KE Holdings Inc

Hello, ladies and gentlemen. Thank you for standing by for KE Holding, Inc.' 's second quarter 2023 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, 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 Baker's second quarter 2023 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on our 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. Hsu 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. Please apply to this call as we will make forward-looking statements. Please also note that FACA's earnings press release and this conference call include discussions on unaltered gaps, 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 R&E. With that, I will now turn the call over to our chairman and CEO, Mr. Stanley Tung. Please go ahead, Stanley.

Thank you, Siting. Hello, Erwan. Thank you for joining the second quarter 2023 audience conference call. In the first half of the year, our performance improved significantly compared with the same period last year, with 43% year-on-year growth of our total GTV and 51% year-on-year growth of our total revenue. Although the housing market experienced a surge and a subsequent adjustment on a quarterly basis compared to the same period last year, China's real estate and residential market as a whole still demonstrated recovery. In addition, during the market correction, we successfully retained service providers, effectively reduced costs, and raised our efficiencies, all while rapidly expanding our emerging businesses. This combination of initiatives has enabled us to capitalize more effectively on the market rebound and outperform the market. In the first half of this year, for our primary business or home transaction services, we continue to retain our ACN, optimize its ecosystem and refine platform operations while exploring grassroots Indian jobs. This all propels our organic growth. The capabilities of our service providers have also expanded. Our home renovation and furnishing services have gained rapid growth momentum. we constructed the industry-compatible mechanisms to have the good get better and established capabilities in customer acquisition, conversion, project delivery data, products, supply chain, and others. This has led to grassroots in our service quality and scale, as well as the economic performance of our home renovation and furnishing service businesses. While total contract sales in the first half of the year reached 6 billion RMB and total revenue reached 4 billion RMB. Going forward, we expect to replicate our success in leading cities to more areas and gradually establish a virtual cycle across the board. Our rental property management services business has also achieved meaningful development in the second quarter The scale of our carefree rent improved significantly to reach 120,000 units under management and the occupancy rate reached 94.5%. Today's house industry has reached an inflection point in the course of its development. The traditional golden age of real estate was accompanied by its 30 years of reform and opening up. Along with rapid organization and a substantial demographic dividend, as the per capita living area increased, houses have been in short supply, leading to a one-way increase in property prices. Buying a house becomes the core goal of many people in China. In the process, real estate has gradually strayed away from its initial function to provide residential homes. Instead, it has taken on the dual role of an investment asset and a speculative tool. However, all that deviation from their intended cost will return to their original track, and today the industry is reverting to its core value proposition The essential function of real estate is once again serving people with quality living. The true golden age of focusing on people and the living has just begun. On this shift, customer rising demand for better living is far from being fulfilled. In other words, there is a central challenge in today's house market and the foreseeable future. All of the disparities between customer demand for more joyful living and inadequate supply of quality services and products. This contradiction motivates us to climb our next mountain and introduces substantial growth opportunities in our future. Our solution to resolve the supply and demand imbalances includes two essential components, providing joyful living for customers In China, in Chinese, we call it An Ju, and facilitating, fulfilling careers for service providers, which we call Le Yi. In Chinese, this is also a continuation of our mission of admirable services, joyful living. Specifically, we have upgraded our corporate strategy to one body, three wings, a company's by our organizational alignment. This evolution represents the strategic intention and the deepening of a one-body, two-way model with a focus on our customers and a frontline value creation. We have established four business lines, housing transaction services, home renovation and furnishing services, home rental services, and our newest addition, Bei Hao Jia. where we are engaging in new home supply-side upgrades. Each of these teller businesses cutters to customers' residential aspirations and service providers' diverse career aspirations. In the process of providing Joyful Living and G for customers, superior goods and services will see great benefits, whether they relate to the property itself or the provision of a wide range of residential necessities, such as renting, purchasing, trustorship, home renovation and furnishing, and so on. Next, I will go into more detail about how we define good products and services for Joyful Living within the context of our OneBody 3Win strategy. Regarding our OneBody Home Transaction Services businesses, Its value will be more of a virus after market normalizes, enabling more sustainable and healthier development. When identifying the right property becomes more challenging and emotional for customers, service providers must establish trust, emphasizing the importance of building emotional connections around these relationships. Fostering this type of customer relationships will allow service providers the opportunity to provide more value-added services and intended value for communities around Joyful Living. It will also enable consumers to redefine how service providers view and unleash the huge potential of our ACN. We also have significant room. to further enhance customer experience with our home transaction services. On one side, the bargaining power of home buyers continue to rise. On the other side, homeowners are replacing intense demand for quick property sales and exchange. This will inevitably reshape the service dynamics of the brokerage industry and direct the way to better consumer experience in the next phase of industry evolution. Meanwhile, we see room for further value creation in deeper integration with communities and in the evolution of consumers and aesthetics. All these opportunities are allowing our core business to become a key force in joyful living. Next, we come to our first wing business, home renovation and furnishings. At a time when housing endurance is becoming increasingly important, consumers have high expectations for housing improvements. As such, home renovation and furnishings are often top of mind when consumers require a better home endurance. But the pain points for this industry are very clear. To address these pain points, we are moving away from an assembly model and toward a product-centric philosophy that focuses on people. Customers should feel at ease when they undertake renovations, and we can help them through this process. This means providing one-stop services, which removes many of the complications felt by customers. We should also be able to help consumers pursue a better living, for example, In addition to construction and installation, our refined capabilities, facilities, smart homes, maximizing the efficiency of a home's living area, and offering fluid designs that complement customers' preferences. To achieve this, we will continually push industry transformation through digitalization and a complex working process reconstruction to enhance customer endurance, and increased service providers' efficiencies. Our second win is big for rental services. Today, renting is gradually becoming a way of life, with houses are for living, more for speculation. We're shaping the market dynamics that previously favored property sales over rentals. The resonances. between growing rental supply and demand presents a historical opportunity for us to expand our rental services. On the supply side, a substantial portion of Chinese assets is tied to real estate, making preserving and a reasonably appreciating property value crucial to families. More homeowners want their properties to be better cared for, and rental property management services can be streamlined and more convenient. On the demand side, for tenants, we aspire to comprehensively elevate the rental endurance through customer-centric products and services, transforming the concept of renting a house from a transitional compromise to an appealing option. In turn, this can foster a balanced approach between renting and purchasing. We are pleased that our carefree rent has made initial strides in the rental space, and we will keep looking for ways to use our technological platform and operational adventures to create value for the marketplace and society. Moving to our newly added third wing, Bei Hao Jia. The traditional model has been driven by first home buying demand, increased leverage, and attempt to rapidly acquire a house and enjoy asset appreciation. These driving forces are becoming outdated in the market with stabilizing housing prices A new consumer trend is taking shape that prioritizes quality and endurance. As a result, there is increasing evident demand for high-quality housing products. Going forward, market differentiation might come from the difference in the quality of houses being built. This translates to a call for supply-side improvements in the new home market. It's our responsibility and opportunity to heed this call. We will establish capabilities and explore innovative offerings in order to define quality houses based on customer demand, build good products and services, and enable value chain partners to promote the housing industry supply side upgrades. Moving to how we can let service providers have a full, fulfilling, career, . The residential service sector operator operates and resolves around agents and stores. Service providers are our core assets. Investing in their goods and guiding their self-improvement results in a steady increase in our corporate assets. As Real Estate assumes, it's a fundamental purpose of providing a space to live. stores and agents will also shift from scale expansion to optimize efficiency. In this regard, several trends come into view. Firstly, building sustainable relationships based on professionalism and integrity is increasingly crucial for real estate agents. As properties return to the most fundamental residential function, the dynamic between customers and agents change from information-based to trust-based. A knowledgeable and reliable agent becomes more valuable when market transactions slow down and it becomes harder to identify the right property. As such, agents' role and skills must evolve from transaction facilitators to long-lasting community housing service experts. We see many areas of this dynamic where we can help. For example, The operational efficiency of mid-level agents has the potential to be significantly improved. Additionally, there is great room for development in terms of community engagement. Our goal is to support our agents to become the bridges that connect communities with better living conditions in the future. Second, the trend toward a large store model is unquestionable. As more commission might be directed to agents who provide value to customers directly, store owners' profitability might decrease. As such, bigger stores with higher revenue potential are crucial to improving efficiency and realizing greater returns for both stores' owners and agents. To this end, we have consistently pursued a large store strategy since 2022, but end of June, this year, we have effectively restructured over 4,500 stores. Stores on our platform achieved an average efficiency improvement of 80% year-over-year in the first half of this year. Certainly, the light store model fosters a new relationship between our store owners and agents. that goes beyond a mere employee relationship revolving into a partnership or collaboration. Store owners must treat agents as both employees on the management and clients who require support, empowerment, and services. On our end, we need to stimulate creative thinking among store owners in order to benefit from the new trend. With these changes, we hope not only to make timely adjustments, but also to become a trendsetter. We have started by establishing entire rankings infrastructure for stores and agents, as well as standards for both stores and individuals. These are the first step to enhance the management and operational capabilities of the platform and store owners, helping to cultivate a robust agent talent pool. Our continuous efforts encompass similar values, rules, and protocol-based management, training and empowerment programs, certification systems, and establishing a more rational payment distribution structure. Through these initiatives, we can enhance the efficiency of store owners committed to taking good care of service providers and facilitate service provider transformation from taking a job to entering a professional and engaging in fulfilling careers. To close, I'm both energized and awed by the tremendous possibilities and the growing pain I had. As housing industry transformers from high growth to a focus on quality and endurance, we will continue to solidify our core competencies. At the same time, we will have the courage to reform and break new ground, all together creating new values while undertaking historical mission and social responsibilities. We are in the foothills of the next mountain on our quest, and we look forward to the exciting roadmap ahead. Thank you, everyone. I want to invite our CFO, Mr. Xu Tao, to present the financial highlights for the second quarter.