through in the current market. effective lead generation from brokerage channels and promotional conversion from developers must join forces. We are proud to stand out from other brokerage channels with our exceptional existing home transaction service capabilities and add many new home customers leveraging our existing home customer base. In addition, our continuous undertaking to improve the new home industry ecosystem have helped to reduce the ingrained problems of good industry players being driven out by sub-bar practitioners. This has further garnered the respect and the support of high-quality developers for us. In the future, I look forward to providing an overall review of the effort we have made to improve the health of the new home ecosystem. Moving to our two main businesses, our full-service home renovation and furnishing business is progressing as planned. In the third quarter, the industry started to recover as pandemic resurgence in Beijing and Shanghai subsided. According to data from the China Building Decoration Association, the revenue of leading home renovation and furnishing companies in the third quarter decreased by 4% year-over-year and increased by 13% quarter-over-quarter. Our home renovation and furnishing business continued to outperform the market, rising more than 40% year-over-year and 34% quarter-over-quarter, generating revenue of close to RMB $1.85 billion. Contracted sales in the third quarter reached close to RMB $2 billion. an increase of more than 60% year-over-year. Among this, the number of our home renovation contract volume increased by more than 50% year-over-year, with average order value up by more than 10% year-over-year. The percentage of total contracted value attributable to core business traffic referrals increased from 25% in June to 43% in the third quarter. We have replicated the technological capabilities accumulated in our core business, such as AI Assistant, Xiaobei, into our home renovation and furnishing business. As of October 31, more than 9,500 service providers, including home renovation and furnishing designers, engineers, foreman as well as agent from our core business has participated in the Xiaobei training and testing. Our home furnishing new retail sales accounted for 20% of the total contracted sales in the third quarter, up from 16% in the second quarter. The ratio of home renovation orders that come with need for customized furnishing increase to one out of six from one out of nine in the second quarter. In the third quarter, Beijing Beiyuoshengdu reached quarterly breakeven and monthly contracted sales of over RMB 100 million in June and July and August, becoming the largest full-service home renovation brand in Beijing. This is a significant breakthrough and achievement aimed at the current head of headwinds. The underlying capabilities we accumulated in the past have propelled the Beijing business into a positive cycle. We did this by first establishing from the ground up large-scale home renovation delivery management capabilities. Second, our scale and more complete supply chain created a virtuous cycle that has won additional suppliers and enables customers to select from our great choices of better quality products. Third, our proven competencies in delivery management and business operation have become better recognized among service providers. Agents start to actively recommend our home renovation services to customers and accompany them on visits. Whereas designers, workers, and foremen are proud to join us and they feel confident in their professional development with the increase belonging to the platform. Only by attracting and assembling high-quality service providers in the industry can we provide consumers with a superior service experience. With Beijing as an example, we aim to continue to integrate and manifest our capabilities in more cities, bring better living services to more customers, Next, moving to our home rental services, which continue to expand in scale and improve in efficiency in the third quarter. In terms of scale, as of the end of the third quarter, the number of contracted rental units managed by our rental services doubled quarter over quarter to over 85,000 among them. The number of units under the decentralized leasing management carefree rent reached over 50,000 units, an increase of nearly 17% quarter over quarter. The carefree rent services is currently available in certain cities. To improve our efficiency, we continue to develop and interactively optimize our sign-up and occupancy model, as well as refine our operational capabilities. In September, both our of occupancy rate and average sales through period improved compared to the second quarter. It is particularly worth mentioning that this July, we were selected as part of the first group of affordable rental housing operation service enterprises in Chengdu, and we were the only private enterprise among the four selected, thanks to the opportunity we will able to become more deeply involved in the improvement and operation of local affordable rental homes. As of November 21st, we have provided high-quality leasing operation services, including leasing brokerage to more than 1,000 rental homeowners and tenants in Chengdu. In the future, we will also strive to participate in the planning and operation of more affordable rental housing and contribute to the development of a housing system that ensures supply through multiple sources, provides housing support through multiple channels, and encourage both housing purchase and renting. In conclusion, our business performance this quarter demonstrated great vitality and resilience of our organization. Internally, this is due to the people we have and the organization culture we have formed. We have an unshakable existence on technology for good quality service and utmost operation efficiency, which has won us the affirmation of customers and service providers. Externally, it comes from the solid economic foundation of our nation. from the desire of each small family for joyful living, which together have amounted to the tremendous demand in China's living sector. There have been a series of favorable policies unveiled recently to support future release of rigid and upgraded housing demands, help high-quality developers restore liquidity, and boost market confidence. We will also do our best to make our network of store and agents the warm connect of homes to bring better quality and more diversified housing and related services to customers and play our part to promote a stable and healthy development of the real estate market as well as to better satisfy the housing needs of all people. Thank you. Next. I would like to turn the call over to our CFO, Tao, to review our third quarter financials.