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spk09: Hello, ladies and gentlemen. Thank you for standing by for KE Holdings, Inc.' 's first quarter 2023 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. Satine Lee, IR Director of the company. Please go ahead, Satine.
spk01: Thank you, operator. Good evening and good morning, everyone. Welcome to KE Holdings or BECA's first quarter 2023 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. Tao Xu, our executive director and chief financial officer. Mr. Peng will provide an overview of our strategies and business development, 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 BACA's earnings press release and this conference call include discussions of unaudited GAAP financial information, as well as unaudited 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.
spk03: Thank you, Siting. Hello, everyone. Thank you for joining Baker's first quarter
spk04: 2023 audience conference call. During the past quarter, we have witnessed the real estate market in China, along with various other industries, rebounding from the pandemic. GTV of existing home sales in China increased by 51%, while GTV on new residential home sales increased by 7%. With sales of the top 100 developers growing by 2%, all on a year-over-year basis. Existing home transactions GTV on our platform increased by 78% year-over-year in the first quarter, and our new home sales GTV increased by 44% year-over-year in the first quarter, outperforming the industry by a great extent. In the past few years, AIMDA's tremendous vitality in the market. Our continued investment in our ACN network and infrastructure, our persistent support of quality service providers, and our efforts to shift toward higher quality, more efficient development have enabled our outstanding performance during the market recovery process. As the external market gradually stabilizes, and our organization gets stronger, we face people's questions such as where we can find our more growth opportunities going forward? What are the drivers and how much upside is there in the next 10 years? Will we play defense or continue to pursue high-speed growth? And how will we allocate our significant cash provision? These questions are important to both our investors and our company. Having pondered these questions today, I would like to take this opportunity to face the future together and share my thoughts on our cause over the next decade. Most importantly, we are an organization that always seeks development because we are committed to making the industry better. Our mission gives us a great cause. Baker was established to serve our mission of admirable service, joyful living. It has made us who we are rather than the other way around. So we won't stop. Of course, in our business, developments and growth cannot be measured with high frequency data, but it needs to be with a three-year perspective. Sustainable growth is not expansion, not scale. Rather, it arises from customers and their unmet needs. In the past, our initiatives, such as transparent transactions, authentic listings, full commission refunds for failed transactions, and protection of secure transactions were all originated from the question which needs in the housing industry have not been met. Meeting these needs requires us to think big and think far. At this point in time, customer demands in the housing industry are far undeserved. Customer's demands for better living, including the quality of homes, quality of home renovation and furnishing products and services, and a better home rental endurance remain largely unfulfilled. These are real needs which will provide us with significant room to grow in the future. To achieve sustainable developments and growth, the key is to improve our capabilities. First, our developments will be built on our stronger energy collaboration network. which forms the foundation of our infrastructure, holding quality as a prerequisition and home listings at its core. A series of rules and mechanisms empower seamless collaboration of brands, stores, and agents within this network. Our ACN's core underlying assets is our customer trust in agents. We believe that a rule-based competition for quality service among service providers will offer customers higher transaction efficiency and enhance their service endurance. In the future, our ACN can include additional roles and cover more links along the housing ecosystem value chain, which translates to huge potential for innovation in the network. As such, the most critical foundation for our development is to establish and maintain the connection between the ACN and stores, as well as ensure collaboration quality while increasing customer trust in the ACN, all together making our ACN stronger. Second, development comes from the rise of high-quality brands. Brands are built on commitment to customers and their trust, as well as an organization's ability to create emotional connections with its customers. In the future, I believe virtual competition will empower high-quality brands to connect and aggregate more outstanding stores and agents, which in turn will help foster stronger capabilities within the AC network to improve service providers' efficiency, thereby taking their incomes to the next level. Third, development is also propelled by the enhancement of service providers' efficiency that are centered around quality. For 20 years in the past, we benefited from the tailwind of rapid market growth. The main development cost of the real estate brokerage industry was about achieving scale growth with quality as a prerequisition, whereas fundamental industry efficiency did not improve substantially if the average transaction per agent has been hovering at 0.3 per month. Looking at the next 10 years, we think we will see a shift to enhance efficiency with quality as a core focus. We firmly believe that this is the right path, even though it is difficult. As quality improvement delivers a better customer endurance and efficiency against driver-agent success, ultimately resulting in the success of stores, brands, a platform, and industry as a whole. On a storefront, the trend toward large stores is inevitable going forward. Only large stores can bring high incomes to store owners and agents while raising the operational threshold. We need to invigorate store owners' entrepreneurial spirits and furnish them with support to strengthen their multiple and large store management capabilities. Meanwhile, we will need to stimulate high-quality agents' motivation to help them grow, as well as nurture and retain them, which also serves as a crucial measure to enhance store efficiency. On the service provider front, in the residential service industry, where agents and stores are at the core, The rising personal value of service providers is also an irresistible trend with the potential for lifelong careers. The value of service providers in our industry grows all the time, and they deserve more in terms of income and rewards. Their growth and development also leads to better experiences for customers, which is why we are committed to prioritizing the rights and the interests of service providers. Our next step is to improve the working environment and the mindset of service providers by committing to the institution of initiatives that ensure their well-being with focus on areas such as rest and vacation time. There are many opportunities for improvements and progress in this industry. And we are determined to make that happen. In terms of efficiency improvement, the adoption of scientific management and technological applications are consistently driving progress in the industry. And we will continue to empower future efficiency gains. Scientific management has been a crucial component and a way of thinking for Lianjia to overcome growth bottlenecks in the past through a series of tools and measures that we have accumulated. We can discover the laws dictating events to guide our actions and ensure we achieve our goals. Ability to balance both long-term and short-term objectives is also crucial during the process of development. We believe that comparing scientific measurements with care for people will help us reach our next level of success. In addition, our organization has stemmed from a combination of service-oriented and engineering-oriented genes, and the integration of industry practice and technology application are the underlying driving forces for our continuous development. The emergence of new technologies such as AIGC is also possessed to significantly improve industry efficiency and make high quality service providers even more valuable, preparing us to new heights. Everything we do starts with taking care of customers, reflecting on our past success. We recognize that our ability to delicately address customer pain points has been integral to our growth and customer satisfaction is the foundation of our success. The optimal charts generally benefit both customers and service providers. Taking Authentic Home Listing as an example, it's clear that such listings are precisely what our customers need. As we persist in promoting these listings, customers gradually progress from doubts to beliefs. fulfilling our service providers with a tremendous sense of motivation that propels the entire team to improve their abilities. We apply this same mentality across our organization, from the existing home business, new home business, home rental business, and home renovation and furnishing business, to broader housing services. In each cases, this mindset has been inspired to develop our capabilities, earn customer recognition, and foster our own growth, opening vast possibilities for expansion. Every time we embark on a new venture, we remain true to our original aspiration. We strive for development and growth in order to meet our customers' needs and resist tendencies geared towards entropy increase. We reduce costs and increase efficiency to avoid last company syndrome and improve our operational capabilities. We firmly invest in our foundational capabilities rather than make quick profits and extend our scale in a haphazard manner. All of these efforts are aimed at providing the best possible service to our customers and creating lasting value through a transcending market cycle. We also focus on shareholders' return to both rewards and align ourselves with like-minded investors who share our long-term vision and will stay with us through the market cycles. Finally, what makes our organization different is the culture shift. by a group of people. We have been inspired by customers and service providers. Behind this culture, there is a mission that drives us to keep motivating forward. Admirable service, joyful living. We aim to help service providers understand and pursue what's right and to help customers to give meaningful feedback to our service providers. Our value lies in hiding what's right to motivate positive feedback and who have to reward what's right. We are genuinely inspired and moved by this. We firmly believe that our presence in this industry represents a difference for industry practitioners and customers alike. This difference will spread and influence more people. And together, we will climb to the top of our next mountain. Thank you. Next, I would like to turn the call over to our CFO, Xu Tao, to review our first quarter financials. Thank you.
spk07: Thank you, Stanley. Thank you, everyone, for joining us. Before going into the detail of our first quarter financial results, I would like to provide a brief update on how to market in the first quarter. Since the beginning of this year, the real estate market has staged a significant recovery. fostered by a February policy of preventing risks and supporting demand, coupled with a concentrated release of pent-up housing demand from the pandemic. Notably, the existing home market saw a strong pickup, with housing prices beginning to narrow their year-over-year decline and show the return to quarter-over-quarter increase from the sequential decline in previous periods. The new home market also experienced a moderate recovery, with the consumer confidence improving. As a effect of the one-off release of pent-up demand in the seasonality world, starting in March, market transaction volume began to normalize from an excessively high level. By seeking from a relatively stable scale of our ACN network during the market protracted slump and effective promotion, of refined operations for stores and agents. We proactively capitalized the market's recovery queues and the seasonal dividend as the market rebounded at the beginning of the year. As a result, our GTV growth significantly outperformed the market. According to Baker Research Institute, in the first quarter, GTV of existing home sales in China increased by 51.2% year-over-year. while the same home transaction GTV on Baker platform grew by 77.6% year-over-year. State Farm National Bureau of Statistics also showed that the GTV of the new home sales in China increased by 7.1% year-over-year, while the new home transaction GTV on Baker platform rose by 44.2% year-over-year. Our next revenue in the fourth quarter reached RMB 20.3 billion, representing a 61.6% increase year-over-year, beating both the high end of our guidance and the street consensus. The increase was driven by our highly efficient operations, stable monetization capability, and organic growth in our home renovation and furniture services. Our gains were further bolstered by the faster than expected market recovery. Moreover, In the difficult environment since the second half of 2021, we implemented the staunch cost and expense of optimizations and consistently refined our operations, which made our organization more efficient and agile. These efforts empowered us to deliver strong performance in profitability during the market downturn. They have also allowed us to start this year in a position of strength, gaining great benefits from our increased operating leverage. Therefore, we reported continued improvement in multiple financial metrics. Our Q1 gross margin was at 31.3%. GAAP net income reached RMB 2,750 million, while non-GAAP net income jumped to RMB 3,561 million in the quarter. compared with RMB 28 million in the same period of 2022, and an increase of 137% compared from the first quarter of 2021 with a similar revenue scale. By segment, our net revenue from these in-home transition services increased by 49.3% year-over-year to RMB 9.2 billion in Q1, primarily driven by a 77.6% increase in PTV Among that, the existing home transaction GTV from Lianjia rose by 43.2%, of which the revenue was recorded on a gross basis, while GTV by connected agent jumped by 117.9% year-over-year in Q1, fueled by the notable property market recovery in many tier 2 cities, of which the revenue was recorded on a net basis, resulting in the slight smaller growth of the existing home revenue compared to GTV. Our net revenue from the new home transaction services increased by 42.2% year-over-year to RMB 8.4 billion in Q1. Thanks to our outstanding sell-through capability, vast customer base from the existing home transaction and the operation integration of the new home and existing home business, faster new home settlement by Lianjia and the targeted market coverage in the first and second tier cities that were forced to recover at the beginning of the year. Particularly, cooperation with the state-owned developers account for 46% of our sales revenues. Benefiting from the effective coordination with home transaction services, the contract sales of our home renovation and the furniture business totaled RMB 2.7 billion, up 108.2% year-over-year, and the revenue amounted to RMB 1.4 billion. rising by 54.3% year-over-year, both on performance basis. Our net revenue from emerging and operating services increased by 222.1% year-over-year to RMB 1.3 billion in Q1, primarily attributable to the increase of net revenues from rental property management services and the financial services. Our most streamlined cost and expense structure has led to a significant increase in single-quarter profitability amidst the substantial recovery of the market. In particular, the contribution margin of the in-home business jumped to 49% in Q1, up by 11.3 percentage points from the same period of 2022, and 11.9 percentage points from Q4, benefiting from the notable revenue increase, the year-on-year decrease in the fixed cost, and the rescue-based stable variable cost ratio. The contribution margin of the new home transaction services reached 27%, up by 8.8 percentage points from the same period of 2022, mainly driven by the increased percentage of the high profitability projects and the more streamlined personnel structure. Therefore, driven by the higher margins from existing and new home businesses, increased the proportion of home renovation and furniture services with the higher margins as well as a smaller percentage of the cost related to store and other costs of the net revenues. Growth profits increased by 186.1% to RMB 6.3 billion in Q1. Growth margins increased to 31.3% in Q1 from 17.7% in the same period of 2022. Our gap operating expenses increased by 7.5% year-over-year to RMB 3.4 billion. Among that, sales and marketing expenses increased by 50.3% to RMB 1,294 million, mainly due to the consolidation of Chengdu and the organic growth of home renovation and furniture services. General administrative expenses increased by 6.1% to RMB 1,621 million mainly due to the increase of the service compensation expenses. Notably, with the healthy cash collection of the new home business, we have a back-to-back provision written back of RMB 127 million in Q1. Research and development expenses decreased by 39% to RMB 457 million, mainly due to the decrease of the personnel cost and service compensation as a result of the decreased high cost. While maintaining our investments in the new business, including the home renovation and furniture, our total non-GAAP expenses in Q1 was at RMB 2.61 billion, representing a notable decrease both year-on-year and quarter-on-quarter. Income from operations was RMB 2,987 million in Q1, compared to loss from operations of RMB 980 million in Q1 2022. The increase in gross margin and input operating leverage have brought about the increase in operating margin to 14.7% in Q1 from 97.3% in the same period of 2022. Our non-GAAP income from operations was RMB $3,830 million in Q1 compared to non-GAAP loss from operations of RMB $450 million in the same period of 2022. Non-GAAP operating margins increased to 18.9%, compared to negative 3.6% in the same period of 2022. Q1 net income was RMB 2,750 million, compared to net loss of RMB 620 million in the same period of 2022, and the net income of RMB 1,059 million in Q1 2021. Non-GAAP net income was RMB 3,561 million in Q1. compared to RMB 28 million in the same period of 2022. Our cash position and cash flow remains robust. At the end of March 2023, on the basis of one-time payment of year-end bonus before the Spring Festival, the combined balance of our cash, cash-like items, totaled RMB 85.3 billion, or US dollar 12.4 billion. offered by $7 billion from the end of December and the RMB $16.2 billion from the end of Q1 2022. Among which, to combine the balance of our cash, cash equivalents, restricted cash, and short investment was RMB $66.6 billion. The balance of our long-term cash-like items, mainly included in the long-term investments, amounted to RMB $18.7 billion. Our net operating cash inflow was RMB 7.6 billion in Q1, remaining positive for the sixth quarter in a row. Under our stringent receivable management, our cash collection from the new home business has exceeded new home revenue for seven quarters in a row, totaling RMB 8.84 billion in Q1. New Home DSO was at only 59 days in Q1, further shortening by 5 days from Q4 and 93 days from the same period of 2022. Turning to the guidance of the second quarter of 2023, we expect total revenues to be between RMB 18.5 billion and RMB 19 billion in Q2 representing an increase of approximately 34.3% to 37.9% from the same period of 2022. This forecast consists of potential impact of the recent real estate-related policies and the macroeconomic recovery status that constitutes the current and preliminary view on our business situation and the market conditions, which are subject to change. The past three quarters represent the three gifting market conditions In the third quarter of 2022, the market was on the path of recovery. Despite the impact of the unusually hot summer, recurring pandemic outbreaks in sporadic cities, and the financial strength in the new home market, based on historical trends, we believe the market has returned to 80% of its normalized level, and we recorded a non-gas net income of RMB $1,888 million during the quarter. The fourth quarter of 2022, nevertheless, was extremely difficult. The market was hit hard by the homebuyers' low purchase intentions, the widespread pandemic outbreak across the country. Facing these formidable challenges, we demonstrated resilient profitability with a non-GAAP net income of RMB 1,547 million. Moving to the first quarter of 2023, The market become excessively heated during the three factors, driven by the three factors. The regular home purchase demand, the concentrated release of pent-up demand that has been surprised by the pandemic, and some home buyers early entering into the market for the fear of the rising prices. This led to the market rapidly rebound at the start of this year. Increased extremely hot environment, we recorded a non-gap-napped income of RMB 3,561 million during the cold. In these three consecutive neutral, extremely cold, and hot markets, we maintained a remarkable profitability, which clearly demonstrates the value of our platform. We do not favor or hate the market, nor do we fear excessively cold ones. We prefer the markets that prioritize housing is falling in, not forced immigration, where supply and demand are balanced, enabling us to best showcase our value and achieve sustainable development. Particularly, in the first quarter, Baker and the platform agent remained objective and rational, becoming the counterforce to the market boom. In terms of our financial strategy, building a path Our core business fully optimized the carbon expense structure. We will continue to enhance the quality of our operations and foster effective growth. For external industry capabilities that have survived the market deep adjustment, we will connect them by targeting the regional resources allocation to improve the collaboration quality, attract the industry to compete for the excellence, and improve the agents' productivity and store efficiency. Regarding the new home business, we will continue to strictly abide by our management bottom line and aim for appropriate skills function based on the balanced operations, financial health and risk control, and in accordance with the market conditions. Meanwhile, we will make reasonable and appropriate investment in sales and marketing based on the pace of market recovery. We will also decisively invest in the application of cutting-edge technologies. Regarding our two wings business, home renovation and furniture, and the rental property management services, we are now in pursuit of far-scaled expansion that can be done in the short term. Rather, we expect to validate our unique economy model at some core cities this year, and building the benchmark of cases to replicate it in the larger scale. In addition, we are more determined than ever to invest in our long-term capabilities, including product development capability, supply chain, and service cost improvement, as well as continuously enhance the service provider's professional competency and elevate customer satisfaction. Overall, we will be more proactive with our initiatives that contribute to long-term growth and greater vision Similar to what we did before with our commitment for the transparent pricing and authentic listings, we will ultimately invest in our people, our growth, and our service quality. We are also endeavor to explore the application of new technologies, such as AI, to operational scenarios in order to tap into small productivity potential of the frontier service providers and the industry in general. The journey of 1,000 miles is made one step at a time. In the vast market of redress central services, we will fortify our foundation with quality at our core, make relentless efforts to input service providers' working environments, and bring a better housing service experience to customers. With respect to recent government guidelines, we carried out studies right away and will make on remaining efforts with all parties to serve customers for Joyful Living. This concludes my prepared remarks. Now, we are open for questions. Operator, please go ahead.
spk09: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on a speakerphone, please pick up the handset to ask your question. 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 the English translation. Today's first question comes from Harry Chan with Citigroup.
spk08: Please go ahead.
spk06: Thank you, Benjamin, for the opportunity. First of all, I want to congratulate on the extremely solid results in the first quarter. My question is regarding the general housing market. We see that the housing market was in great shape in the first quarter of this year. Have there been any structural changes in the market? and a series of leading indicators since March seem to show both the existing and new home markets are relatively soft. What are the company's observations of the latest market conditions and how to interpret these leading indicators? What's the company's view about the future trends of the existing and new home markets, and how will the market performance differ among different CTPs? Thank you.
spk08: Thank you, Harry.
spk07: Regarding your first question, in the first quarter, the release of Penta home transaction demand, along with the support of the easing policies, contributed to a significant rebound in China existing in the new home market, followed by a normalization of the market. Overall, the China housing market experienced a moderate recovery, with new characteristics including the demand for home upgrades becoming a solid driving force in the market, and existing homes as the major market contributor. And the second-tier cities are the strongest players. In particular, in the first quarter, the GDP of existing home sales in China increased by 51% year-over-year, but was 25% lower than that in the first quarter of 2021. The GDP of the new home sales grew by 1.4% year-over-year, The fourth year wheel increase in past six quarters. Wealth GTV rose by 7% year-over-year, the second-highest year-over-year growth in history. Price-wise, the think-home price ended their 17 consecutive quarters of decline and the growth by only 0.4% quarter-over-quarter, with the year-over-year decline narrowing to 5.5%. New home prices increased by 0.7% sequentially in the first quarter, with year-over-year decrease narrowing to 1.4%. Home upgrade demand was the main contributor to the market for the recent round recovery and the future market growth. This demand comes from the people that already own at least one home and are looking for the upgrade. The proportion of the home upgrade demand exceeded 70% in the first quarter of this year. up 7 percentage points from 2019. Notably, over 45% of this demand was for the first-time upgrades. The implication of this increased demand on the market as follows. Number one is clients with home upgrade demand are bound to enter the existing home market first, as most of the new home channel sales customers come from the existing home market. New home recovery is perceived on the rally of the existing home market. Number two is for clients, especially for those who home upgrade demand is rigid. They are usually time sensitive as they are facing the life change events such as getting married or have children or for the children's education. As such, that demand cannot be met by new home which are mostly for delivery housing. This is a policy for the single market and the moving ready new homes. The third is in the market. Dominated by home upgrade demand, supply and demand in the market change simultaneously. Higher demand for the home upgrade naturally leads to more existing home listings without putting downward pressure on the housing prices. Cities with higher increase in the home listing also have larger transaction volume and higher prices. For example, at the end of the first quarter, Homelisting in Shenzhen, Hangzhou, Changsha, Wuxi, and Chengdu rose by over 20% quarter-to-quarter. Other than transaction modeling, all grow at a higher rate with a steady price increase. Number four is due to a longer decision-making process and the higher transaction complexity. Home upgrades transactions have the higher requirements for the professional and accounting housing services, which will promote industrial upgrades. So in the most recent round of market recovery, the existing home market significantly outperformed to the new home market. The structural support of the home upgrade demand and delivery issue of the new home both made the homebuyers more inclined to purchase existing homes. As a consequence of this, the existing home market recovery in January already has a rally in the new home subscriptions in February. As in-home transactions in various regions also accounted for a rising share of the total housing transactions, up from 32% in 2020 to 38% in the first quarter of this year. The housing market recovery of the second-tier cities was more pronounced. In the first quarter, GTV of these in-home sales in the second-tier cities on our platform increased by 120% year-over-year. far higher than the 40% and 105% in the first-tier and the third-tier cities, respectively. The greater rebound in the second-tier cities is attributable to a lower base in 2022, better local infrastructure and infrastructure, stronger population appeal, and the more relaxed mortgage and home purchase restrictions. With the new home market, it has marginal sales recovered in the first quarter, high-quality private developers have regained some of their enthusiasm for the land auction in core cities. The proportion of land acquired by the private developers in terms of value recovered from 17% in 2022 to 32% in the first quarter of this year, and the land auction premium rebounded to 3.2%. Regarding your second question, We would like to say that the market from January to May, we not only need to prevent selectiveness to the difficulties, perhaps due to our beliefs, but also prevent ourselves from closing our eyes to any improving business data right in front of us due to the pessimism that we missed the opportunity of the market. It's true since March, the market has indeed experience a certain degree of adjustment, but we need to remain calm during the significant market upswing and refrain from being overly bearish during the market corrections. The market correction is partly returned to normalcy after the release of the pent-up demand. It also reflects the intensification of gains and the bargaining between the homeowners and the buyers. which slowed down the transaction pace. The market rebound in the first quarter quickly increased the home buyers' expectation for the higher housing prices, which are well ahead of the macroeconomic growth as the home buyers expect income improvement. The disparity in price expectations, combined with the low listing in the market from relatively new homes intended for the home upgrades, reinforced the back and forth between the home owners and the buyers. slowing down the transaction pace. Nevertheless, we believe the current market adjustment is within the range of normal seasonal adjustment. The transaction volume of the adjustment remains at a relatively higher level. In April, existing and new home subscriptions still grow by over 40% year-over-year. Meanwhile, the market stabilized beginning in May. Therefore, we are still in a stage of moderate recovery. We believe the future market will be generally stable, but it will take more time to determine the certainty around the pace and the magnitude of the market recovery. A continued positive policy environment improves the housing price expectations and the recovery of the resident income expectations, as well as progress on the timely delivery of the price of the homes will all provide support for the continuous market improvement down the road. On the policy front, a series of supportive policies that began at the end of 2021 has underpinned recovery of the housing market in the first quarter, which acts as the anchor of the China macroeconomic development. Further policy relaxations with the room for the improvement and the deepening will drive further economic recovery. The easing policy has recently supplied to the first tier cities and core region of the second tier cities. Since March, cities and the district of Shenzhen, Guangzhou, and Beijing have relaxed their policies, and the strong second tier cities like Hefei have narrowed the scope of purchase restrictions. Targeted easing policy in the first tier cities and increasingly relaxed cities in the second tier cities and the third tier cities will open up the home upgrade transaction channels to better fulfill home upgrade demands. for the lifting the market confidence. And the rest of the housing prices patients need to continuously improve, according to survey data from the Baker Research Institute. In the first quarter, the share of the respondents expecting the housing price to rise increased by nine percentage points, quarter over quarter, which may provide support to subsequent market recovery. And the rest of the income expectation need to improve further as well. This cannot be realized immediately after policies are relaxed. It takes more time and patience. The central bank's first quarter data already shows improvements in resident employment and income expectations. And also for the delivery issue of pre-sold new homes, and developers' debt defaults continue to exert pressure on the recovery of the new home market. But we did notice that delivery of pre-sold houses have been improved this year. As all of these factors continue to improve, the market's moderate recurring momentum will be sustained. Going forward, the in-home market will continue to outperform in the new home market, particularly in the first and the strong secondary cities. This is because the cities have greater room for the policy implementation and a higher proportion of existing homes. Gradually limiting the new home supply and inventory, as well as a stronger attraction for the population. Thank you, Harry.
spk06: Thank you, Benjamin.
spk09: Thank you.
spk08: And our next question today comes from Eddie Wong with Morgan Stanley. Please go ahead.
spk05: Thank you, Benjamin, for taking my question, and congratulations on the very great results. So my question is that Baker has significantly outperformed the market across different business lines in the first quarter. Could you please share how the company achieved this very strong results and performance, and how should we think about your performance relative to the overall market going forward? Thank you.
spk07: Thank you, Eddie. In the first quarter, our economy significantly outperformed the market across all of our business. Our GTV of the new home sales increased by 78% year-over-year in the first quarter compared to the market growth of 51%. And our market penetration rate increased by 6.6% quarter-over-quarter. And our GTV for new home sales increased by 34% year-over-year compared with the market of the 7% increase. And our penetration rate increased by 1% quarter-over-quarter. Firstly, we need to emphasize this. Our significant short-run outperformance is similar to what happened two years ago, that is, the second quarter of 2020, following the pandemic outbreak. And we expect a return to normal in this year as well. In Q2 2020, Our market penetration of existing and new home increased by 6% and 2% respectively, both quarter over quarter. In the sub-quarter, as the market has normalized, our market gain has also returned to 1% increase quarter over quarter. Meanwhile, the difference in the sales recognition may also be one of the reasons why our data significantly exceeds the market. The existing home market data is based on the online restrictions when transactions are closed, while our data is based on the contract signing, which leads to the online closing date by around half a month to one month. Excluding about factors, our first quarter performance also demonstrates our strong ability to capture the market opportunities during the recovery cycle. We supported and retained the high-quality service providers during the market downturn, which has enabled us to reap the benefits of the market recovery. Our view on the future market is that those who can attract existing and high-quality service providers will be the ultimate winners. In the fourth quarter, we took advantage of the recruiting season and the exit of many other players in the industry to grow our coverage of existing stores and agents. As a consequence of this, we're ending the five and six consecutive quarter of decline in the number of stores and agents respectively. Our number of active stores increased by around 6% quarter of quarter to over 39,600, and the number of our active agents increased by as much as 18% quarter of quarter Crossing the number of agent is 410,000. Secondly, our service provider in the idle during the March downturn. They continue to improve their professional skills and consult the community friendly services during the pandemic, which earns them the long-term trust of the current and the potential customers. As the market recovers, those better-known professionals become customers' go-tos. In two years period of 2021 to 2022, 4,600 store owners complete courses in our Bay He Huaqiao Academy, while agents on our platform completed over 24 million hours of professional training through various online and offline courses. Investment in enhancing the capability and accelerating the growth of both agents and the store owners will yield benefits that transcend the market cycle. We also iterate and refine our business operations strategy. Before 2020, we focused more on growing our number of stores and agents. Beginning this year, we will limit number of new stores and agents, leverage our analysis of the different business districts We will only allow the new addition in non-saturated areas. Meanwhile, we will identify the problem in different areas and operate in a targeted manner to better support and empower store owners and agents. Our capabilities in the existing home market enable us to succeed in the new home market. More than 50% of our new home customers come from the existing home market. Proficiency in the existing home sales support our ability to better seize the business opportunities as the new home market recovers. In cities where we hold advantage in the existing homes, we can expand our reach more significantly in the new home market. For example, in the first quarter, our new home sales market penetration in the city such as Wuhan increased by more than 5%, quote, unquote. A healthier ecosystem in both the new home and the new home market will help establish a virtual business cycle naturally leading to a sustained market penetration gains. Regarding our home renovation and furniture services, the overall renovation market rebounded in the first quarter along with the real estate market. The contract sales of the Baker's Home Renovation and Furniture Services grow by 108% year-over-year on a performance basis. In particular, referrals from our core businesses contribute to over 40% of total contract sales. Leading cities such as Beijing have been witnessing a continuous improvement in their single-city operational ability, with an increase in the volume of the renovation orders surpassing that of existing home transactions. setting the new record of monthly profitability, along with emerging cities gradually gaining momentum, contributing more to overall performance. In summary, while our market penetration will be normalized in the short term, in the long run, we will consistently expand our reach to the wider restaurant services, which provide ample room for growth with high certainty. Thank you.
spk05: Thank you. And congratulations on the results again. Thank you.
spk09: Thank you. And our next question comes from Timothy Zhao with Goldman Sachs. Please go ahead.
spk02: Hi, it's Danny . Thank you for taking my question and congrats on the very strong results. My question is about the efficiency improvement as you mentioned in your remarks and just wondering If management see any opportunities for further efficiency improvement after very strong QM results, and how do you plan to achieve them? And additionally, are there any specific measures that management have in their mind for this year to further improve the quality of the services to customers? Thank you.
spk03: Okay, thank you for the question.
spk04: Regarding efficiency improvement, we have already mentioned some ideas in our prepared remarks. the key to focus on customer experience and enhance capabilities of stores and agents while improving our platform ecosystem and mechanisms. We have implemented many initiatives to greatly enhance the customer experience over the past 20 years. This has helped us to win customer trust and become a top choice for both customer and service providers through initiatives such as transparent pricing, authentic listing, and housing dictionary. and our commitment to the protection of secure transactions. Through these efforts, we have addressed many key pinpoints that a customer faces on the transaction side as they continue to improve the industry ecosystem as well as its efficiency. As the market supply and demand gradually balance, pinpoints of owners become increasingly prominent. Their needs have have undergone changes and the ability to better meet these needs may be an important direction for enhancing customer endurance in the next stage. Furthermore, this year we will iterate our commitment system for housing transaction services, enhancing the overall customer endurance by addressing core pain points. At the end of 2022, our platform offers 56 service commitments to customers in our housing transaction services. The fulfillment of these commitments is far more important than their quantity. Therefore, we will prioritize commitments that address our customers' most relevant pinpoints and promote the high-quality management of our service commitments. Firstly, we will focus on more targeted brand-level service commitments Secondly, we will step faster to improve the quality and the fulfillment of commitments that cover key customers' pain points such as compensation for damage caused by water leakage. Certainly, we will provide commitment guarantees to both any customers and our business partners. For our home renovation and furnishing business, the key to success lies not in customers' acquisition or marketing, but in the quality of delivery, fulfilling commitments is more important than simply making promise. To address key pinpoints of our renovation services, we must set clear fulfillment standards and responsibilities, enhance our fulfillment capabilities, and tackle industry-wide challenges. This is the next breakthrough that we are talking. Meanwhile, the pinpoints for our core business customers arise more from the housing product side. For the transaction side, the key drivers for improving efficiency lies with helping high-performance agents to better and earn more, and providing them with a clear career path to become experts in community and housing-related services. Only in doing so could customers receive professional quality and diversify housing and related services. On efficiency enhancement for the long term, we have put tremendous effort First, the average income of an agent in our industry still lags far behind the average wage in our society. Only when agents have a healthy income can they maintain a long-term career and achieve higher productivity. We at TechBritish want to continue to have a healthy ecosystem and competitive mechanism that allows us to cut through inefficient competition. By providing long-term, high-performance practitioners with more resources and improving their income, we can retain them in the industry. This can be achieved through platform systems, rain refinement, adequate AC network coverage, efficient cooperation, professional training for store owners and agents, as well as by adopting the cost-effective large store model. Secondly, technological advancements, such as AIGC, continue to present opportunities for service providers to improve their efficiency. Exploring and effectively utilizing these products and tools will have a lot of scientific efficiency for our service providers in our core and emerging business. That's my answer. Thank you, Joe.
spk05: Thank you.
spk08: Thank you.
spk09: And our next question today comes from Xiaodan Zong with CICC. Please go ahead.
spk00: This is Xiaodan from CICC. Thanks, management, for taking my questions, and congrats on another strong quarter. So my question is on the new home transaction services. As mentioned in the last quarter's call, they could plan to dynamically adjust the credit ranking of developers based on market conditions. which may in turn expand the addressable market. So could you please update us on the progress of that? Additionally, have you noticed any changes in the channel penetration rate, commission, and split rate in the market? And what are the measures the company has taken in response to those market changes? Thank you.
spk07: Thank you, Brenda. Baker is a company with a strategic focus. Regardless of the market conditions, we know what to do. and what not to do. And this is especially true for our new home business. Last year, we established a solid foundation for the safer operation and optimized business conduct of the new home transaction service industry. We have improved the service capability for the high-quality SOE developers. And in Q1, the proportion of the new home sales had increased to nearly 46%. Our cooperation with a larger number of ISOE developers is also a validation of our ability to provide the high-quality surveys and our high sales efficiency. We have transformed the industry payment mechanism to protect the receivable security of the service providers. Projects with the Commission in advance have higher sales efficiency than those without, which is a win-win situation for all parties involved. We have also established a safer working environment for both consumers and service providers. This is the right choice regardless of the market environment. In this year, the overall market is experiencing a moderate recovery. Strategic-wise, we will maintain consistent and stability without focusing on the short-term or being overly aggressive and blindly pursue scale. We will focus on the better collaboration with upstream developers and the further safeguard the interest of all of the service providers in Big Core platform. And the first, we have set minimum commission speed with our China partners to prevent the planned pursuit of profit. downstream ecosystem. Second, we are strengthening the requirements of the reciprocal protection period, which extends our receivable requirements to ensure the equal protection of the agents and the developers. Third, the refund management, we are strengthening the management of the new home sales external Fangjiang Hu channel to achieve the paired management further empowerment and to allocate resources more efficiently to them. We also conduct a rating for the new home projects in order to better organize and allocate our agents to accelerate the sales through of the high quality listing, therefore improving the efficiency. And fourthly, we are enhancing our efforts in ecosystem governance With more than 5,000 cooperating new home projects, you can take in a private phone number protection services. And the more than 4,000 new home projects covered by commitment from both developers and the platform to transparent operations. Overall, with our phone strategic initiatives and a stable market environment, ways that our new home business will achieve more win-win situation, greater safety, and the more dynamic growth in this year.
spk08: Thank you. Thank you. We're approaching the end of the conference call.
spk09: I will now turn the call over to your speaker host today, Ms. Satine Lee, for closing remarks.
spk01: Thank you once again for joining us today. If you have any further questions, please feel free to contact Bay Coast 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.
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